YouSaid · the spoken record

Arif Karim

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

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“They started talking about restricting password sharing concurrently with coming out with a lower price. Not only has specified how low a price. So they just said an advertising driven subscription plan as well, which presumably would be lower price, potentially free, right? Because one of the things we knew was that Hulu, which had on the order of 40 to 50 million subscribers. Most of their subscribers are on an ad subsidized plan. And so you pay a cheaper plan per month and they were generating something like $10 per subscriber per month. We knew it was about $10 of revenue that Hulu was able to generate per subscriber every month.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's really interesting. And to your point, the catalyst was that slowdown in subscribers in 2022, right? And I mentioned that we had faith in management in the sense that it's a management team that's gone through challenging periods before. And that culture of ingenuity and adaptation is a really strong set of characteristics that permeates the culture. And so one of the things we knew going in, and we'd been following Netflix for a long time. So I had the sense that something like 20 or 30 percent of the total viewers on Netflix are people such as yourself and myself, honestly, that were sharing a password with their parents or their sister or their brother or their friend or whatever, right? And so we knew that that was the historically something that Netflix kind of encouraged, actually, to drive virality of the service. Once you start watching the content, at some point, if they were to turn the switch off, you'd be willing to pay for it because they'd already demonstrated the value to you, right? As being a habitual viewer of their content. In 2020,”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Mind about that as well. I'd be open to reassessing your position. In this case, we held on, we even bought more stock on the way down. But certainly there's other instances in the past where things didn't play out as we would have liked. And in the process, in our reassessment during tough times, we had come to the conclusion that we had to sell because this was a more permanent thing that we hadn't seen. So this case, things turned out well, but that's not always the case, of course.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Its estimation of again what growth is going to be like in the future and what ultimately profit margins look like, which would change how the stock is valued. And at the end of the day, that's what you have to do, right? For me personally, kind of as I think about it, there's lessons learned there, right? I mean, obviously your position sizing has to be in a place where you can comfortably tolerate large changes in valuation that you may not expect to see. But the other is that the amount of conviction that you have and understanding you have about a business plays a big role in how you deal with these tough times. On the one hand, with Netflix, we had a lot of conviction. We understood the drivers. We assessed all the reasons why growth was stalled and what was a permanent reason, like maturation of penetration was a permanent reason why growth was stalled versus temporary reasons. But also, it's one thing to have conviction in your research and the business. But on the other hand, there's a lot of unknowable things in the world that happen, right? So you have to have an open”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Confidence in the management team. We knew that there are levers that they had that they could pull over time. The other thing at the time actually that was also a risk, and we had thought about this, was there was a lot of talk about recession. 95% economists thought there was a recession coming in 2022, right? Because interest rates were going up, inflation was high. That was the other thing in Latin America. There was a stall in growth because inflation was much higher than it was here. Netflix was raising prices like 15, 20% to keep up with inflation in Latin America, right? There were all these different things happening at the time that were most likely to be temporary things that would normalize over time. We didn't know exactly when, but that was the bet we were making. But on a sort of fundamental basis, we thought that the value that Netflix was creating hadn't changed, the market penetration was still low enough that growth could resume again. And we knew that if we were right about that, that the market would reassess.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Is that number that's kind of unknowable? But we figure that Amia would probably look something like the US in terms of maturity penetration and hadn't reached there in Amia at that point. And there was a sudden drop off in early 2022 in growth in EMEA. To us, the obvious answer was not competition. It was the Ukrainian Russian invasion of Ukraine, right? When you have a big power invading a country in your continent, you know, right in your backyard, are you going to be looking for something to subscribe to for entertainment? Are you going to be glued to like the news 24-7? And so that seemed like the most plausible reason why this happened. And that would be a temporary thing. At some point, we hoped that, you know, things would get better, Russia would and Ukraine would reach a ceasefire. It means six months or something like that. It didn't turn out that way, obviously. But people have an ability to adapt their environment over time and go back to like their old habits. And that's certainly what ended up happening, you know, as the year went forward. But having said that, we also have.