Opinion – Marcos de Vasconcellos: Netflix melts and puts the thesis of investment in technology giants to the test

The thesis that has drawn millions of investors to bet on companies that burn money to gain scale, even before they become profitable, is being severely tested right now.

In the test tube are Netflix stocks. After plummeting in January, with the release of the figures for the last quarter of 2021, well below expectations, the shares melted in the last week, with the release of even worse numbers. In less than a day, the shares fell by 36%.

In short, the streaming giant, which revolutionized the way of consuming television, reached the end of March with 200,000 less subscribers than it had in December of last year – the forecast was to close the period with 2.5 million accounts a year. more.

Come on, about 700,000 subscribers were cut off for being in Russia, in sanctions in response to the Ukraine war. But that wasn’t the part that hurt the most. Even if the Russians are discounted, the positive balance should have been 1.8 million accounts.

And buckle up, investors: for the second quarter, Netflix is ​​already projecting a new deficit, this time of 2 million accounts.

The alarming numbers come at a difficult time for companies that depend on rapid growth, given the rise in interest rates in the US, which makes the state compete with entrepreneurs for investors’ money.

Looking at the stock market in the last six months, of the technology giants called by the acronym Faang (Facebook, Amazon, Apple, Netflix and Google), only Apple performed better than the S&P 500, an index that gathers the main shares of the international market. .

In addition to announcing the end of a possible third US superbubble, as highlighted by the English mega-investor Jeremy Grantham (and commented on here), the latest dip in Netflix shares puts in check one of the main investment theses used when investing in companies. of technology.

This is the thesis called “winner takes all” – “the winner takes all”, in literal translation. Or “to the winner, the potatoes”, in literary translation.

Simply put, the thesis says that, in certain sectors, especially technology, the race must be guided by being the biggest of all and, thus, there will be no room for competition to gain relevance. Forced growth would lead to natural growth.

Companies operating in this type of market are racing to be the biggest, burning cash to buy competitors, expand their marketing campaigns and cement their names in the market. With that, whoever arrives later or doesn’t have the necessary relevance has no chance.

Think Uber, Netflix, iFood. The truth is, you don’t want to install multiple apps to make a price or menu check every time you order a pizza, a car or watch a movie. And this “laziness” moves the market.

In the case of Netflix, the growth of competing platforms such as Amazon Prime Video, HBO Go and the Google Play Store is pushing this investment thesis to the test. The forecast of losing 2 million subscribers in the next three months seems to take the potatoes off the winner’s plate and renew the bets in a contest of competitors.

Facebook (today Meta) is on the eve of its ten-year anniversary on the Stock Exchange. In this way, it achieved the feat of being among the five companies with the highest market value in the world. It went with everything. In the “winner takes all” booklet, he ran over icons like Orkut.

Now, it runs to innovate with the metaverse, to be a pioneer again and bet, once again, that the winner takes all. In Brazil, companies like Nubank, Traders Club and Méliuz are jostling for the leadership of their sectors.

The Netflix movie will give clues about what to expect from the next season of the tech giants.

The chance of them running (burning cash from the cash register) and ending up with no potatoes, yet in the lead, makes their roles seem riskier at this point.

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