Netflix's $2.8b Money Heist

Welcome to the long-term investing podcast with Baskin' Wealth Management.

I'm Barry Schwartz, President and Chief Investment Officer.

In this podcast, we ignore all the noise and have conversations about the things that

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Welcome back to the podcast.

I'm Barry Schwartz, joined by Ernest Wong.

We got a lot to get to today.

We're going to talk about CCL industries and its monster quarter, as well as the Netflix

dropping of its bid, and I guess Warner Brothers being won by Paramount.

We'll talk about the implications for Netflix and why the stock of Netflix rocketed up about

what, 20% in the last few weeks.

We'll also get into talking a little bit about the month of February and the results that

our clients had.

But before we get into that, let's get into this.

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It's been a busy month for us in terms of February.

The most trades we've made in a month in a long time.

We were pretty silent in terms of trading activity in 2025, but 2026 has been very, very

big for us.

One of the trades, we sold a company that we had less conviction in to really double down

on a company that we think has long-term prospects that are much better.

We also bought three new names in the portfolio and did a couple of trimmings and some sales.

We also trimmed back some larger positions in our portfolio.

It has nothing to do with the fact that we lost confidence in those names.

It's just that the valuation on some of our long-term winners has gone a little bit ahead

of itself in the short term and we saw some opportunities in this market.

The pullback, of course, in AI-related names and software-related names, so there was

certainly a lot of interesting opportunities as 2026 continues.

I'm sure we will, the reason that we're not publicly disclosing the names that we bought

right now is more because we're still working into the positions, still trying to figure

out the portfolio management and which clients' portfolios make sense with it, but we will

talk about them in due time.

If any clients have seen some of the trading activity in their portfolio, please reach out

to your portfolio manager.

We'd love to discuss the rationale and reasons and we're excited to share a few new names

with you over the next few weeks as we, as Erna said, as we fill out our positions and we

get fully invested in those new names, but that is the point of public markets, which is that

when stocks are volatile in public markets, not like privates or alternatives where

it's a hypothetical value that a person comes up with, but public stocks go up and down and

I think that as investors should take advantage of these opportunities to always be evaluating

what they like, what they have, whether there's something that's more attractive.

We don't outsource our research now.

Anybody, we don't outsource our research to the stock market.

We outsource our research to ourselves and really make investments based on fundamentals

and the interesting thing that happened, we've talked about this on the podcast the last few

months is a lot of our companies are reporting great results. We're going to share that in a blog

that we'll post on our website very shortly. A lot of them raise dividends, double digits,

like you know, thinking like Taiwan semiconductor, it raises dividend 40% for service, raises

dividend double digits, Moody's double digits, Brookfield, yet some of their stock prices have

done nothing. And so Ernest and I are always attracted to great businesses where there's a

temporary narrative worry or the stock hasn't done anything lately, but it's clear that the

fundamentals are doing great. And that's a pretty consistent theme around the companies that we own

where the businesses are doing well. It's not that there's a, in most cases, it's not that there's

some company issue and you're hoping that things get better. The businesses are actually performing

well and it's just a matter of the stock market not being as enthusiastic about them as we would like.

I think there was one company out of 30 plus that we own last year that didn't, or maybe two,

that didn't report results that we thought were up to snuff, so to speak, but that being said,

both companies are in a very cyclical industry. This year we only have one company that

it's on our watch list, so to speak. We're certainly going to talk about that because

this company started a share buyback and it's something that it rarely does share buybacks unless

it really thinks the stock is cheap and has excellent track record with when it announces monster

share buybacks. Right. So let's, what do you want to start with first? Netflix? Sure. Yeah, so Netflix

stock, as everybody knows, has been on their mass pressure the last few months, making the bid to

acquire Warner Brothers discovery for, I think they wanted to pay 27, 75 a share. Yeah, so I think

this is an interesting, that is an interesting point of contention around the why Netflix is no

longer buying Warner Brothers, the price. Yeah. So, and of course, there was a pullback in the general

market, a pullback for maybe some higher quality names, and then there was a stupid worry that,

well, everybody can make these silly AI videos. No question you'll be watching that instead of

watching Netflix shows. That's us makes no sense, but it is what it is. No question, people are

digesting content in a different way, and that's always evolving. The younger generation, of course,

likes shorter for videos, but at the same time, I have teenagers and they're catching up on all

these wonderful shows that their parents love to watch. I have a youngest, my youngest son

watching sopranos now, and he's catching up on breaking bad, and he wants to catch up on