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“It's Europe, Middle East, Africa, but it's primarily the EU, so Western Europe. So fast forward to 2021, 22, EMEA had become the strong driver of subscriber growth, new subscribers. You know, it was growing something on the order of like, it was 10, 12 million subscribers a year. So they were kind of the drivers of subscriber growth. And what we saw happen in 2022 is all of a sudden, Amia went from like, call it 10 million subscribers to six and then like zero. And the thing we worried about is how they reached maturity, right? Like we thought of the US market as being mature and EMIA reached maturity. Latin America was a market that took off before Mia did. That could be mature. And the key question really that you have to grapple with is what does mature mean? Is 70% penetration of households mature? Is 50? Is 80?”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“There were 85 million-ish cable subscribers in the US. So Netflix already has 70 million subscribers. It has a substantial piece of the population or households and there's like 110 million households. A substantial number of households that were already subscribers to Netflix. So you can't expect high penetration is my point in the US. But when you look to other places like EMEA, Asia Pac, Latin America, it was still under penetrated, massively underpenetrated. It was very small. So there's a lot of runway to go. And that was our thesis.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“I don't know, squig games. You're going to go to Netflix for that, right? You can't go to Disney for that, right? There's like a lot of what I call commodity content that you can go to anybody with, and that's really just the time filler, right? You might be doing something else. You want to get in the background. Traditionally, that's what a lot of TV watchers do. But at the end of the day, you decide which service you're going to subscribe to based on kind of the differentiated stuff that's drawing you to that service. And so we didn't believe that there was this competition issue necessarily. Just to go back a little bit to put you in our frame of mind and how we were thinking about Netflix. When we first invested in Netflix in 2016 and we looked at the distribution of subscribers along the service, the US had something like 70 million subscribers already in 2016. And so we viewed that as kind of a mature market. So we weren't expecting a lot of growth from the US market. But we did expect a lot of growth from international. That's where the scaling was about to happen. Just for perspective, at the time,”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“It pulled in a lot of new subscribers into that year. So we knew that aspect was there. So it was kind of a bullwip effect where they pulled these subscribers, maybe pulled forward some of the demand that they would have seen. That was one aspect of it. And that was playing out through lots of different industries, lots of different companies. But the other was that there was this narrative of competition. And that was one that we looked at and just thought that was false. That was a red herring. And we've kind of seen this before with Apple, actually. But the analogy was very clear. The easy thing to draw on, what makes news was, oh, there's all this competition, right? That's the sexy narrative of why things fell apart for Netflix. And it would be very much difficult for Netflix to acquire a substantially larger numbers of subscribers because they're sharing these new subscribers with these other streaming services. The problem with that narrative is that content is not fungible, right? If you are a Marvel fan, you're going to go to Disney. You're not going to find it on Netflix, right? If you're a fan for...”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“And so you have to ask the question ultimately came down to that stall of the stalling and subscriber growth. So you have to ask the question, why did subscriber growth stall? Is it that the market is mature? Is there too much competition? What's going on, right? And the market narrative at the time was that there was so much competition. All these streaming choices, you had Disney+, you had Hulu, HBO Max, Apple, Amazon are on there too. But what was interesting is...”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“That's a huge change in valuation based on the cash we're generating in 10 years, right? 15% a year for 10 years is a much, much larger business than growing 5% a year in 10 years, right? But secondarily, because if you stall growth at the level, at the scale that Netflix was at with the cost structure that it had, you're talking about a certain level of profitability that generates that cash flow versus growing 15% a year for the next decade and then or even 10% a year and you'd be scaling into a higher profit margin. So you have this duality of reassessment. One was the growth got reassessed down and the ultimate profit margin the market expected got reassessed downwards. So you had that double wagging. So at that point, you have to reassess how do your, in this case, my, how do our forecasts agree or disagree with what the market is now saying, which is the majority, right? It's saying the outlook's going to be.