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Arif Karim

lines on the record: 74
first: 2025-04-04
most recent: 2025-04-04
sittings or episodes: 1
sources: podcast

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“I'm a bit of a free agent right now, and so they can find me on LinkedIn. I'm happy to connect and discuss. I'm working on my next venture, but one that I can't talk about yet. But yeah, we'd love to connect with anybody that's interested.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“That I used to not take as seriously, but I do very much so today is the probability, the team, the people can execute on the plan. That's super hard. A lot of companies can't do that. And so identifying the management team is that can drive the company and inspire the people to achieve the execution goals that they have to get those numbers. Those were the three drivers of valuation generally”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“First time that the content business is a global scale business. We've not seen that before. It's even regional in scale. And so you can look at Google's margins. You can look at Meta's margins. And of course, they have different business models in terms of content. They don't really pay for their content, right? And here you're paying for it. So there's like all sorts of nuances that go into it. But the short answer is it's a target. But the key levers the content are what kind of growth do you expect over the next 10 years? What kind of margins do you expect? If you look at Netflix in 2015, I'm just making this up like a 10% operating margin. If you assume it's 10% forever, then it's expensive at 35 times, right? But if you are able to deduce that maybe those margins will go up to 25% or 30%, well, then you can kind of normalize that 30% today to get a better sense for what that normalized valuation might look like, right? So it's scaled. It's acceptable. So it's margins, it's growth. And then to me, the third important thing.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Years out in my valuation work, you had to guess what will Netflix's operating margins look like 10 years out? I think at the time it was maybe 10%, will it be 10% going forward? Will it be 20, 30, 40, 50? I don't know, right? One thing we do is look at media companies at the time 2015 today, 2015, you look at media companies, their operating margins were in the high 20s, roughly maybe low 30s for Disney perhaps. They were probably the most profitable one at the time. And so you had some idea that, well, if this is a good business, which I think it could be, then operating margins could look like this. Turns out that's kind of how it played out over the last 10 years, where now Netflix management says that they printed 27% margin like last year. And they talk about growing their margins 2% a year roughly for several years longer. And I sort of had them going to roughly 35% operating margins, right? So it's possible that because it's a global scale business that they might even exceed that.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Advertise it, depreciate it already is essentially 100% margin revenue, like hundreds of millions of dollars at 100% margin. It's really hard to say no to, right? Even though you're feeding the devil that's going to destroy you potentially in the future, right? So if you look at Netflix at that time, the valuation looked expensive because it was investing in the income statement was in building out that global network. So remember they're deploying servers, they're partnering, they're creating content for new markets that aren't really revenue generating that revenue because this is one of the things where you have to build it first, then you get attraction from consumers to your service because the product is the content. So I have to make Korean content for most Koreans that subscribe to me. It'll take me a few years to do that, to build enough content for Korea to make it attractive or Japan or Germany or whatever it is, right? And so there's a bit of a faith in the process. There's a bit of a guessing game. Another piece of it is when I was looking”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“In the media, that they were asking for 10 times as much. They're asked for $250 million Content would be to Netflix for its own streaming business to grow. And so it was at that point in roughly 2011 that Netflix really understood that they need to build their own content and they started to do that. So if you have built out catalog that you license, it's ready to go, right? So you just kind of deploy it like right away. So I'm paying, but I'm also deploying. I'm earning revenue off of it. But if you're creating content, you invest up front. The content takes a couple years to make and then you deploy it, right? So you get this big imbalance between your revenue coming in for content and the amount you need to invest for the content that you will have in two years to support that revenue. And so that's something that Netflix went through. And now we're at the point where like if you look at their amortization, which is kind of expensive of content, it's half licensed, half their own. And the reason why media companies didn't cut off Netflix is because this was old content that were licensed to Netflix.