Polen Capital, an investment management firm, published its “Polen Global Growth Fund” second quarter 2022 investor letter – a copy of which can be downloaded here. During the second quarter of 2022, the Global Growth Composite Portfolio (the “Portfolio”) was down -18.08% and -18.34% gross and net of fees, respectively, versus a decline of -15.65% for the MSCI ACWI (the “Index”). Since inception, the Portfolio has compounded at an annualized rate of 11.04% and 10.12%, gross and net of fees, versus 6.88% for the Index. Go over the fund’s top 5 positions to have a glimpse of its finest picks for 2022.
In its Q2 2022 investor letter, Polen Global Growth mentioned Netflix, Inc. (NASDAQ:NFLX) and explained its insights for the company. Founded in 1997, Netflix, Inc. (NASDAQ:NFLX) is a Los Gatos, California-based subscription streaming service and production company with a $106.7 billion market capitalization. Netflix, Inc. (NASDAQ:NFLX) delivered a -60.16% return since the beginning of the year, while its 12-month returns are down by -62.01%. The stock closed at $240.02 per share on October 06, 2022.
Here is what Polen Global Growth has to say about Netflix, Inc. (NASDAQ:NFLX) in its Q2 2022 investor letter:
“After taking a small initial position in Netflix in the first quarter, we liquidated our position during the second quarter. During the first quarter of ownership, Netflix management reported weakerthan-expected new subscriber growth, provided very tempered guidance, and highlighted a host of challenges. Beyond the challenging comparisons from the prior year, which were expected, management noted the economic environment, increasing competition, and higher market penetration. All these factors have made it more challenging for Netflix to add subscribers at the pace expected. Upon initiating a small position, we thought Netflix was in much earlier innings with regard to market penetration given its ~222 million subscriber base versus ~900 million broadband homes ex-China. However, management recently revealed, for the first time, that they have more than 100 million non-paying subscribers and that the more addressable segment of the market is roughly 450 million smart TV homes. While we think a large majority of broadband homes will ultimately become smart TV homes, management noted that smart TV home growth has stalled recently. In short, Netflix is much more penetrated into the immediately addressable market than we thought, and that’s leading to a variety of challenges. Management is now looking to develop strategies to monetize non-paying subscribers and create an ad-supported model, which they have railed against up to this point. Since Netflix reported 1Q22 results, we focused our research on trying to understand
how and when the company plans to monetize non-paying subscribers and roll out an ad-supported streaming subscription. We’ve also done more work to understand the potential growth of the smart TV market going forward. While there are scenarios that could lead to acceptable growth and a decent investment return from the current valuation, we were not able to build the confidence to add to the position. At a roughly 1% weight of the Portfolio, we felt it was an up-or-out decision after the sharp price decline. Given our lack of conviction and an increasing number of more attractive opportunities within our global opportunity set, we decided to exit the position.”
Our calculations show that Netflix, Inc. (NASDAQ:NFLX) ranks 19th on our list of the 30 Most Popular Stocks Among Hedge Funds. Netflix, Inc. (NASDAQ:NFLX) was in 95 hedge fund portfolios at the end of the second quarter of 2022, compared to 109 funds in the previous quarter. Netflix, Inc. (NASDAQ:NFLX) delivered a 26.81% return in the past 3 months.
In October 2022, we also shared another hedge fund’s views on Netflix, Inc. (NASDAQ:NFLX) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q2 page.
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Disclosure: None. This article is originally published at Insider Monkey.
