Woah! Woah! Woah!
Mate can I just clarify - I’m the one on the right with the larger testicles, correct?
Otherwise your post is just downright offensive!
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A word from some-one who lost big time on a 'sure thing'. You guys need to 'get out more' and look seriously at another investment opportunity with a different company. I am not saying quit your position with SKT. But the more money you put into SKT, the more convinced you seem to be that you are right. You may be right. But there are always factors out there that you cannot control and cannot reasonably estimate. Having an alternative investment prospect to look at in parallel to SKT will widen your investment horizon and may just save you big bucks. Stay in the SKT silo and your confirmation bias will increase.
From a fellow sharetrader who has been in a similar position (not with SKT), and doesn't want to see others fall into the same trap!
SNOOPY
Yeah I think the odds are good on this one but it's still obviously extremely risky. I'd like to be calling the shots and would feel pretty confident if I were. But there's hope.
The merged Lightbox/Neon service will be a big driver I think so hopefully that gets done right and they survive.
You are 100% correct that investors need to be careful not to fall into the confirmation bias trap. I think if you were to go back through many of my previous commentary I have pointed out both the issues/challenges as well as the positives for Sky TV. I definitely do not have 'rose tinted' glasses on for Sky, and am fully aware of the challenges faced by the company.
Sky TV is a company I am able to understand. My investing style is one of a consolidation approach. To me it makes no sense to diversify and put a bunch of money in my, say, 30th 'best idea' when I have an opportunity to acquire more of my 1st best idea at a large discount to intrinsic value. In that respect I am a worshiper of the Church of Munger, and Charlie is my Cult Leader.
It is also important to note that risk != volatility.
Risk = not knowing what you are doing. Time will either prove that I do know what I am doing when it comes to Sky, or that perhaps I didn't understand the business as well as I thought I did.
I continue to like the business, and the story has not changed at all from when I first invested in the company. If the story changes, naturally I will review my position. Until then, if Mr Market keeps offering equity in the company for what I believe are low prices relative to intrinsic value, I will keep buying more.
With the greatest of respect, I'm not sure you understand Sky TV as well as you think you do. You may understand it as a company, a balance sheet, a management team, all of these things in and of themselves, but the key to how this investment is performing and will likely turn out is to understand Sky TV in relation to the world around it.
When I've raised piracy options, you typically respond to it as a moral issue. And as a moral issue, you win, piracy is stealing etc etc.
But, instead of seeing it as a moral issue, have you had a crack at exploring this alternative way to obtain content? Have you tried streaming, torrenting, installed Kodi or similar? Got hold of an Android phone, downloaded the apps that give you, for free, a vast ocean of on demand content at a price point Sky can never match - zero.
Have you taken the time to see how teenagers use a mobile phone? Watched how 5 year olds make their way around a tablet instinctively? Seen the confused look when a kid is visiting their grandma and 5 different people are watching this big box in a room, the timing of the content chosen by someone miles away they've never met, and their varied tastes meaning that 4 of them aren't watching what they want to watch?
If a man from mars came to Earth knowing nothing, and all he wanted was the widest range of content, available on the widest range of platforms, before even considering cost (once he considers cost, things get much worse for Sky obviously), do you honestly think, even with price not a consideration, the answer he'd land on is Sky TV?
Look, I see myself as a deep value investor. I've watched it all the way down. I've nearly bought the damn thing. By any fundamental valuation measure, it has looked cheap for a long time.
The answer isn't to look deeper at Sky TV. The answer is to look away, and look at the rest of the world, and how it has changed.
At best, you're in a business of collecting money from lazy, old people until they die. At best. Is that really the business you want to be in?
Go and talk to a hundred eighteen year olds going flatting. In my circle, back in the dark ages, there was a list of essentials - bed, stereo, couch, TV....Sky subscription.
Talk to the equivalent circle, a hundred eighteen year olds today. How many will sign up with Sky? My guess is zero.
Just lol.
Not this argument again.
Go back to the 2nd page of this thread. Yes, all the way back to 2008 - over 13 years ago!