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“To its distribution service, the consumer. It was a distribution company at the time. If you lose product, you've got nothing to distribute, right? So there goes the value of the company. And so it definitely was at a little bit of a precarious situation at the time where it hadn't quite built the moat that we see today. And in order to do that, they rightfully had to start creating their own content so they wouldn't be dependent on just licensing content from media companies. One interesting thing that happened was in 2009 or 10, their first licensing deal for streaming was with stars. Netflix had roughly 9 million DVD rental subscribers. They initially gave the streaming subscription for free, like as part of that DVD subscription, but they licensed content from stars for 25 million dollars. I think it was two-year deal. Two years later, they had 21 million subscribers. And so when they went back to stars, they licensed the content again. I don't know exactly what Stars was asking, but they were asking something really unreasonable. Rumor had it.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Netflix was doing was investing in their business. While there are companies that invest through their income statement, I don't think Netflix necessarily fit that precisely. They were investing a lot on their balance sheet to build up this content scale. And the reason is because they understood that at that time, they didn't have much of a moat. Like they had grown to roughly, I think it was 50 million subscribers, maybe 40, 50 million subscribers. But that wasn't enough for them to fend off Disney overnight saying, you know what, we're going to be a streaming company because Disney's brand was really well known. Their content catalog is really popular. And by licensing content from a bunch of legacy media companies to create the product, they would then sell to consumers with cartoon service. Netflix was vulnerable in the sense that if those media companies woke up and said, okay, you know what, we're refused to license content to you. All of a sudden the product content is the product. The product that Netflix fell.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“So, as a point in time, let's just take 10 years from now, right? If you were back in 10 years from, say, 2015, let's say for Netflix, I think it's a good example, go back to 2015. At the time, Netflix was roughly three years into its streaming business, right? It made that transition 2012, being streaming first, 2015 was three years into that business. I don't know if there were gap net loss, it probably were, but I can't remember. But they definitely were free cash flow negative. They were free cash flow negative because they were investing all this money in content, right? And a big piece of what they were investing was in licenses from other media companies, right? And so to this person's point that made the point that, you know, it's hard to tell how this would work if they were having to invest so much money into content, I think she was absolutely right in viewing it that way. But at that time, and this is roughly the time that I started looking at Netflix for their streaming business and what implications it would have for the media industry.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“A really great question and a really great point you make. It's something that's taken me 20 years to figure out honestly. It's not an easy thing to do. A big part of it is stepping back and thinking about what valuation actually means, right? So what valuation indicates is, and we touched upon when we were just discussing, it's what the market's expectations are about what the future cash flow of the company will generate.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Your earnings, the farther out you go, the more that discount hits with an exponential component. And so effectively when you look at market valuations, you're talking about a 30, 35 year type of time horizon on free cash flows contributing to the majority of the valuation that we see today. That's the theory of it, how often that actually works in practice. Question mark, but it's one way to look at it and it makes a lot of sense in a lot of ways. So having said that, I think the market thinks that Ferrari can grow 10% a year roughly for the next 20 years, let's say. And it's comfortable with that. And that's kind of what the valuation is reflecting.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“To me, if they could get to, let's say, 50% Bitcoin margin kind of hold there. And I think the valuation we're seeing incorporates some expectation of kind of 10% dish growth indefinitely. And by that, I mean, like call it 10% indefinitely and margin expansion towards somewhere in the 45 to 50% range is my guess, right? In that context of valuation makes a lot of sense. So valuations in theory are set by this discounted cash flow model, right? It's basically thinking about the value of future earnings that the company creates and then you discount it back to today because the theory is that future earnings are worth less than earnings today, right? $100 today is worth more than $100 in five years. And so you need to apply a discount. And typically the way we think about what the discount should be is the average rate that the Scott market has returned, which is roughly 9, 10%, risk. And so if you discount back”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“It's like not very much, it's a reasonable way to kind of model how this grows. I think the part that's been super surprising to most people and not super surprising to me is the pace at which their profitability has increased. And so they went from roughly 25, 26% EBITDA margins in 2016, roughly 40 today. And the question is, how much higher are you going to go? Can we get to 45? Can it go to 50? Can it go to 60? What's the limit? And I think that's where there's a big question mark on how premium its valuation should be. And the market, I think, wrestles with that. Because at the end of the day, it's a purely discretionary product. The company basically decides what their margin is going to be. And then prices their car in that way, right? And so far, we've seen no pushback. So for as long as the product and the brand are relevant and desirable, I think it wouldn't be surprising.