Warren Buffett Tilts Holdings Against Netflix, Inc.?
Despite Warren Buffett’s apparent disinterest in the world of online streaming, his holdings show he is positioning himself against Netflix, Inc. (NASDAQ:NFLX). Buffett’s holding company, Berkshire Hathaway Inc. (NYSE:BRK-B), upped its investment into firms that are actively fighting Netflix for digital supremacy.
NFLX stock is a perennial favorite among investors. Having grown by a stunning 394% over the last five years, Netflix established itself as a popular brand on both Wall Street and Main Street.
It’s amazing how quickly binge-watching TV shows and movies became a natural part of our culture. To be sure, “couch potatoes” have always existed, no longer hindered by commercials or cable programming.
People don’t shape their schedules around their favorite television shows anymore. Netflix changed all that. Programming is on demand and accessible by phone, tablet, or computer. The reign of cable TV is at an end.
Warren Buffett knows this and adjusted Berkshire Hathaway’s holdings accordingly. According to his most recent 13-F filing with the Securities and Exchange Commission, the legendary investor trimmed his stake in Viacom, Inc. (NASDAQ:VIAB) to 5.5 million shares.
While that piece of information seems useless, it makes more sense when paired with something Buffett didn’t do. He chose to keep his stake in Twenty-First Century Fox, Inc. (NASDAQ:FOXA) unchanged. He also held onto Berkshire’s shares in Liberty Media Corporation (NASDAQ:LMCA).
Can Buffett Take Down NFLX Stock?
Those two investments, Fox and Liberty Media, are dead giveaways for Buffett’s play on the entertainment industry. Both firms are making serious headway into the online streaming market, albeit in different ways. Anyone holding Netflix stock should pay attention.
Fox is a core investor in Hulu LLC, a streaming service that is currently the biggest threat to Netflix. Hulu’s aggressive content acquisition is showing results. The company has an impressive library of shows and movies that’s built to compete with Netflix.
Hulu’s line-up ranges from new hit shows like Empire to classic sitcoms like Seinfeld. They’re projected to spend roughly $1.5 billion on content acquisition this year, an ambitious spending spree funded by corporate backers.
Meanwhile, Warren Buffett is holding steady on Liberty Media. Liberty is the owner of Horizon TV. Horizon offers streaming in much the same way as Netflix, but they also offer up to 73 channels. You can stream the channels on any device you choose.
Keeping the option to throw on a channel like MTV, CNN, or Discovery is comforting many older consumers that are still adapting to new media.
Netflix Stock Could Take a Hit
Warren Buffett is often called the “Oracle of Omaha” for his near-prescient understanding of the stock market. He has a unique gift at seeing the broad trends of capital flows, while still having an eye for nuance. Buffett knows when a stock is underpriced.
I always wondered why he never moved on Netflix stock. A few years ago the company was trading at a discount, because investors had suddenly turned bearish. CEO Reed Hastings had proposed spinning off one of firm’s divisions as a separate entity.
Netflix’s online streaming was augmented by its home delivery of DVDs, the same division that put Blockbuster LLC out of business. Hastings wanted to split the company, leaving only one trading under the NFLX stock symbol.
The backlash was extreme and set Netflix stock back a long way, but the company’s fundamentals were unchanged. It was the perfect buying opportunity for value investors like Buffett. Yet he was nowhere near Netflix stock.
Carl Icahn loaded up on the stock and made $2.0 billion when he sold NFLX earlier this year. Buffett did not and I finally understand why. He was waiting for the industry to mature. Now that it is, he’s holding his stake in some of Netflix’s biggest rivals.
I just hope holders of NFLX stock are ready for battle with the Oracle of Omaha.