Here's the link:
https://www.sharetrader.co.nz/showth...l=1#post208079
The argument that Sky is dead seems to never die. The irony is that Sky never dies.
This is why I'm making a huge bet on this stock because the fundamentals of this stock hasn't changed but the market keeps buying into this "netflix" doomsday story that never eventuates. The reason is because satellite and the internet are two different things.
The company was doing fine and paying dividends for ages. Then all of a sudden the market falsely believed the streaming story and it caused the stock price to collapse.
The funny thing is that the stock used to make about $200m per year and it basically still does today.
And just lol about the alien analogy. How do you think space ships work? Do you think they use cat5 ethernet wire or a wifi access point in space. No, it's satellite technology!
The point is, is that the business is not in decline. It's actually growing customers. It's also well position in the streaming market plus still has the monopoly of traditional pay TV.
No one is saying that this company is worth billions but it's a good cash cow that is selling for only $100m.
A doomsday story that never eventuates? The stock is down from around $6 to 26.5 cents. How much more doomsday are you looking for?
The fundamentals of the stock, and the outlook for the future, have profoundly changed. I'm no doubt leaving plenty out but
- Netflix, Apple, Amazon, Disney, Hulu and many many others are engaged in a content producing land grab where they are willing to pour billions into making unique content in order to sign up customers to a streaming service.
- Some kid wrote some software so they steal content from the xbox in their bedroom, which their parents presumably thought was just for playing games. This morphed into the Kodi project, and there are thousands of others, for mobile and desktop platforms. More than providing the software that allowed TV viewers to "cut the cord", the real easier to miss revolution was a change in receiving content as a family unit at a set time, to each individual choosing their device, platform, time and content.
- Realising that providing pre recorded content by satellite is a business with no future, the businesses like Sky TV have been cutting each others throats paying over the odds for live content such as sports. For example, witness the insane amounts paid for WWE content - the product is getting worse, the ratings are getting lower, but for he TV network, it is live and they can sell ads around it, so they've paid silly amounts.
I could go on but in 2008 you didn't have the biggest companies in the world creating new content and selling it as a loss leader, you didn't have thousands of kids writing software to make piracy easier, not just cheaper, than the legal alternative, and you didn't have the pay TV providers paying truly insane sums for live content believing, correctly, that this was the only part of the industry they hadn't already lost.
The fundamentals have profoundly changed. The share price is telling you that. The actions of young people - eg where business growth needs to come from - are absolutely screaming it.
Now you, Ogg, may well have got close to the "bottom" price and you may get a puff out of this cigar butt. Even I was sorely tempted at the price you paid. But you're kidding yourself if you think the fundamentals have not changed.
I like a cash cow as much as the next man - a business that churns out cash and returns it to the shareholders.
2020 : 0.00cps
2021 : 0.00cps
2022 : 0.00cps
2023 : 0.00cps
2024 : 0.00cps
2025 : 0.00cps
Those are my projections for the "milk" to be delivered in dividends by this cash cow in the near term.
What are yours? Check back in 2025?
I’m in my early 30’s and attempted to become a Sky customer as an experiment. Looking through their website, I just can’t find anything compelling about the product. Everyone I know could easily afford to purchase a sky sub, but they don’t. Instead they use a chromecast and stream content on demand. I lived in a flat with Sky once, this was in 2010. We got it to watch the football World Cup and cancelled it shortly afterwards. The only group of people I do know who have a traditional Sky sub are in their 60’s. Granted this is just a personal perspective, but I just can’t see any longevity in SKTs traditional business model. It’s streaming services look more promising but are currently such a small percentage of earnings. Interesting times, but I can’t buy the product or the share. Good luck to holders.
I am a bit of a Munger/Buffett disciple myself. I agree that it doesn't make much sense to put a lot of effort into your 30th best idea. But what about your second best idea? I don't see Buffett and Munger going all in on one horse.
