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Assange Bashes Google, But OneWeb And Netflix Pose The Biggest Global Reach

by DIYSI
June 20, 2016

Julian Assange is speaking again on Google and politics: Clinton, Democrats, Republicans

Julian Assange is back in the spotlight again with the accusation of mixing politics (Hillary Clinton) and internet search engines. Google/Alphabet, Inc. (NASDAQ:GOOG, GOOGL) was shown to have search interference on presidential candidates.

Assange isn't alone on this soap box. Founder, Ralph Nader's Public Citizen had also criticized Google for its influence in politics, titled, Mission Creep-y.

Democrats vs. Republicans is less likely the struggle Google could care about. A look at Assange's footnote explanatory sheds more light:

Historically Google's success was built on the commercial surveillance of civilians through "services": web search, email, social networking, et cetera...Google is also aiming to become an internet access provider. Google's "Project Loon" aims to provide internet access to populations in the global south using wireless access points mounted on fleets of high-altitude balloons and aerial drones, having acquired the drone companies Titan Aerospace and Makani Power. Facebook (NASDAQ: FB), which bid against Google for Titan Aerospace, has similar aspirations... - Assange, When Google Met WikiLeaks

Facebook, Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX), and Google/Alphabet, aka, FANG gather intel on customers to support sales. They also compile the data for resale to third parties, e.g., "We will share personal information with companies, organizations or individuals outside of Google when we have your consent to do so." You can read more on these contracts in, Mobile Apps: Crossing The Bright-Line Rule of Contracting With Children.

Their reach has hit limits and global expansion is vital, including the coveted region of China. The region remains blocked by censorship, coined the Great Firewall of China. If this is the wall that needs to be cracked, Google is the Michael Scofield leading the way.

Aside from getting all the government waivers signed by China to make lawful entry, there are methods to bypass. Advancements in satellite internet could replace the Virtual Private Networks (VPN) used by popular rogue participants. Netflix is known as a common service accessed by VPNs in countries that have blocked the site. Now that OneWeb's satellite terminal is as small as a roof vent, it could be easily obtained and installed. It also comes with solar panels to power the device off the grid.

The following is an excerpt from a NBC News interview where OneWeb CEO, Greg Wyler gives mention of Netflix:

This will allow an [Airbus] A380 to stream Netflix anywhere in the world. We are solving a big problem for emerging markets, which is literally half the world, and the other half is connected only intermittently.

Facebook and Google have their inventions for internet transmission, but require closer proximity to the Earth via Stratosphere or lower altitudes. These would invoke the regular red tape for deployment and adoption in places like China.

Free Cash Flow and FCF Yield

Netflix Inc. is typically criticized for lack of earnings and negative Free Cash Flow. However, the FCF Yield for Google/Alphabet Inc. and Facebook Inc. places their cash in perspective to market capitalization and enterprise value. These yields are not necessarily stellar either.

Free Cash Flow for Netflix at Seeking Alpha by DIY Stock Investor

Facebook Free Cash Flow at Seeking Alpha by DIY Stock Investor

Alphabet/Google Free Cash Flow at Seeking Alpha by DIY Stock Investor

2015 was particularly costly for Netflix Inc. Streaming content became more expensive due to the cost of rights in other countries. Yet, bullish investors haven't latched onto Netflix Inc. for the earnings, cash flow or profit margins at this juncture. They have rallied for the revenue growth, the disruption (R.I.P. Blockbuster) and the product that has become more of a household staple than peanut butter and crackers.

Revenue Growth Charts for Netflix and Facebook

Netflix and Facebook Revenue Chart at Seeking Alpha by DIY Stock Investor

When Netflix Inc. bulls state their investment thesis is about growth and momentum, it begs the question, why not invest in Facebook Inc. instead? According to a year-over-year revenue chart, Netflix Inc. maintains approximately 21%-26% growth while Facebook Inc. posts a superior range of 44%-58%.

Facebook and Netflix revenue growth percentages

Netflix Inc. becomes the better growth prospect when considering: (1) emerging international expansion; and (2) better content fit with China's censorship.

Author, BayesianLearner's last analysis of Netflix Inc. cited subscriber data from Statista.com. Since that review, international subscribers have increased 33%. First quarter, Y/Y comparison show that international subscribers increased from 20.87 million to 34.53 million; a 65% increase.

With the standard pattern of mid 20% revenue increase and the new international growth showing +60%; a 25% growth rate is a suitable and conservative figure for modeling out years to come.

Although China is not promised for any of these companies, it is more fitting that Netflix Inc. would make entry. First, it is unmistakably their target market:

Netflix is available virtually everywhere except in China, where we continue to explore options and our current investment plans are modest. Our growth internationally will unfold over many years as we improve our service. In the 130+ new markets we launched in 2016, we are starting by primarily targeting outward-looking, affluent consumers with international credit cards and smartphones. - Netflix, Long Term View

Second, Neftlix's content has an advantage over Facebook and Google. Facebook has user contributions, a peer-to-peer network that threatens China censorship. Facebook also streams world news and ads from political parties. Whereas Netflix does no operate as a news outlet or allow for user creation. Google poses censorship issues for China with its YouTube and search engine.

In summary, Netflix's product is focused. It is the one that can offer an al a carte of movies that China will accept for its consumers.

Concluding With Price Target and P/S Model Projection

Observing Netflix's Q4 2015 earnings reaction, the market showed a low at $79.95 price per share PPS or 5.15 price to sales P/S metric. The high tolerated was $122.18 PPS or 7.87 P/S metric.

There are multiple events yet to take place that could cause high end P/S valuation: (1) Exclusive Disney content (Marvel, Star Wars, and Pixar); (2) satellite internet adoption; (3) increased original productions; (4) rate hikes, etc. Presently, Netfilx sits around 5.71 P/S.

Netflix price reaction chart

In the P/S model a 25% and 35% constant is modeled for revenue growth. Only the lessor, 25% growth rate is used in the P/S range for price target. Share count is adjusted for an increase of 5 million each year, which is the rough average.

Price target and P/S model with revenue growth projection, Netflix

Netflix, Inc. is considered a buy due to international growth, satellite internet capabilities, and speculation of entry to China's market. Revenue growth shows a reliable pattern and P/S reaction is chartable. The high end of the price target range puts Netflix, Inc. just under $200 PPS by 2017 end; a +100% return on investment.

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Image source: The Subtle Roar of Online Whistle-blowing: Julian Assange by Peter Erichsen (CC BY-SA 3.0).

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Disclosure: I am/we are long NFLX.

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