At an Berkshire Hathaway annual shareholder assembly, Warren Buffett made the next remark about Apple and the way in which its clients take into consideration its merchandise:

Possibly I’ve used this instance earlier than, however in the event you discuss to most individuals, if they’ve an iPhone and so they have a second automobile, the second automobile prices them $30 or $35,000, and so they had been advised that they by no means may have the iPhone once more, or they may by no means have the second automobile once more, they’d give up the second automobile. However the second automobile price them 20 occasions [more than the iPhone].

This reveals so much about the way in which Buffett thinks about investing in companies like Apple. And there’s one other firm that I believe lots of people really feel the identical method about.

Netflix

Within the final 12 months, Netflix (NASDAQ:NFLX) has stopped reporting subscriber numbers in its quarterly updates. However I believe it may be in an identical place to Apple. 

The historic information, although, signifies that lots of people are very reluctant to present up their Netflix subscriptions. Possibly even to the purpose that they’d slightly give up their second vehicles.

There have been a few decreases in subscriber numbers – particularly throughout the first two quarters of 2022. However there are a few necessary issues to keep in mind.

One is that this may effectively have been on account of unusually robust demand throughout the Covid-19 pandemic normalising afterwards. Subscriber development has recovered strongly since then.

One other is that – Buffett’s observations however – Apple’s iPhone gross sales fell on the finish of 2023 and the beginning of 2024. So it isn’t as if demand for the agency’s merchandise by no means falters.

The purpose is, even when inflation has been excessive, Netflix subscribers have typically prioritised its service of their family budgets. And that places the corporate in a really robust place.

Spectacular power

I’ve been very impressed with how resilient Netflix has been. I believe it’s proven itself to be a helpful service for its clients.

That’s significantly eye-catching given the challenges the enterprise faces. Updating its content material library requires ongoing funding from the enterprise and outcomes aren’t assured. 

Chair Reed Hastings has repeatedly acknowledged that predicting what’s going to resonate with viewers is extraordinarily troublesome. And meaning there’s at all times a threat with the corporate. 

Given this, Netflix’s constant development – each when it comes to subscribers and when it comes to revenues and earnings – could be very spectacular. And in some methods, it’s much more engaging than Apple.

Whereas iPhones have turn out to be dearer, Netflix has launched its ad-supported platform. Consequently, it’s in a position to cost its viewers much less, which additional reduces the chance of them leaving. 

I’m an enormous fan of companies that maintain their costs low – I believe it makes for a sturdy aggressive benefit. So I’m within the inventory, however ought to I purchase it now?

Time to purchase?

Netflix shares presently commerce at a price-to-earnings (P/E) ratio of round 61. Even for a enterprise as robust as this one, I believe that’s fairly excessive. 

My sense is that I’ll get a greater alternative to purchase the inventory sooner or later. However within the meantime, I’m going to be following carefully to verify I’m prepared when the time comes.