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“But to your point, they've got a very strong brand which has given them the luxury of driving their prices up as well as the number of units up. So if you look at that 10, 12% growth roughly, I think roughly half comes from unit growth and half comes from pricing growth. Valuation is always a function of what expectations are embedded in the future of a company. And so I think it's reasonable to think that Ferrari can grow its units at a low single digit percentage number, which is roughly in line with the rate of growth of their customer base, right? And then with pricing, similarly, you talked about, on average, their customer's wealth growing in the 5 to 10% range. I think pricing can grow at that range. So the point of that being that to think of like a 10%ish plus or minus a little bit growth rate almost indefinitely at the state of Ferrari is at with some 14,000 cars a year.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“I think Ferrari's valuation, the ways the same way I do all the companies that I've owned, and that is, you know, just based on the future value of cash flows that it can bring. And that forecasting is always a little tricky, right? Because the future is un”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“2035 only electric cars will be sold. This was in Europe, California as well. We'll see if that holds. I think that's part of the motivation for trying to develop pure EV cars as well is to hedge for that situation. But having said that, EVs are not like this critical thing for Ferrari because they will decide based on customer feedback what the balance will be between the different types of fuels that are used.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“And then Porsche also came out with the Typhon, which is a EV four-door EV that was launched five years ago, roughly, and initially did really, really well, actually. They were selling something on the order of 40,000 units a year and a price point of, I think ASPs, my guess would be roughly 120, 140, 20, 140,000 dollars. More recently, there's been some issues with demand around that, which has some stuff to deal with. Part of the issues that these tycons had very low range. They were like in the 200 mile range, which is on the low end of practical. So that might be part of the issue there. They've improved that range with the latest model Tycons. But we'll see what Ferrari is. I mean, at the end of the day, the value add that Ferrari brings to their customers is an experience. The sound is a part of that. And so that you have to decide as a customer how important that part of the experience is to you. And then third is just the brand and the status that brings to you, right? So there's places that have mandates by”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Party experience is performance. It's the performance characteristic of these cars. It's just incredible. In fact, what's really interesting is that the last hypercard, the La Ferrari, was actually a hybrid as well. No one talks about it, but it was. The question of whether an EV that they're going to launch later this year in 2025, how successful that might be, I think is a bit of a question mark, but Ferrari has a very close relationship with their customers. And so they got and pulled them and figure out what their customers might want. Having said that, Ferrari has made it very clear that at the end of the day, they're making ice cars, they're making hybrid cars, and we make EV cars, and they're going to let the customers decide kind of where they fall in their just as an aside, there's a newish company that kind of launched the EV supercar model called Remac, which is now partially owned by Porsche. But I mean, they've had amazing supercars come out. These cars like 0 to 60 in stubbed two seconds. They're just a crazy, incredible cars.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Good question. I think nobody really knows. And maybe Ferrari might have some inkling on this. So several ways to attack that question, I guess, right? One is I think it's well understood that younger cohorts of people have different preferences than older cohorts of people. I think the number is the average age of Herrari owner is 55. I think it's been coming down. And the reason why it's been coming down is they've released hybrid models. So they released the SF90 roughly four or five years ago. And then the 296 GPS and GTB a couple years ago. Those are both hybrid models. And there was a lot of nervousness about how those would be received in the market, but they did just fine. Both sold out their productions. Both proved that Ferrari was able to basically improve efficiency while enhancing performance with that hybrid system, right? So that's the key sell with Ferrari.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Whether higher volume units, similarly to the SF90, that type of car hadn't really existed before, and they came in at 550, I think roughly miscomed that came in. So you can see that in pushing pricing up faster in the last five years, which I think has been the right strategy. Now, you don't know where the threshold is, but what you would know, they're pushing on a threshold with customers that accept as fair pricing for them if orders start to come in, like that order backlog came in. I mean, at this point, we're looking at 24-month type backlogs, right? So it shows you just how durable they're positioning is in terms of demand. They're now, by the way, at 40% EBITDA margins, which is pretty incredible from like roughly 25-ish, you know, when they went public.