Game of Thrones, even though he likes to scroll through Instagram and discourse and TikTok and

whatever, and look at little videos for two seconds. Yeah, so I think we were on the record for

saying that we thought it was a great deal for Netflix, that we wanted them to be able to buy

Warner Brothers, because we thought that they had a good opportunity to really generate a strong

financial return from capturing the international growth that Warner had. And Warner, for those who

don't know what to talk about, owns HBO, and HBO has some really high quality content intellectual

property, whether it's Game of Thrones, or Harry Potter, or DC Comics, like Batman and Superman,

I think, right? Yep. And they can milk some of these franchises. In the meantime, they have

some amazing shows that may have been on the R10, 20, 30 years ago that are still do well,

whether people look at sopranos or Game of Thrones, again, or the wire, what have you. So,

great content. I think Netflix could have milked it tremendously. I think Netflix could have

gotten a ton of more international subscribers by using its distribution network,

but it is what it is. One thing Netflix said is we're not going to overpay. What was the line that

the company said? So I think that, so I think the thing that really surprised me was the speed

with which Netflix said that they were out of the process, because so the way it happened was that

but they said Warner Brothers is a nice to have at a good price, not a must have at a bad price.

Yeah, something like that. Yeah. But basically Paramount had been kind of dithering around,

and so Netflix gave them a seven-day window with which they could go to Warner, the Warner

board and say and come up with their best and final offer. When Netflix essentially raised its

bid by getting rid of the share component, correct? It was the same price. It was the same price.

Okay, but more cash. Right. But so Paramount came back and they offered 31 dollars for the

entire company. And so Warner spent a few days thinking about it and then they said, yeah,

we think that this is the superior offer to Netflix itself. Well, sure is. They're offering 31

versus Netflix offering 2775 and not taking the cable networks. Right. Okay. And almost immediately

Netflix said they're out. They're not even going to counter the offer. They're not going to match

it. Like they're just totally out of the process. And wasn't that on the same day that Netflix's

co-CEO was talking to Congress or so he went to the White House. Yeah, so I think that

on social media, I think there's a lot of kind of buzz about how this was a genius move by Netflix,

how they got a competitor to kind of burden themselves with a lot of debt to buy this asset while

they get 2.8 billion as well as the rights to probably continue licensing a lot of the Paramount

and HBO shows. My the conspiracy side of me thinks that Netflix had been meeting with regulators

including the US president. And I think that he was feeling that there was some change in the

opportunity, the ability for them to be able to be able to complete this deal. And so he was looking

for an opportunity to get out of the deal. And it just so happened that they because

Paramount raised his bid because Paramount raised his bid. And we're willing to give Netflix a

break fee. They walk out of this looking great. Yeah. So here we are a few months later. Netflix

stock is I think hit high about $130, $140 a share. It felt pretty much in half in a very quick

period of time to the mid-70 range now close to $100 a share again. So still well under its

all-time high price. Part of that has to do with I mean there's a conspiracy theory that Netflix

probably wanted to sandbag his guidance a little bit too. As it's heading to make this acquisition

it doesn't want to tell the you know the antitrust that it's making a ton of money. And we're

going to you know it's going to even improve our monopoly. But so what I want to learn today

what I want our audience to learn today is is Netflix now better positioned and how

how will Paramount be hurt by applying Warner Brothers and how can Netflix take advantage of it

and can it will it be beneficial for Netflix to stock? I don't think it really changes anything for

Netflix fundamentally because they've been running their business all along the process. Yeah.

