"The devil is in the details," they say. But I think that expression could just as easily be "the devil is in the numbers." Numbers matter for investors, so it's incredibly important to understand what they mean.
I spend my days reading about and analyzing stocks, so I stumble across fascinating numbers all the time, but sometimes that leads to being jaded to ordinarily impressive ones. That's why when one really jumps out at me, I have to share it. So here are some of the stats and facts that have made me do a double-take.
2 billion ... and counting
Netflix (NAS: NFLX) recently announced that its customers streamed 2 billion hours of content in the fourth quarter of 2011. Figures like "a billion" are hard to fathom, so let's break it down. Two billion hours is 228,159 years. That's about 30,000 more years than humans are believed to have walked the earth. Though a rough interpretation, that means Netflix streamed more content than the span of human history in just one quarter.
Ever since the company fell from its lofty levels, the bash-on-Netflix bandwagon has become pretty crowded. Though the company has its faults, I believe enough mud has been slung. As fellow fools David Meier and John Reeves noted, Reed Hastings is far from the worst CEO.
People have generally accepted that the future of media delivery is by streaming, and there is no doubt that Netflix is top dog in that arena. But that doesn't mean it faces no difficulties.
While 2 billion hours of streaming content is impressive, because of licensing agreements, those hours could be extremely costly for the company. Unless Netflix is adding subsribers, increased content consumption comes at a higher cost without higher revenue. It's likely that in the recent wave of customer defections Netflix lost its most valuable consumers, those who subscribed but didn't really stream that much, and instead hung onto its worst ones, those who stream constantly. We also have no previous total streaming hours to compare with.
Until that riddle is solved, I'm still on the sidelines. I like Netflix, am encouraged about its international potential, and have given it a thumbs-up in my CAPS profile. But with the stock up 24% in the past month and some questions lingering, I'm holding off for now.
Another interesting fact is that Netflix healvily uses the cloud-computing services of Amazon.com (NAS: AMZN) , its biggest streaming rival. Though the relationship doesn't seem to have affected the streaming game, if you're down on Netflix, maybe Amazon is a better bet.
Jeff Bezos has been effectively carving out Amazon Web Services to take advantage of the inevitable push toward cloud technology. As Internet-centric companies like Netflix seek to avoid costly data centers and focus instead on their core operations, Amazon could be their savior.
While Web Services is still just a sliver of Amazon's revenue, it's the early movers with the best foundation that win in a growing industry.
Huge expansion isn't easy. Just ask coffee slinger Starbucks (NAS: SBUX) what happens when you grow beyond your means. Hint: It's not good. Starbucks' stock plummeted from 2006 to 2008, and a changing of the guard was necessary to turn around the ailing company. That's why when I hear about ambitious store openings I tune in, and this is one of the most aggressive I've seen.
McDonald's (NYS: MCD) plans to open a new location every day in China within four years. The company is aiming to have 2,000 restaurants in China by 2013, and it'll need to hit that pace to get there. Expansion at this rate will probably call for an increase in the number of franchised locations, as opposed to company-owned ones. The current franchise penetration rate in China is extremely low.
But if any company can achieve this sort of growth, it's McDonald's. It's located in an unbelievable 119 countries, and it's been on a tear lately. The company put up an impressive 7.4% global same-store-sales figure in November. Strong international growth was cited as a major contributing factor. Even in ailing Europe, comparable-store sales were up 6.5% for the same period.
However, all that growth has made the stock relatively expensive. After rising 31% in 2011, making it the Dow's top-performing stock for the year, it now trades at a P/E of 19.6. A forward P/E of 17.4 does little to relieve apprehension, either. Fellow Fool Alex Dumortier calls McDonald's one of 5 Great Companies That'll Disappoint Investors. It still has to face rival Yum! Brands (NYS: YUM) as well. Though McDonald's stock outpaced Yum!'s in 2011 and sports a lower P/E, China is Yum!'s territory. Its growth there still eclipses that of McDonald's. Given that Yum! operates in 117 countries globally, it's no international pushover, either.
As a McDonald's shareholder, this makes me nervious. I still love this company for its sterling dividend history and incredible management, and although its multiples aren't as enticing as in the past, I'm still holding my shares for the long term -- though I won't be expecting a 31% return in 2012.
Here today, bigger tomorrow
These three companies are all the biggest players in their respective spaces, so it may feel as if it's hard to get an edge on them, since most expectations are built into their prices. That's probably true, but fortunately we are at the very beginning of what technology analyst Eric Bleeker has dubbed The Next Trillion Dollar Revolution. As we move further down the road of mobile device penetration, there is one unexpected company poised to become the juggernaut of tomorrow. The Motley Fool has profiled this company in a special free report. You can access it now. It won't cost a dime, but it won't be free forever.
At the time thisarticle was published Austin Smith owns shares of McDonald's.The Motley Fool owns shares of Yum! Brands, Starbucks, and Amazon.com.Motley Fool newsletter serviceshave recommended buying shares of McDonald's, Amazon.com, Netflix, Yum! Brands, and Starbucks. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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