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Something for it. I was like, well, at the end of the day, you're doing them a disservice by not pricing high enough because it kind of rewards them for their status, which is why they're buying for many of them. But at the same time, it also increased the frustration amongst potential customers who can afford one, but KO ham one. You don't want that situation either. I don't know if it was my, and then I've written, I blogged about it too, that issue, the pricing issue before. But as it turns out, the last five years, you can see that they've been following kind of that playbook where prices have risen dramatically as they've rolled out new models and slotted in new models at higher ASPs as well. Whether you look at the Purasangwei, the SUV that went on sale, I think it was the end of 2023 that was sold out to 2025 and now into 2026, that there were estimates all over the place. I thought it'd be somewhere around $500,000, and that's kind of where they came out. But that was a new entry point for what they call a range model, which is non-exclusive, right?”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“So it's been very resilient in part because of the way their model works. You have to understand you could have 10 customers cancel orders for one of the higher ranking, more elite cars. And there's probably 20, 30, 50 more waiting take their place. And that's kind of the way they manage their business, right? What's really interesting too is if you look at pricing, I did this analysis. It was at the end of 2023 where I went back and looked five years prior from 2018 to 2023 the average selling price of a Ferrari went up by 100,000 euro from roughly 300,000 to about 400,000. They had raised their average selling price by 30%. What's interesting is back in 2018 when I visited the company and I had this thesis in mind about them not being aggressive enough and raising pricing and it was a disservice to their customer. I had this conversation with the marketing head of marketing there Enrico Gallieri and he was like well you know you can't just raise price land customers you have to give”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Was like my reputation is tarnished because I won't sell me this one and a half million dollar car. I deserve this. So that kind of dynamic, you start to understand kind of the way for his business model can be impervious to short-term economic fluctuations. And so the supply demand imbalance increases as you go up the hierarchy of cars. And so to the extent that there's a slowdown, you would expect to see that at the very bottom, the entry-level cars. Interesting for Ferrari, going into 2023, they had already saw that their 2023 production and well into 2024. And on their earnings calls, analysts would ask them what the cancellation rates were, you know, were they increasing, questions like that to kind of understand the resilience of Ferrari's order books in that period because we were observing other luxury companies.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“The short answer as far as then great, let's slow down. In part because of their business model, right? So they take orders for their car as well in advance of shipment. There's a tiering system within Ferrari, right? Like the entry-level Ferrari is that now cost something like $350,000 have the most units to be sold. Like four or five models that are kind of that entry level segment, which is sort of in the 300, 350,000 dollar range. There you're going to have kind of the most variability from an economic perspective. But as you go up the hierarchy to the more exclusive models, you have the least variability because exactly that customer story I relayed, right? Where that customer is a collector, you have to purchase several Ferraris to be invited to buy this very exclusive car. It brings a lot of status to you as well. There's a customer in Florida who sued for Ferrari because he was dropped from their list to buy a la Ferrari, which is like a one and a half million dollar car, right? And so”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Private event, right? And he actually had a Ferrari, I think it was FXX, which is like a trap-only car that's Ferrari had like organized to bring to the track for him to drive on the track. I mean, this is all an experiential thing. And of course, you have lunch and we have dinner. And in the process, you're meeting other peers of yours from around the world who are passionate about cars, but also successful, wealthy. And it's like, at the end of the day, if you make these connections and you get one deal done during the event, you've paid for your car, right? Kind of thing. So it's a really interesting way to think about it and it really broadened my view of kind of what it means to be a Ferrari owner and a member of this basically it's like a global scale country club, right? The most elite, wealthy people kind of thing. And so I think that club aspect here, that network aspect is also really important when it comes to driving the value of Ferrari. It's not just the piece of art in motion that you're collecting.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Signed on the dotted line. I'm getting one of these. And what was really intriguing to me was that I'm pretty sure he didn't know exactly how much it was going to cost. None of us did, right? And so we knew it was going to be on the order about like a million dollars. But the point of it was that it didn't matter what the car cost to him. It was that he had to have it. And he also knew that once it landed his driver was going to be worth more. So it's a no-brainer, right? And thirdly, if you're invited to this kind of a event, the invitation is associated with an invitation to buy the car as well. If you don't sign on the dotted line, maybe you don't get invited again next time, right? Somebody else does because that's the whole point, right? It's a show and tell. And so it really brought home to me this idea of like just how special these cars were conversation. He says to me, oh, tomorrow I'm going to Barcelona for this track that Ferrari had hired for these customers that want to go to Barcelona and go race around the track at a park.