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Real number of subscribers like that. It's possible that they had something similar happen back in 2012 when they switched their model from the DVD rental business to the streaming business. But at least a decade, you know, since they had something like that, they had a growth company for a long time. So as you know, I mean, in a fixed cost business, so Netflix's model is they invest in content and then they leverage that over their subscribers, right? So if you're growing subscribers, the model inherently has really great leverage characteristics in that you're becoming more efficient from a cost perspective, more efficiently deploying your content and investment across subscribers and your profit margins are also going to go up over time as a result of that. But if you stop growing, then all of a sudden, A, the market reassesses what the value of your future cash flows will be, right? So if you can grow 15% a year for a decade and the market expects that, and then all of a sudden the market reassesses your growth rate to near zero or 5%.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that was quite an experience between November 2021 and through 2022. The stock had its biggest drawdown that I'd ever experienced as an investor. And I first meet as an investor I had experienced in a portfolio stock that I was co-managing. It happened to be our biggest position to boot it as well when I was at Ensemble. It was a difficult period of the stock and me and our team, but we had built a really deep understanding of the business and conviction in it. the business model, the drivers, the management team. And so we had to go back and reassess all that work that we had done to see if we were missing something. And obviously the market had reassessed what the values Netflix stopped because in that period their subscription growth stalled. They even had a quarter, I think it was Q2 of 2022, where they lost almost a million subscribers. And that was the first time in a long time that they had lost a”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“And then quickly fix mistakes. That all goes into that kind of ingenuity and adaptability that is at the core of how the company operates. I think those are kind of empirical pieces that we don't traditionally talk about in terms of moat, but I think they are a moat source in the sense of like the execution that it takes to get to building that moat and then continue to add on to that moat and grow it. So that's all just keeps going.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“But you have to have a certain scale to get there, right? And so that sort of thing, you know, nobody else was doing these guys were inventing this as they were going along, right? What ended up happening was before Disney launched their Disney Plus service, they actually made billions of dollars to acquire something called BAMTEC, which had developed a good experience service in Disney Plus service so that they could have a similar type of experience. But anyway, there's a couple examples of like, you know, these core know-how detail things that Netflix learned over like several years and became part of their moat because it makes it harder for the next guy to start something because there's expectations around content delivery. There's expectations around how they interact with the customer. I'll just add that, you know, it's over time the cultural pieces that really struck out to me as being important for Netflix's success are its ability to experiment and learn.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“As likely a frustrated move on, kind of thing, right? So that content delivery piece is super important, and they built it out themselves. And they built it by growing the scale across different regions that customers would want to watch whatever the latest piece of content was that was hot. And then it would like overload their ISP's network. And so then Netflix would go to the ISP and be like, oh, hey, by the way, let us put a server in that last mile location where the customer is reaching out to download the video to start watching. And that'll take the bird off of you because we know that 10 p.m. in Rio de Janeiro, 80% of customers will watch these hundred things. What'll happen is the night before at 2 a.m. when no one's using your back end pipe, we'll just download the hundred things at 80% of customers will watch tomorrow night. And that way, reducing the burden for you, the ISP, from a cost in logistics and operations perspective. And the ISP, let them put their server there.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“And what that really means is when the customer plays play wherever they are in the world, you want that delay from pressing play to be watching the content to be as low as possible instantaneous, essentially, right? You want the quality to be high. You want the cost to be economical for the pipes, the ISPs that control that last mile to the customer. So in that, there's this, all this technical capability, whether it was compression, security of the contents, it couldn't be pirated at the time. I don't know if you remember, but back in the early 2000s and 2010s, pirating was a big issue of content, so you had to protect that content. And then there's the latency issue, right? So like when I first started watching Netflix streaming, I think it was like 2010 or something like that before streaming was our main business. You hit play, then you wait. There's a bit of downloading experience. And then the thing comes up, right? And that's just a suboptimal viewing experience because you're just.