Like they signed a new distribution deal with Sony, right? So they've been working on stuff

all along even while working on this Warner bit. I think the 2.8 billion is kind of nice to have but

Netflix is such a profitable company that it doesn't really meaningfully change anything that they could

Netflix market cap is about 400 billion dollars. So 2.8 billion dollars is a nice I was going to say

no to that but it's it's not a life-changing amount of money. They're not going to distribute that

back out to shareholders as a special dividend. They may use some of that to improve their business

or buy back stock but hey they're 2.8 billion dollars more money than it had a few months ago.

I think more importantly there's two things. Number one is that they're still going to be able to

license or maybe even more so now. They're going to have the opportunity to license a lot of

Paramount and Warner's content after they combine together and the reason for that is because

Paramount is going to have 72 billion dollars of debt. They just had an investor event this morning

about the deal and they're targeting 10 billion of free cash flow by 2030 and 72 billion dollars

of net debt by 2030 or today. So they will pay down some debt over the next few years but

it's going to be a tough stock and this of course is based on a steady state scenario where they

don't lose subscribers or something changes with the world. And especially given the fact that

most of the profit in Paramount Warner today is coming from linear networks. So these are declining

melting ice cube type business. Paramount owns CBS, owns a number of other cable networks, right?

Yeah so the cable networks still people still pay for them generating good free cash flow but

we all know what's going to happen in the future. Very few people are going to pay for cable

unless it sports and as Netflix and Apple and Grow Bigger they'll probably acquire more sports

from not leaving cable with less content. And so I think it's pretty obvious that they're

going to need to syndicate some of their content out to companies like Netflix to be able to pay

down all the debt that they have. So Netflix gets the content in the end, they get a break fee and

they don't have to come up with all the debt that they're raising. Does Paramount have so one of

the keys that you were excited about was Netflix's ability to distribute HBO internationally to

its hundreds of millions of subs. I think Paramount doesn't have hundreds of millions of subs and

that probably nothing internet nothing serious internationally. So they'll probably still have to

ask Netflix to put their shows on Netflix distribution and that's free money for Netflix.

Right, I think there's a lot of reasons to be skeptical about why Paramount Plus Warner is going

to be meaningfully different than any other major media merger in the past. Just a few years ago,

Warner itself merged with Discovery. And the thesis at the time was that they were getting

scale and that they had it was going to be a challenger to Netflix. And as we see, this is

kind of what happens when you merge two legacy companies together.

The Netflix story has no words on it. It has no cable networks attached to it that are losing

customers. It's continued. You know, the last quarter, a tremendous growth that's guiding I think

for what 20% profit growth in 2026. Hopefully even better going forward. I see there, you know,

like you said, still all systems go. Lots of sporting events, new ones that have been announced,

old guys boxing, but people seem to love that stuff.

So where do you think Netflix reinvest and its business going forward? Clearly, it's not going to

get, I mean, this was the highest value IP available. That's not already owned by Disney.

So that's off the table for now. Does Netflix lean more into video games? Is it lean more into

sports as a result or just continuing doing what it's doing? The other thing I also read is that

Netflix ad load is still much lower than a lot of its competitors. So there's more upside there.

Yeah. No, I don't think it changes anything for Netflix's strategy fundamentally. I think that

I think there might be opportunities for them to get some of the talent that

is cut as a result of Warner Paramount because they're going to the whole plan for Paramount Warner

is that they're going to generate cost synergies to kind of make the combined entities worth more,

but where do you get cost synergies from firing people, right? So I think they'll have a lot of

opportunities with that. One thing that Ted Sarandos, the CEO of Netflix, had said was that

they were looking at one of the benefits of this process was he personally had met a lot of theater

owners in around the country and kind of shared the fact that Netflix is not hostile to theaters

and that they might look for ways to work together. So maybe we will see more things from that.