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Some of their investors in Wall Street analysts to come to this customer event in 2018. And so they had the premier launch, we kind of experienced what these customers experienced when they have this premiere. It's a big show. They brought on the SP1 and the SP2. Then they had a reception where the cars were sitting on the floor. Everyone can go look at them, take photos of them, go sit in the car. But in the meantime, you know, you're online, you're waiting for your turn, and you talk to customers, right? And so I talk to a number of customers, but there's one customer especially like really stuck in my head as kind of the iconic customer, right? Like we're just having casual conversations. We're waiting online. And he was probably, I'm 5'5". He's like 6'3". He was probably in his 60s. We were watching someone in front of us get into the car. You have to kind of contort yourself to get out of the car, get in the car. And Simon was like, oh, so what do you think of the car? He's like, oh, yeah, I love this. This is beautiful. I was like, so do you think you might want to order one of these? And he goes, I've always”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“It was kind of an eye-opening moment for me because, you know, in my first year that we owned Ferrari, I had done this financial analysis and we had this thesis. We went to this customer event that was tied into an analyst event that Ferrari hosted its first Investor Day meeting in 2018. And they had this stuff for event there where their best customers were invited to come see the launch, the premiere of the first of their, what they call the Icona line of limited cars. So they used to just have these hypercars like La Ferrari, the Enzo, the F50, F40 that would come once every decade, roughly. Super exclusive and only reserved for their best customers, right? So passionate Ferrari collectors also want to be the best customers because they want to be invited to buy these highly exclusive, very limited production vehicles from Ferrari. So Ferrari launched this new line kind of in the vein of the hypercars called Econa line. You know, these cars cost millions of dollars. They invited...”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Come on tough times. All your stakeholders are so intricately tied to you and have such goodwill towards you if they're willing to pull much, much harder for you to get you through that tough period and keep you winning. And it also kind of disengages in a very natural way your competitors, right? Because your customers are really happy with you. There's not really a reason for them to go look at your competitors or even pay much attention to your competitors so long as you're providing what they think is the best solution for them, the best value, however it is that you create this winning situation for your customers. One thing just to end with during the COVID shutdown period is like when you look at how and the reopening, how Ferrari treated employees, it was pretty amazing actually what they did to take care of their employees, their health, their family's health actually. It's a phenomenal business. And the culture there, I think, really espouses this win-win-win model, which is exactly the kind of company that I think you're more likely to win with as a shareholder.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“And the best companies are those where all the stakeholders that are interacting with the company all feel like winners, right? And how do you get that? When we think about companies and the way they deal with suppliers, for example, like a Walmart or somebody, they're just like pounding on their suppliers to get the pricing down, right? It's not fun to be a supplier at Walmart. But the best ones are where, you know, I have several customers. One customer suits me so well, right? Like they create so much value with their product. It makes so much profit that they have enough to share and encourage me to work more closely with them, encourage me to give them the best product and supply. The other company that reminds me of is the Whole Foods in the past when they're building the company, they would pay the highest to the farmers the longer they could get the best of their supply for their customers. And so it's this win-win-win kind of system where, and that means that when you”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Frustrating customers too, which is the wrong thing to do. The right thing to do is to keep your customers wanting the product in an aspirational way. And the way you do that, I thought, is to increase your pricing substantially, right? Because now it's no longer, I can afford to have this, but I can't have it. It's like, oh, I can't afford to have it, but I'm going to get there someday, right? And the byproduct of that is that they had to grow their pricing faculty, 10% a year. Of course, that makes their customers that can afford it feel even better about themselves, right? It's a status product, right? It drives the value of the product up and kind of a byproduct is that it really helps shareholders a lot because your profit margins go up. It was actually the first time that I had this idea of the ideal company as being this win-win-win model. And it was the first company as an investor as I thought through it. I noticed the business that the idea sort of solidified for me, which is that there is an ecosystem around every company, right?”