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Dollars to invest in content is flywheel that's involved in that. But there's these other capabilities they have that what are know-how capabilities that are also intimately tied with their culture. So one is that it started as a technology company, right? There's a strong technology component to it. And so delivering video from their servers to the customer, that's an important capability that they built out. Initially, they were”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“How many customers you have, right? So the larger scale, the better. At this point, Netflix has over 300 million subscribers. And that's really household. And if you think of every household as being two to three, four people in that household watching, you're talking about viewer scale of half a billion to a billion viewers that are watching Netflix out of 8 billion people in the world. That's pretty amazing, right? So to your point, scale is ultimately the ultimate competitive advantage that they were kind of building towards. But in getting there, I think the culture had several key aspects to it. They've always had a strong focus on the customer experience, which then allows them to create ways of acquiring subscribers, retaining subscribers. And that's ultimately the underlying driver of that scale, right? The more subscribers you have, the more revenue dollars come in, the more you can invest in content, the more content you have, the more attractive it is to new subscribers. They come in.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“That's a great question. So obviously, scale is an important part of the mode, but they have to build that scale, right? And there's, I think, other components that went into what ultimately becomes a scale advantage that it has. With Netflix, I think that you had its culture that was very unique relative to other companies in the industry. Like a set of what I call know-how, you know, capabilities that they built that also gave them the ability to outcompete their competitors in the execution, in building that scale. So, I mean, obviously scale is really important in this business because, you know, you can spend $100 million for a piece of content, you know, whether it's a series or a movie, and whether you deliver that content to 10 million subscribers or a billion subscribers, it doesn't change your cost of that content necessarily, but the per unit cost that content changes dramatically, right? You go from a dollar per customer to maybe $10 or $100 a customer depending on.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Traditional media companies tend it to be more regional because they were restricted in reaching their consumer audience via wires. With Netflix, with the dawn of the internet age plus mobile, you basically pulled out that restriction of delivering your content via wires. And that allowed it to scale, create this new business media business that scales on a global basis, which I think changes ultimately what the profit umbrella can look like for this business. because of that scale and then and what the returns can look like. So we'll see how that plays out. It's in the process of playing out and it's been exciting so far.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“In the business over many years, I think Netflix has all of those characteristics, right? It provides a valuable service to its customers, it's globally applicable, its scale and other characteristics that bring moat aspect to the business that protects us from competition and protects profit margins ultimately. And so we're starting to see aspect of that play out. It's things that have been playing out, but it's really starting to scale now that it's gotten to over 300 million subscribers globally. I think in general, the media business is a business that addresses core human need for entertainment, experience sharing. And what I like to think of as a empathetic lawyerism, right, where you get to live other lives through these experiences. And that's core to human nature, I think. From a Netflix-specific perspective, it really launched its streaming service just as the internet became ubiquitous globally, right? And in the past,”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, sure, Clay. Netflix's an interesting one. I've actually followed it since the early 2000s, which was pretty close to their IPO. And at the time, they were a DVD by mail rental subscription business. And that was a very innovative business model at the time. Of course, as you know, they become a streaming video pioneer and leader globally. So I think to answer your question, what is it that I think a great business looks like? In general, when I think about a great business, to me, it's a business that provides a lot of value to its customers. It's able to monetize enough of that value to build a business that has higher returns on capital, but without squeezing their customers, right? So there's some sharing of what I call the value surplus between a company and a customer. And then you want a business that can protect its business with kind of advantages that it builds against commoditization of the profit margins. And then it's only able to grow over a long period of time so that you have the ability to compound investment.”
2025-04-04 · We Study Billionaires · TIP711: Netflix, Ferrari, & Managing Market Volatility w/ Arif Karim · IDENTIFIED FROM THE TRANSCRIPT