Yeah. I mean, the theater going, it's an experience, right? It's experiential. You can go with your

friends, your date, your kids, you know, it's a night out. And we all, I mean, I don't know about

you, Ernest, but there's not a lot of movies I can watch anymore. I look at what's nominated for

the Oscars and I'm not interested in any one of them. And I think 2025 was a pretty bad year for

movies altogether, right? And so I don't know, maybe we need more sequels to Barbie and Oppenheimer

to make the theater business going, but it's clear to anyone who's paying attention that the

theater business is going down the toilets where, you know, we're not seeing, we're just seeing

big spending on, you know, coming back to the same old franchises over and over again. And

on the plus side, of course, I think Netflix will see huge benefits from AI, right? In terms of

making product and licensing content. Yeah, so I think with AI, if you look through the past of

advances, technological advances in creating content, what usually happens is that it allows the

creator to make better shows and movies, right? So if you think back to the original Disney cartoons,

right? They were drawn by hand. And once they started being able to use computers to do that,

they didn't just use the computers to draw faster. They used the computers to make more like

pretty animations that are better stories and better visuals, right? So I think that's probably

what will happen with AI. I don't think that we're going to be able to vibe code a two hour long

feature film anytime soon. I don't know, but it's still about the stories and the creative

telling and the human experience and you're not going to get that from a learning language model

that just imitates humans. So you're just not going to get that story, that quality that people want.

Well, that's what Netflix always says, which is that, yeah, sure, like everybody in theory,

everybody could make their own movies, but that doesn't mean they're going to be good, right?

No one wants to see the movie. No one wants to see that. So what was the last movie you saw in

the theater? Do you take your kids ever go to? You don't even know. You know what, when one more

kids younger, we take them to the movies maybe once a month or so. When I was dating my wife,

we used to go to movies all the time. Like it's just, it's really changed the movie business. And

you know, part of it is because of Netflix and that's, you know, life changes, things change.

I think Netflix is certainly inevitable. Anything else you want to add about Netflix?

I think just lastly on the valuation, which is that before, like after they announced,

they were no longer buying Warner, the stocks pop a little bit. But I think the valuation on Netflix

was almost as cheap as it was in 22. We've been seeing a lot of that, right? I mean,

we can talk about consultation software. For example, we just bought a lot more of it because it's

been the cheapest has been in years. And I mean, I think the thing that people often don't realize

about Netflix is that they have very, very strong incremental profit growth from additional

subscribers because when you're making a show, it only costs a fixed amount. And so every

additional revenue that you get on top of that is just gravy. It's just gravy. Unbelievable

let's switch gears and talk about another exciting business labels and adhesives. And that's

CCL industries. It's a stock that probably a lot of Americans don't follow because it's only

listed on the TSX. It's one of these serial acquire type businesses that's grown as business

out from making labels for a lot of consumer product companies as well, the healthcare and autos.

And now has become a global business. I think it's a mark cap of $15 billion Canadian. So it's

no joke. And the company rocketed to an all-time high after reporting the earnings were not

amazingly stellar, but pretty good for CCL. Double digit earnings growth for the year. And I want

you to talk about all the exciting things that announced and why the stock went higher.

So we've broken down the company before on a prior podcast, so I won't

kind of rehash the entire business model. But the basic idea of CCL is that they are a capital

allocator. They look for ways to generate returns by doing deals or by returning shares of cash

to shareholders through buybacks and dividends. And the first kind of through the 2010s,

it was able to use most of its capital to do M&A at fairly attractive rates of return.

Over the last couple of years, CCL hasn't really been able to do that because there's been a lot

of private equity competition in the label space. Don't we know it? A private equity is

exploded. There's more private equity firms out there than probably publicly traded companies.

But there's cracks right now in the system with private equity. And I think there's evidence

that private equity is pulling back on some investments as well, even though they may be sitting

on dry powder. And could give CCL opportunities to start making aggressive acquisitions again.

Yeah, so 2025 was a very light year of acquisitions for CCL. They did one or two small, very,

very small tokens. But finally, they get asked this every quarter, are you going to do more

deals? And they said, well, we'll see what happens, right? And so finally, they started to say

valuations are starting to come down because private equity competitors are not doing well.

And partly, that's because of the weak environment overall for consumer goods.

But here's the thing that everybody misses about private equity versus a great operator.

I don't think CCL has made too many mistakes with its acquisitions. Whereas if you look at

private equity acquisitions of label makers or adhesives or those kinds of things,

there's lots of examples where private equity came in and bought and blew up the business.