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Almost incumbent on them to grow their pricing 5 to 10% a year on average because the wealth of their customers was growing at that rate. We think about their customers, they usually tied to a business whose equity value is growing or the equity markets that grow seven to 10% a year on average, right? So you could see how they're limiting supply, but in general, the number of people who could afford a Ferrari is growing. If you have limited supply and the number of people that can buy your product is growing and they're aspiring to your product, but you end up being on a wait list that's extending and extending and extending, that's a form of a frustration. That's not aspiration, right? The ideal way to manage a luxury brand is to be the aspirational thing. I can get to it once I get to a goal of some kind or a certain level of well, whatever the metric is, right, for aspirational. With Ferrari, I felt like they were both underpricing their products in the way they were growing pricing. But secondarily, they were”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Who is the CEO of Fiat, whose decision it was to spin this out? And I call it a rough diving because when you looked at the numbers, it was like pretty compelling. But he was talking about giving clues to the margins improving more towards Hermes' levels. I noticed that they had grown units like two, three, four percent a year on average in the past. Pricing grew three to four percent. So as I took all this in and understood what they were trying to do and this idea of exclusivity where you had this supply demand mismatch.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“What you owned, right? Which is a huge impact on your psyche, potentially your ability to spend or desire to spend. And that just hooked me. I was like, okay, I got to understand what's going on here. This is totally surprising and not what I would expect. I would expect to see 30% decline in our sales, right? And so then I started looking at the company. And what I realized was that it's a phenomenal business. And this goes to your point of luxury in general is a phenomenal business. So with Ferrari in particular, the story was really interesting to me. They were building 7,000 cars a year at the time, roughly, right? 7,000 cars. That's peanuts. There's not that many cars to sell, which kind of explains why they didn't have to cut back their production very much or their shipments or clients, because there's way more than 7,000 people that can afford to buy for our even in recessions. I mean, people make money in recessions too, like certain. It just changes who makes money. One of the clues to me about this was this chart, which led me to look at Sergio Mark.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Serendipity kind of plays a role in certain things, but I saw this chart and it just really struck out with me. And the chart was revenue for in 2009 during the financial crisis, revenue growth rate in that year for Ferrari compared to other luxury car companies and normal car companies. And we had a separate chart with Ferrari's revenue growth versus other luxury brand companies. What I remember was that in 2009, Ferrari's revenue was down 7% in units were down like 4%. Here is a purely discretionary product. You don't need a Ferrari, right? I mean, maybe some of us do, but very few of us need a Ferrari. And the customer base is the customer base that was pounded in 2009, right? Like talk about like your wealth, your confidence. Like you saw your wealth fall anywhere from 30% to 70%, you know, depending on who you were.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's a good name, man. You kind of hit it on the head. I've always been a far fan since my teenage years. But in general, I always have a perception that this is a fan of something that sent me as a good investment, right? And I remember when for our USweep part of Fiat, which has a whole bunch of normal car brands in Europe. And so it was kind of this rough diamond inside those car company. And Fiat got no credit in its valuation for owning Ferrari. There was a little spinoff that happened in 2015, 2016. And I remember hearing about it. And, you know, DiModeron, the professor from NYU, did a little analysis of it. And I think his conclusion was it was overvalued. And I sort of peripherally had heard that. Now, see, I respect him. I think he's a good valuation guy. But at some point, I saw, I think it was 2016, I saw a Morningstar research report on Ferrari. And so just like Curiosity, I was flipping through it. And I saw this chart. And it's really interesting how, you know,”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“I think then you will know they've basically their capstone domination moment, right? Of like, oh, the question that you're asking.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“It'll be places where it's not shown. So NFL is huge in America, but it's not very big in Germany. I don't know. I'm just guessing, right? And so you can see a thing where maybe Netflix can't afford or doesn't find the economically compelling to license the NFL for America, but maybe they license it for live broadcast in other parts of the world and helps NFL grow its franchise in the rest of the world, just like it did with Formula One. So I think we're going to see partnerships like that. And to your point, like secondary sports, you know, sort of second tier sports like the fight with Mike Tyson and Jake Paul. It was a special event or the niche sort of NFL on Christmas, which apparently was a big success for them, right? You're starting to see them experiment with some of this stuff, but I could see them bringing, I mean, they've already licensed a deal with WWE, bringing that to the world basically on a live basis. So, you know, could they do something UFC perhaps? But I could also see them do something with NBA or NFL or Premier League soccer. To me, Camilla soccer is the one that's the most interesting. When they license Premier League soccer games, they globally distribute it.