Netflix is ​​the new Tesla

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Netflix is ​​the new Tesla. On Wall Street, that's it.

Netflix and Tesla have totally different activities. But they have some things in common on Wall Street. One of them is that they are both "hot" stocks. This means that they have a strong customer base among investors driven by the popular themes that underlie both companies – streaming in the case of Netflix and electric cars in the case of Tesla.

That's why the shares of both companies generate high earnings multiples – see Table 1.

Table 1

Evaluation of Tesla and Netflix

Source: Finance.yahoo.com 13/07/2019

Apparently, investors are focusing on the news that reinforces the hype for the theme that underlies the two companies, & nbsp; rather than on their fundamentals.

It was a strategy that worked well for investors who joined the party very early. Both stocks have been among Wall Street top performers over the last decade, well above market averages – see Chart.

But the strategy did not work well for investors who joined the party last year. Both stocks have fallen over the last twelve months, lagging the overall market, which has moved in the opposite direction – see chart.

& nbsp;

Then there is the behavior of prices in the price of the two stocks over the last twelve months. This gives a good idea of ​​how excited investors are losing a lot of money in popular actions by constantly looking for good news to mitigate bad news. Behavioral economists call it confirmation bias – a trend for investors & nbsp; & nbsp; search, interpret, privilege and selectively use the information to confirm their dreams or beliefs about an action they fell in love with.

Confirmation bias is one of many cognitive biases and systematic errors or emotional cerebral commits that can lead to big losses.

That's what happened to investors who bought Tesla shares last summer north of $ 350.

Apparently, they dismissed any information referring to the fundamentals of the company, namely the bottlenecks in production, competition and the reduction of government incentives for electric cars. Instead, they focused on the company's news about future models and futures, which they said would confirm their expectations of Tesla's drive to conquer the world.

Tesla's twelve-month chart shows how much money these investors have lost so far.

Netflix investors who bought their shares at around $ 380 this year may have made the same mistake and lost a lot of money as well.

Bullish investors continue to ignore the fact that the company is losing blockbusters to competitors who are launching their own streaming services. They are also unaware that the Netflix market is getting closer and closer to saturation.

"Competitors are cutting back on content," said Clement Thibault, Senior Analyst at & nbsp; Investing.com. "Now under the tutelage of AT & T, HBO aims to integrate more with the general public and move away from the high-quality niche to compete with Netflix. He has already caught Friends, one of Netflix's most popular shows, in his own HBO Max consumer service that will begin in 2020. "

Add Disney, Amazon and Apple to the list. "Disney is expected to launch its streaming service in November, priced at $ 7 (versus $ 13 for Netflix), and will offer access to Disney-owned content, such as Marvel and Star Wars," adds Thibault. "Of course, Amazon deserves a mention even if it is an" old "competitor. It's also good to know that Apple has revealed that it will soon launch its own Apple TV + streaming service. "

Instead, bullish investors focus on information from the same companies regarding the number of viewers of their own shows. It does not matter the costly and uncertain proposition. "Traditional media companies have vast catalogs of purchased and paid-for film and television properties," said Jeff Yastine, Senior Equity Analyst at Banyan Hill Publishing.. "Netflix lacks this kind of depth and therefore has to spend billions every year to create his own. In the end, Netflix will probably have to buy one or more film companies or other media outlets to buy its own content catalog. "

Thibault agrees. & Nbsp; "Competition puts pressure on Netflix on two fronts – content and costs," says Thibault. & nbsp; "Netflix, as the leading consumer service of its kind, is dominant in the streaming market. Netflix spends billions of dollars maintaining this position, but doubts remain about its ability to do so. "

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Netflix is ​​the new Tesla. On Wall Street, that's it.

Netflix and Tesla have totally different activities. But they have some things in common on Wall Street. One of them is that they are both "hot" stocks. This means that they have a strong customer base among investors driven by the popular themes that underlie both companies – streaming in the case of Netflix and electric cars in the case of Tesla.

That's why the shares of both companies generate high earnings multiples – see Table 1.

Table 1

Evaluation of Tesla and Netflix

Source: Finance.yahoo.com 13/07/2019

Apparently, investors are focusing on the news that reinforces the hype for the theme of the two companies, rather than on their fundamentals.

It was a strategy that worked well for investors who joined the party very early. Both stocks have been among Wall Street top performers over the last decade, well above market averages – see Chart.

But the strategy did not work well for investors who joined the party last year. Both stocks have fallen over the last twelve months, lagging the overall market, which has moved in the opposite direction – see chart.

Then there is the behavior of prices in the price of the two stocks over the last twelve months. This gives a good idea of ​​how excited investors are losing a lot of money in popular actions by constantly looking for good news to mitigate bad news. Behavioral economists call this confirmation bias – a tendency for investors to selectively search for, interpret, privilege and use information to confirm their dreams or beliefs about a title they fell in love with.

Confirmation bias is one of many cognitive biases and systematic errors committed by system 1 or the emotional brain that can lead to large losses.

That's what happened to investors who bought Tesla shares last summer north of $ 350.

Apparently, they dismissed any information referring to the fundamentals of the company, namely the bottlenecks in production, competition and the reduction of government incentives for electric cars. Instead, they focused on the company's news about future models and futures, which they said would confirm their expectations of Tesla's drive to conquer the world.

Tesla's twelve-month chart shows how much money these investors have lost so far.

Netflix investors who bought their shares at around $ 380 this year may have made the same mistake and lost a lot of money as well.

Bullish investors continue to ignore the fact that the company is losing blockbusters to competitors who are launching their own streaming services. They are also unaware that the Netflix market is getting closer and closer to saturation.

"Competitors are cutting back on content," said Clément Thibault, Senior Analyst at Investing.com. "Now under the tutelage of AT & T, HBO aims to integrate more with the general public and move away from the high-quality niche to compete with Netflix. He has already caught Friends, one of Netflix's most popular shows, in his own HBO Max consumer service that will begin in 2020. "

Add Disney, Amazon and Apple to the list. "Disney is expected to launch its streaming service in November, priced at $ 7 (as opposed to $ 13 for Netflix), and offer access to Disney-owned content, such as Marvel and Star Wars," adds Thibault. "Of course, Amazon deserves a mention even if it's an" old "competitor, and it's also good to know that Apple has announced the upcoming launch of its own Apple TV + streaming service."

Instead, bullish investors focus on information from the same companies regarding the number of viewers of their own shows. It does not matter the costly and uncertain proposition. "Traditional media companies have vast catalogs of purchased and paid-for film and television properties," said Jeff Yastine, Senior Equity Analyst at Banyan Hill Publishing.. "Netflix lacks this kind of depth and therefore has to spend billions every year to create his own. In the end, Netflix will probably have to buy one or more film companies or other media outlets to buy its own content catalog. "

Thibault agrees. "Competition is putting pressure on Netflix on two fronts: content and costs," Thibault said. "Netflix, as the leading consumer service of its kind, is dominant in the streaming market. Netflix spends billions of dollars maintaining this position, but doubts remain about its ability to do so. "