Right. And became a zero, right? Where that's never happened with CCL. Even there are

enovia acquisition, which hasn't shot the lightouts. Lights out is still, I think, still generating

a double digit return IRR on its initial investment. No, and that's interesting because I actually

had talked to the executives about this exact topic. And I said, why is it so hard

for private equity to like, why are they doing so poorly in the label space? Because

it doesn't seem like rocket science to me. It's just, you're just basically a sticker that you

bring in, like, put on two stuff, right? And they said, well, like, yeah, certainly labels.

And that's the thing about labels, which is that, if this is their words, not my own, labels are

kind of deceptively complex business, where you really are solving a problem on behalf of the

customer. So if you think about making labels for, let's say, and this is a real business that

CCL has, labels for the drug industry. So they make a lot of the, you know, when you buy

Tylenol and there's like a flap that, like, you open up and it tells you you can take no more than

two pills a day or something like that. Yeah, yeah, yeah, yeah, yeah. These are kind of very

regulated products. You can't get it wrong. And you have to really design it in a way that matches

the customer's specifications. And it's kind of this deep intimacy with the customer that

private equity doesn't have. They really don't understand what they're doing. They view it as

a sticker of business. And the customers are always changing their designs, the sizes,

their maybe mandated regulatory things, different languages. Yeah, it's a complicated business. But

getting down to the brass tax of it is, you know, you have these private equity companies that

may be buying for financial reasons, right? We're buying it at eight times earnings and we'll sell it

to the right for 12 times earnings, whereas CCL is like, we'll pay less, but your business will

be around because we're going to run it properly. Right. Yeah. And so on the call, they said,

all of their private equity, not some, all of their private equity roll up competitors are struggling.

Wow. And so that's great for CCL because number one, it lowers the valuations on deals that

they're looking for. And number two, they're actually gaining customers because of the mismanagement

of the private equity competitors. Very, very interesting. And so at the same time, CCL's balance

sheet is improved tremendously because it's been slower making deals. So now it announced a

aggressive share buyback as well as a large dividend increase, right? Yeah. So they kind of have

too much cash than they know what to do with. They want to be disciplined with deals, but then

kind of the balance sheet is slowly kind of piling up with cash. So what do they do? They're buying

back stock. And that's kind of what they've largely been doing over the last year or two, where

they've bought back quite a bit of stock. They created and what's called an automatic share

purchase plan, where they're going to be in the market every day to buy back whatever amount of

stock that they can. And I think that was probably why the market reacted positively to the stock.

And in the meantime, there's always a potential for it to make a material acquisition. And

if that works out well, that could be significant upside for the stock. It's certainly been in the past.

Right. Anything else to add? I think what we'll do is we'll next episode we'll get to the new CEO

at Berkshire Hathaway, where just digesting the new letter by Greg Able. The results from Berkshire

Hathaway, a little tougher on the insurance side for the quarter, but you can't learn anything from

insurance or writing a quarter to quarter. You have to look at it over a multi-year period. Greg

Able did mention that there's some challenges in the business in terms of insurance, but also

but also countering the naysayers saying, this hundreds of billions of dollars that we have,

we're ready to deploy it. It's not like we're sitting there timing market. We're just looking at

deals and I really like that. And of course, the letter focuses on more operational skills that Able

has versus the folksy letter of pick and stock that Buffett used to write. Any other quick insights

you got from the letter before we digest it another time? No, I think it was what's interesting

about a company like Berkshire when you're succeeding Warren Buffett is that you both want to

establish that you're not Buffett. Well, also, you are kind of like Buffett and preserving the

culture and the company and the philosophy that he built. And so kind of balancing those two

things is I think really what I took away from that letter. So, but that would never be another

Warren Buffett, but that doesn't mean that Berkshire Hathaway can't make you a ton of money going

forward. I don't think he's going to buy Bitcoin anytime soon. No chance with that, but maybe

Berkshire should look at CCL industries. You're right. Good business. So with that, we'll see you

back here real soon. Thank you so much for joining us today.

This podcast is for informational purposes only and any forecast on the economy, markets or

individual securities should not be viewed as investment advice, a recommendation or an offer

or solicitation to buy or sell any securities. Clients of Baskin wealth management and the speakers

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