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Formula One season, but it's kind of the story behind the teams, the rivalry between teams. It's all super interesting and fun to watch, but then it triggers your interest in Formula One too, the racing, right? And so Formula One is a separate company that works with Netflix to develop this show. And Formula One has definitely gotten a lot more interest. I mean, now in the US, we have the Miami Grand Prix. We've got the Las Vegas Grand Prix. The number of people watching Formula One in the US has increased. And we, of course, are the largest advertising market in the world. Traditionally, live sports. the big source of revenue has come from advertising, right? And so we've seen this complementarity or symbiotic relationship between live sports publishers, I guess you could say, whether there's Formula One or NFL or NHL, and Netflix, which brings a story. But at some point, you could see Netflix then getting to the scale where they can cut a deal with these guys to license the programs, the live sports programming for internet.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“I think at the end of the day, Netflix does want to be kind of your baseline video entertainment. And at some point, gaming entertainment. But for now, the video entertainment baseline subscription that you have. And so in order to do that, you need to do a whole host of things. You mentioned earlier that they spent $17 billion on content every year, right? That's a lot. But when you think about the scale that they're attacking, right, you're bringing content to the world, right? And so there's eight billion people in the world. They have varying tastes and what kind of content they want to watch. Some like highbrow content, some like low, some like movies, some like series, some like it in one language, others like another. They did a phenomenal job of getting content from around the world. Like nobody else has been has done this yet. Something I've wanted to look up and I don't know if it's publicly available or not is what percentage of their”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“But it's kind of lumpy. I've noticed that in my history in the past every quarter that there was the Olympics or the World Cup or this big event, there'd be this dip, you know, almost like clockwork, this dip in the number of subscribers. Again, because people are busy watching the World Cup, right? Or whatever it is, right? And the stock would like be down 10 or 15% or something like that. People would freak out about it. At the end of the day, the way I think about the business is the value they provide, how they increase that value to the customer, and how willing the customer is willing to pay for that value right over time.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Numbers to track. But as far as input goes, now we won't know how much of the revenue growth is subscribers versus ARPU, which is average revenue per unit per month, which is a combination of people paying subscription fees and advertising. My hunch is that they will tell us certain milestones. So we want to get to 350 million or 400 million subscribers. They'll put out a press release about that. We don't know when that's going to happen, but we're not going to have quarterly numbers. On the one hand, I think that's kind of a good thing because at the end of the day you want to get off this treadmill of just focusing on a number of subscribers because now you can actually start to monetize your customer base in different ways. And that's what we're seeing. But on the other hand, also from a skeptical perspective, it also makes me think, well, maybe they know something I know about how much of their borrowers had flipped. And my own expectation is that there's still room to grow subscriber numbers, something on the order of 20 million per year for a number of years plus or minus.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“On we're subscribing to the advertising service, right? To the cheaper price plan. We think that it will be around the same similar sort of economics as kind of the standard plan of $18 a month kind of thing when all is said and done. And the company just talked about getting to that advertising scale this year is when they actually have the scale in the number of viewers watching that advertisers are interested in investing lots of money into with Netflix on the advertising front. Going forward, There's an implication to the borrowers that have converted, right? Like we don't know how many more borrowers are left to convert into subscribers. What's really interesting is Q3 of last year, management said they're no longer going to share subscriber numbers on a quarterly basis and that they want us as investors and Wall Street analysts to track their progress based on revenue growth, profitability growth, and free cash flow, which truly are the right output.