I am not suggesting that you don't know what you are doing MistTea. FWIW, I don't accept the 'Stranger Danger' theory that because 18 years olds are not signing up you should get out of Sky. I do accept the macro argument that SD makes that 'eventually' Sky in its current format will disappear. But I do think there is money to be made by Sky in the transition phase (which might be twenty years). And, of course Sky is adapting to the new environment. The Sky business model is not set in stone.
Where I think your 'laser focus' on Sky is letting you down MistaTea is that this COVID crisis has thrown up other opportunities in other industries. These opportunities were not there a month ago. But you can't see them, because you are not looking. By not looking at other opportunities you are increasing your 'portrfolio' risk in a way that is not only unnecessary, but is also not prudent, IMO.
SNOOPY
You may well be right.
One cannot claim to 'understand' the business unless they also understand the wider industry, who the customers are, changing attitudes and tastes etc. It is not enough to just understand the Balance Sheet, I agree. To the best of my ability I have tried to build up as big a picture as I can about Sky TV, including issues around piracy.
It sure does baffle me when I think you can get HBO, Showtime, FX and much more legally from Sky for 45c per day. Why anyone would want to take on the moral hazard of stealing when content has never been so cheap is bizarre.
But it can baffle me all it likes - the reality is people do steal content (either by outright stealing by torrenting on sites like Pirate Bay etc or using VPNs to grab content that sits behind a paywall in NZ but is free in other jurisdictions).
A few years back I think it was John Fellet who pointed out that Netflix is not Sky's biggest competitor - piracy is. Hence Sky taking legal action to try and stamp it out (futile imo - and new management has been a lot quieter on this front than the previous gang). At the time I remember people just giving the polite smile we reserve for dotards - it didn't suit the narrative at the time about Netflix being the Cable TV Killer (in our case, Satellite TV).
But it remains true, Piracy is the largest competitor. And it's not just the stereotypical pimply faced 18 year old who is holed up in his room hacking websites instead of going out drinking and trying to get a leg over with some girl! I know people in their forties who have exploited software like Plex to provide a very user friendly platform to surface their stolen content. They are then able to share their libraries with their mates.
It is a problem. It always has been a problem, and it always will be.
But...
I also think it is a mistake to think that because Piracy is a real issue that therefore Sky TV has no future. Not every 'young person' has the ability nor inclination to maintain feeds that pull in content (of varying quality sometimes) from a range of sources. Paying someone a 'reasonable' (low) fee to guarantee quality and provide the content in a nice UI is still the preference of many I believe. Netflix has been an amazing success despite the fact that people can easily Pirate.
My view is that, with the plethora of individual Netflix-style services entering the market - there is still a place for a good content aggregator. Time will tell if Sky become that aggregator for NZ - but you would have to say that they are in the best position compared to others to become that player. They are right to invest heavily in streaming - it will provide them an ability to integrate with the likes of Netflix and also sell their traditional bundles for cheaper.
If they could increase subs between their NZ operation and RugbyPass to 1.5M customers, even if the ARPU was only $50 that would still be $900M of revenue a year.
And that is not ridiculous in my view, because despite Piracy being a major problem, Sky is actually growing their customer base.
2015: 851,561
2016: 852,679
2017: 824,782
2018: 767,727
2019: 778,740
2020: 950,000? (Big jump in part from Lightbox acquisition - 130,000 subs - but also more organic growth as people ditch satellite in favour of streaming).
If everyone under a certain age was pirating and refused to pay for their content I think Sky TV subs would only go one way - down. Regardless of whether they stream or stick to satellite.
On a final note - my expectation is that their streaming services will continue to grow (especially when their new services are rolled out soon) but at the same time I think they will maintain hundreds of thousands of satellite customers. The 'oldies' you refer to. You are right that they are far less likely to ditch the satellite service they are used to for a new streaming service. That provides Sky with a large base of high-paying subscribers which ease the financial pressure that comes from transitioning to a cheaper streaming business until you hit a critical mass of subscribers.
I really enjoy the discussion! Thanks for taking the time to post a thoughtful and well-articulated argument.