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“There's one more point, if you don't mind. On the topic of the password borrower is becoming subscribers, and that's been super successful from what we can tell. So in 2022, they had roughly flat growth, right? They shrank a little bit the first half and they kind of recaptured it in the second half. 23, we saw accelerating growth, where I think they added 21 million subscribers or something like that. But I know last year in 2024, they added a record number of subscribers. They added 41 million subscribers. So think about that. The market in 2022 was saying this is dead. It's not going to grow anymore. And yet in 2024, just two years later, they're able to pull the levers they do to grow 41 million, a record number of subscribers, which is incredible. But he said that, part of that, and we don't know how much of it, is the conversion of borrowers into paying viewers, helped by advertising, right? Last year, the number was 55% of new signers.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“12 countries. They talked about kind of this fall run walk model that they talked about in building a new ads service basically. The ad service subsidized the user, but the ad service really is about the advertisers, right? They have to build out this whole infrastructure, initially a partner with Microsoft, but they've been building out their own service prior to 2022. They also started rolling out gaming as a free add-on. But again, another way to kind of take more of your time for entertainment services, come to Netflix and use their content, whether video, gaming, and over time then be able to charge you more for it, right? As you see more value out of it. But all those things are, they call it frawl walk, run. I call it experiment learn scale, right? That's really what it's doing. And so these are all great examples of how Netflix's culture is able to increasingly scale the type of value that brings.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“And then the second piece of it was how is that business able to share in that value, right? So, what can they collect to generate returns on the business? And different businesses have different strategies on how they attack that problem, right? In a way that ultimately you want your customers to love your product or service. You want them to feel like they're getting more than what they're paying for. So in my mind, that's the best way to generate loyalty amongst your customers is when they feel like they're getting such a deal from you, right? Where I get so much value that I don't mind paying you this much. And what Netflix has done is over time they've increased the value of their service, more content, more variety, et cetera, and then charged a little bit more kind of face that value along the way they're frank to their customers. I think it's a great way to model a business and build a business that has durability to it. I think the other piece of it is that it speaks to kind of ingenuity that Netflix has. So one of the things they do, when they rolled out that advertising plan, I think it was across like”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“People to switch over from borrowing a password to paying for their own service. They also rolled out another aspect of the service, I guess, where if you wanted to continue borrowing a password, well, the person sharing that password. Pay for you, they could pay something for you. So if you're a parent with a college student, It's like me, if it was me subscribing”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“The world that were Sharing the borrowing passwords. And so there was a market there, an untapped market of. People that are getting valued from the service but aren't paying for it. And the question is, how do you get them to pay for it? I mean, everyone assumes that people borrow passwords for economic reasons, but that's not necessarily true, right? Sometimes it's just convenience. Sometimes it's like, you know, oh, hey, we're family. So, I mean, yeah, right. One person in the family pays a subscription, why not, you know, just all kind of share in it. There's like non economical reasons why people do this kind of stuff, right? And so the way you find out how this all plays out is by restricting password sharing. And then you'll see how it plays out. I think it was very smart for Netflix to come out with a cheaper plan to make it easy.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“I thought it would be about like $2.99. I think it would be free. It could be free, but I think it'd be free. They came out at $6.99 at the time. I think it just took their price up to $7.99. Interestingly, it was around the time that one of the co-founders of Netflix, Reed Hastings, who had been CEO, stepped back. And he had in the past adamantly not been a fan of bringing advertising to Netflix. And under new leadership, and he blessed them and all. And he admitted that, you know, maybe he was too stubborn about the advertising piece. under the new co-CEOs Greg Peters and Tits Randas, they decided to move forward with an ad plan. There were several things they had to develop here And this is one of the things just for context, Netflix, when they talked about bringing their ad planner just in password sharing talk about 100 million.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Which subsidizes the plan that they offer to their customers. And so we thought Netflix would be able to generate at least $10 as it rolled out the ad plan and figured its way through how to build that business over time. What's interesting is that Netflix engagement is on the order of two hours a day per subscriber. And that's higher than anybody else. And so, again, it gives you a sense for like, oh, if Hulu can generate 10 bucks, maybe Netflix can generate more because their engagement is higher, right? And then the question was what would they charge that service? It could be”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT