Is the Market Getting Netflix Wrong? | 7investing
7investing

Is the Market Getting Netflix Wrong?

April 21, 2021

Netflix missed on subscribers and investors sent shares of the company down 10% in after-hours trading. 7investing Now Host Dan Kline explains why they’re getting it wrong and falling victim to short-term thinking. Then, Dana Abramowitz talks why exercise may be a magic bullet for health (and what that means to investors and Maxx Chatsko talks Bluebird Bio’s situation in Germany. And then, to close out the show, GreenPrint CEO Pete Davis joins Dan to talk what consumers actually want when it comes to sustainability.

Transcript

Sam Bailey

Welcome to 7investing Now, a show that teaches you how to take a long term view on investing by better understanding what’s happening in the market now.

 

Dan Kline  

Good afternoon 7investors and welcome to the Wednesday edition of 7investing Now. My name of course is Daniel Brooks Klein. I’m being joined today by Dana Abramovitz. And Maxx Chatsko. Maxx, it’s April, like late April. There’s snow in Pittsburgh? What is going on here?

 

Maxx Chatsko  

I don’t know, we don’t have enough climate change, Dan. So I think we need more carbon pollution, after the show everybody go outside and run their SUV, just idle it your driveway.

 

Dan Kline  

Yeah, Dana and I will be shooting Aqua Net into the air and doing whatever we can. Which is probably a bad idea because I live in Florida, where we have entered what I consider super summer the time of year where it is always unbearably hot, and it feels like it’s about to thunderstorm at any given point. Dana, what are things like in Houston, Texas right now.

 

Dana Abramovitz

It’s a little bit chilly. Actually. No snow. We had enough of that in February, thank you. But, yeah, no it looks to be a lovely day. Good day to go outside for a walk.

 

Dan Kline  

So we’re gonna talk about Netflix earnings at the top, we are going to talk about exercise, we’ll tie that into the market. But basically, we always talk about biotech companies and drug companies. And maybe taking a brisk walk is actually the best idea for your health. And then Maxx is going to talk about Bluebird Bio, that is a company I am not familiar with and their goings-on in Germany. After that I have an interview with GreenPrint CEO Pete Davis, we talked about sustainability, and how most consumers will support sustainable products, but they don’t know what they are. And there’s a lot of lies out there a lot of tricks when it comes to it. And of course, we will take your questions and comments.

 

Maxx Chatsko. Do you have Netflix? Are you a Netflix subscriber?

 

Maxx Chatsko  

I do I pay for it. I do not steal people’s passwords. So yes.

 

Dan Kline  

Dana Abramovitz. Are you a Netflix customer?

 

Dana Abramovitz  

I am not. And it’s mainly because I don’t have time to watch TV.

 

Dan Kline  

So, I am. T-Mobile pays for most of my my subscription. I am not generally a watcher, but my wife and son like unsolved mysteries, not necessarily the show named Unsolved Mysteries, but sort of that true crime genre where you never know, sort of if they’re going to give you the result or not. So I can’t cancel Netflix, I think for most people, you’re never going to cancel Netflix. So what happened this quarter? Netflix reported much slower subscription growth than expected and the stock was down about 8% last time I looked. But Maxx, this is actually a misread, because the entire pandemic and we see this with companies, the entire pandemic they’ve been putting out exceptional numbers. And as those numbers have been good, they’ve said, well, we don’t know when it’s coming, but we’re gonna have a quarter where we don’t grow as fast as we predict, because we’re pulling forward some of that growth. So Dana, you run a business that I don’t know if people pay per class, or have subscriptions in your club. But if somebody comes to you and says I’m going to prepay for my next 50 classes, or I’m going to join for a year instead of a month, that’s a good thing, right? Like we’re sort of looking at Netflix’s success and holding it against them. Am I wrong there?

 

Dana Abramovitz  

Yeah, no, I agree. It’s always, you know, good to have, you know, those people that want to enjoy your products, right. So yeah,

 

Dan Kline  

And let me let me read from the company, “we believe paid memberships slow due to the big COVID-19 pull forward in 2020. And a lighter content slate in the first half of the year, due to COVID-19 production delays”. That is what the company said. Again, they’ve been saying this over and over. So let’s look. Do you have that chart, Sam Bailey, that shows their membership growth, there it is. So look at the stunning growth in 2020 and 2021, these numbers are exciting, they’re big. It is a growing, growing company. But at some point, and you can take the chart down Sam, at some point, they are not going to add 10’s of millions of subscribers, they’re going to hit maturity. And I think maturity is soon. How are they going to make more money, they’re going to make more money by getting their content spend better by sort of reining things in.

 

We of course would like your questions and your comments. We will take them throughout the show. And of course, we might take some at the end. Netflix grew 24% year over year and was in line with its beginning of the quarter forecast, revenue [earnings] per share was $3.75. That is, above the $2.97 that was expected, their overall revenue was $7.16 billion. That’s slightly better than expected. And they don’t believe that Disney+ or Comcast or CBS All Access or whatever they’re calling that now Paramount+, or any of these new services hurt their business. So Maxx , you have Netflix do you pay for any other subscription services?

 

Maxx Chatsko  

I actually don’t, only Netflix

 

Dan Kline  

I pay for a whole bunch of them. But I don’t think adding Discovery+, which we did because of the price point because we’d like to watch say Diners, Drive-ins and Dives at all times or, or you can always put on House Hunters and watch it. I don’t think that hurts Netflix, I think those second tier companies are going to struggle a little bit with, you know, with people churning and going in and out. But nobody’s getting rid of Netflix. The challenge with Netflix. And the reason I don’t like it as much as Disney is because they have a lot of failures. They put a lot of shows out there that just nobody watches. I don’t care if their algorithm tells you somebody is going to watch it. The big hits are what matter.

 

So we’re going to take your questions. We’re going to take your comments, there is a big red flag here for me, they’ve announced a share buyback program. It’s only $5 billion. It’s very open ended. But this is a company that’s going to spend $17 billion in content this year, that they may be cashflow positive, but they don’t really need to be throwing $5 billion around. Maxx, we’ve seen this with companies or Dana, I’ll let you weigh in on this one. How do you feel about buyback programs in general? I would just rather a company uses its money well.

 

Dana Abramovitz  

No, sorry. I had to unmute. Yes. Um, yeah, no, I, I agree. Yeah.

 

Maxx Chatsko  

Also, I mean, look like they’re buying back stock at, you know, prices. They’re at all time highs, right. I mean, kind of not great timing after a giant run up in the last, you know, 18 months. So very questionable timing and use of cash, like he pointed out,

 

Dan Kline  

I actually think they might have announced it because they fully expected their stock to tank based on the subscriber number. This is this is a lesson in investing here that the numbers that the media fixates on aren’t the important numbers. So for Netflix, yes, you want to see subscriber growth, but you want to see subscriber growth over years, you’re not concerned quarter to quarter, you want to see that content spend go down, you want to see the ratio of hit to failure go up, every single show on Disney plus is a hit. Disney essentially needs one show for kids. One shows for, let’s call it all ages, I’d argue like Falcon in the Winter Soldier, and WandaVision are basically all ages shows. That’s all they need. Those are big budget shows. But when you produce a big budget show that you know is going to be massively successful and drive audience, it’s much less of a risk then then Netflix spending $250 million on a James Bond like movie that may or may not be successful. And even if people watch it, people may not like it.

 

We’ve got a couple of comments here. We’re gonna go in reverse order. Sam, we’re gonna take the comment from Max Lucas, first friend of the program we’ve had him on, could you see Netflix start paying a dividend in the next 10 years as they hit maturity or are production costs too high? I think Netflix wastes too much money to pay a dividend. I we’ve talked about this before. It’s great to be a haven for creators, but you still need to rein creators in and I think you get a lot of super indulgent niche shows and I you know, I don’t want to bag on Bridgerton but I know a lot of people love to bridge it in. But I think they love it the way like people love like Medea movies like like, it doesn’t matter how like incredibly indulgent it is to the creator, no one said, Hey, this is a bad idea. This is a little over the top. And that can work sometimes it worked with both of those examples I just gave. But a lot of times it leads to things like Sense8, which was the the family that created the Matrix, did a show that only lasted one season, because it was just incredibly self indulgent. And that is an awful lot of the Netflix content. And I apologize if you’re one of the like 30 people who enjoyed Sense8, or if I’m saying the name wrong, I’m not entirely sure. When you put a number in a wordy title. I’m not sure if I’m supposed to be saying it Sense “infinity”. I have no idea.

 

We’re going to take [name not known] comment and then we’re going to move on. Do you think Roku will benefit from benefit from increased competition in the streaming field? Yes, I think Roku will benefit from the fact that streaming is becoming something that you absolutely have to have. So even people who are still cable subscribers might find that oh my god, I need ESPN plus, because I want UFC. I need Peacock because I’m a WWE fan. Oh, those are two very similar examples. I need Discovery+ because I want to be able to watch. You know, Bobby Flay takes a nap or like whatever show Bobby Flay is producing or like, you know, Guy Fieri’s kids make a bagel or like whatever ridiculous shows they have on that channel. I think people feel the need for that. Yes, I think Roku is the absolute best player here. I own many Amazon Fire devices. I also own many Roku devices, I find them fairly interchangeable. But the fact that Roku is essentially Switzerland, they don’t really have their own content. They have the Roku channel. But that’s just an amalgam of of other people’s content that puts them in a really good position. And they are dominating. And I don’t think the new Apple device is going to change that because I did the math, you can buy roughly six Roku players for the cost of the low level Apple device. Maxx, you have a question here?

 

Maxx Chatsko  

Yeah. Isn’t it ironic like, are we kind of just recreating what cable was like 20 years ago, because you need to now subscribe to like multiple different things. It’s like channel packages back in the 90s. Right.

 

Dan Kline  

So this is a you get what you wished for negative. People wanted a la carte pricing. And I don’t know if you’ve ever gone to a restaurant, a la carte. But when you go to a restaurant a la carte, you pay more than if you got everything on the plate. So when you go to a steak house, and usually there’ll be one or two dishes that come with a side and maybe maybe there’s a special It comes with super salad and aside that dessert, but if you order the steak, your side your appetizer that’s going to cost you more. And what’s happening in cable is some channels will go out of business as cable has shrunk from about 106 million homes, to I don’t remember the exact number, let’s say 83 million homes. And some of those have moved to skinny bundles. So that’s another 7 or 8 million that aren’t getting say VH1 Classic or, or the Cooking Channel versus the Food Network. As those second tier channels stop getting the three cents, five cents, six cents, whatever it is, per cable home, they have to start cutting programming budgets. And yes, that content is being made up for the fact that we do have the Discovery+ of the world where you’re getting literally like 18 shows from Chip and Joanna Gaines like as they’re revamping a house, they’re shooting a show about revamping the revamping and like how they went to the hardware store and whatever it is. But if you like niche content budgets for that are largely going away.

 

I will give a little teaser here, if you like niche content, I’m going to be part of a show on the Reelz Network. So if you are a fan of 80’s pop culture and want to hear me talk about the finances of that, keep your eyes out on the Reelz Network channel, I have no idea where it is. But I do know where it is. It’s in your hotel room. That’s the channel in your hotel room, where Mario Lopez tells you what movies you can watch in the hotel room. And they show real programming. Aside from that.

 

We’re going to take the first comment from Pascal, Sam, and then we will move on to talking about the benefits of exercise. Pascal says I’m not really concerned in the long term. I’m not but when a company invests and invest and invests and doesn’t make meaningful profit. And there’s no reason to believe it won’t have to invest. There’s always going to be a marketing spend for Netflix. That’s significant. A content spend for Netflix that’s significant. And you tell me, so Maxx, you have Netflix, aside from Stranger Things what is a franchise Netflix owns that they could spin out 15 other shows from the way does the way Disney could literally build most of a show around a guy who sort of like Boba Fett like that is literally the Mandalorian that is not a major Star Wars character. And that has been a massive hit show, can Netflix do that?

 

Maxx Chatsko  

No, no, no, they can’t. But like you said earlier, and like Pascal says, I mean, you know, I didn’t even know that revenue grew 24% year over year until you set it on the show. Because all the headlines are always subscription growth slows. So I think the media is a little too fixated on that number. But like you said, I mean, eventually the profits do need to come or maybe accrue from all that scale they have. But if they’re going to spend $17 billion a year on content, you know, they need to make sure that that’s paying off and maybe it’s not

 

Dan Kline  

$17 billion a year in content and no long term investing show. So Ted Sarandos, Reed Hastings, give us a call I you can reach us @7investing or info@7investing.com we would be more than happy to do a 7investing special on Netflix. We’re gonna move on in a second to talk with Dana Abramovitz about exercise. Before we do that, one of the first things Dana got to do as a 7investing lead advisor is record her video pitch for her very first stock pick. We make these big, elaborate slideshows, Maxx put a template together for that. And then we all get into a very long call over two days. It takes like six hours where we all pitch our stock. And I have to say, I’d never heard of the company Dana pitched. I’m very interested in owning it and it’s a company that been around for a really long time. And that surprised me. my pick for this month I think is going to surprise people because it’s a company. I don’t want to say I’ve been negative on. But as a company I have given a lot of warnings about on this show.

 

How do you become a member, it is very easy. If you go to 7investing.com/subscribe, you can sign up for $17 a month, or $170 a year. And you will get all of our past picks, our new picks that come out May 1st, you’ll get a write up on each pick, you’ll also get access to those video calls, you’ll get access to our new member call at the new member call, we walk you through how the service works, you will also get access to our ongoing member call, which happens right after that on the third Friday of every month where we you can ask us questions about any of our picks. If you want to know what is your strongest conviction right now aside from your monthly pick, we will share those. I know this can be overwhelming for Dana, it can be overwhelming for new subscribers, because I often talk about it we are charging, you know a McDonald’s price for a Morton’s Steakhouse dinner like this is this is an investing service for everybody. But you can be a beginner, you can be an expert, there is at least one billionaire who is a member of our service. And there are multiple dozens, in fact, of people who manage other people’s money. So if you want top tier investing ideas, all you have to do is go to 7investing.com/subscribe, I’d say tell them Dan sent to you. But that won’t actually save you any money. So don’t do that.

 

Now we’re going to move on to what we’re watching. Dana, You surprise me in saying this. So and Maxx and I have talked around this. But we’re a country that likes our drugs. You know, something is wrong, go get a drug, don’t worry about it, you know, slap something on. I’ve tried to make a conscious effort to take less drugs, I was definitely a person that had the slightest twinge of a headache would take some Tylenol. And now I’m definitely more likely to drink a bottle of water because I live in Florida and chances are I am dehydrated. Unless it’s a show day where I drink about 19 bottles of water while we’re doing this. But Dana, does exercise play a bigger role in health than we know. And I promise we’ll tie this into investing later on.

 

Dana Abramovitz  

Absolutely, it says, um, just you know, from, like, just your physical health, like building that strength, reducing disease, cardiovascular disease, inflammation, to your mental health, just reducing, like all the stress. It’s, it’s so important. And you know, there was this article that came out that was what kind of, well, I’m big into fitness. And I think everybody knows that or now y’all know, you know, so I pay attention to this quite a bit. And there was an article that came out just this past week on looking at the severity of COVID relation to inactivity, and so that, you know, just, you know, it’s something that I had already, you know, like the importance of health and exercise on your health was something that I already knew. But the fact that, you know, they were able, they had data, they did the study and showed that correlation was really, I think, wonderful.

 

Dan Kline  

Now, why is that? Because, I mean, you can look at me, and I’m not in the best shape in the world, but I do exercise three times a week with a trainer and at least three, usually four, other days on my own. Is it just because your lungs are in better shape? Is it your you’re more of a fighter? Why is there less severe cases of COVID if you’re a regular exerciser,

 

Dana Abramovitz  

So a lot of it has to do with reducing inflammation, you putting you at lower risk for those co-morbidities or other diseases that have a higher impact on COVID. But you’re really just affecting your immune system. So if you have a healthy immune system, like your your body fights, viruses, all sorts of things that you’re exposed to every day. And if your immune system is healthy, then it could fight that properly and you know, prevent disease.

 

Dan Kline  

So, does this apply to other things, but Maxx has made the, not joke, but the comment that, you know, it’s hard to tell someone going through chemotherapy for cancer that they should also be running. But is there you know, some logic to that where exercise should legitimately be part of a treatment plan?

 

Dana Abramovitz  

Absolutely. Yeah. I mean, even if it’s, you know, and the guidance is 150 minutes a week, right. So it doesn’t have to be, you know, running a marathon. It doesn’t, you know, it doesn’t need to be something big. Just taking a brisk walk is all you need to get your body moving, reduce the bad chemicals, biochemicals in your body, and just, you know, create health, you know, putting you at risk for other diseases.

 

Dan Kline  

I’m gonna bring Maxx Chatsko in here, Maxx, is this data, something that should be like part of the marketing for wearables and for for other fitness trackers like, basically, you know, and I use my Apple Watch for exactly this purpose, but like exercise your way to, to less chance of death, like we sort of know the esoteric benefits like, Hey, I’ll look better, I’ll, you know, I’ll be strong and all that, but there’s a lot going on that we sort of don’t see is the fitness industry missing this?

 

Maxx Chatsko

Yeah, maybe and I would like to see that, you know, pick up in this deck? And I know, Dana would as well, I’m actually interested in that as well for like, you know, genetic testing, right? We’re always looking at what genes do you have, and what genes are you expressing, which is more important. And then we just like you said, at the top, you know, we have this like drug-first mentality. A lot of things can be treated with, like better diet, better sleep, exercise, all of those things affect gene expression, too. So maybe we don’t even need genetic medicines for some of these, you know, more prevalent diseases, like the Holy Grail. And some of these companies might be going after in the future. You know, we have a lot of data in terms of like, you know, the more muscle mass you have, the better you, you know, the the better prognosis you have, if you have cancer, we already know type two diabetes is reversible. with diet and exercise, you know, it’s kind of a disease of lifestyle, not of genes. And people don’t like to hear that. But you go into your doctor’s office and you get insulin. And then you’re on that chronically. You can treat it though, with exercise and diet. So I hope that all of this comes into wearables, and maybe some of the AI whatever all these future oriented, you know, platforms that we have wearables, genetic testing, exercise should be a healthy and important component of all of those not just going get a pill, pay some insurance company too much money. You are in a lot more control of your health. And we then we talk about,

 

Dan Kline  

I’m gonna let Max Lucas ask the next question, because it was basically what I was going to ask you anyway. So Sam, if you want to bring that up, we would appreciate it. “People talk about the Peloton to the world. But I know that both the gyms I go to are super busy now. Do you think that COVID has made more people aware of fitness which will help Planet Fitness”? Planet Fitness is a sneaky good business. It’s never been a pick of mine. But it’s always one kind of in the back of my head because Planet Fitness and I’ll throw to you in a second Dana does something that’s sort of evil and sort of brilliant. When you sign up, you have to sign up with your bank account. Credit cards expire. And when they expire. Some people who’ve never been to the gym, just don’t go. I was a Planet Fitness member for four years and only noticed when we moved that I’d had that membership. I had joined another gym and never turned it off. And there’s no recourse for that. No, of course, I don’t love the part of the Planet Fitness business model that essentially doesn’t care if you go to the gym, I would prefer a gym that calls me and says, Hey, we haven’t seen you would you like to come in? Could a trainer show you around? I prefer that level of service. But Dana, do you think this type of information, yes, it might be good for Peloton, but do you think it’s also going to be good for sort of the recovering gym business? And I’ll mention, Dana owns a Fitness Studio?

 

Dana Abramovitz  

Yeah, so so I certainly hope so. You know, and, you know, my business has been open since, you know, we were shut down for two months last year, but we’ve been open since the end of May. And, you know, working at smaller capacity, just to maintain social distancing. But, you know, it’s, it’s been safe. And, you know, unfortunately, you know, a lot of the bigger gyms are getting a lot of bad rap in the media. You know, people are talking about how, you know, if you go to the gym, you’re breathing heavily, you know, the viruses spread through respiration, you’re more at risk. You know, I think that you’re more at risk, you know, like going, you know, to a house of worship, and you know, a family reunion, and then you are at the gym. And maybe, you know, that has that correlation with this study of if you’re physically active, your immune system is healthier, so you’re able to fight the disease off? You know, I don’t know, and I know that, you know, like, my studio, and many others are, you know, they go through, you know, really cleanly protocols, have ventilation systems are really, you know, working to maintain the safety of all of our clients.

 

Dan Kline  

Yeah. And I think it’s very important to not group an industry together. Like because, you know, I’ve talked about I’ve been to Vegas, and in Vegas, I was mostly in Caesars Casinos, which were doing things very, very right. Did we walk by some casinos that weren’t using the correct processes, Absolutely. So Planet Fitness, which again, is a publicly traded company that is surprisingly well capitalized, coming out of the pandemic. They did have to pause some memberships but you know, they didn’t lose a significant amount of members. Planet Fitness on its website will show you how crowded the gym is. They are using some level of social distancing the gym I go to where I meet my trainer, once a week at his gym instead of training at my home gym in my complex where I live. They’re limiting the amount of trainers and clients. They’re not doing classes because that wasn’t a particularly big form of revenue because it was something they started right before the pandemic. The gym is open air when it’s not raining, there’s like garage doors they can open, they have wands that they sanitize everything with, and every trainer and person working out, will try to localize their workout. So I might do things somewhat out of order. Because we’ll do four or five things on say the resistance bands that will clean the resistance bands and go over to the the football push and slant or the rope shaky thing. I’m not great with names when it comes to this. And everyone stays very localized.

 

I know when I was in Vegas, our my friend and former colleague, Matt Frankel went to Orangetheory. And it was socially distanced. His challenge was Vegas mandates a mask while you’re working out. And he found that on the treadmill next to impossible that it was it was hot and sweaty. And essentially, you’re waterboarding yourself. So we actually had to drop out of that part of the exercise. But I think there are a houses of worship that are doing it. I know my mother’s temple is doing it with limited people. And some outside services. I know the yoga studio I used to go to a West Hartford Yoga is doing a mix of Zoom and in person and they have a pretty large room so they could probably get a nice number of people. And you know, Dana, as someone who runs a fitness studio, even just that couple of people there to play off of makes the Zoom so much better.

 

Dana Abramovitz  

Yeah, it is, so one of the things that going to the gym has, and I think that this is where the Peloton model has been successful compared to just you know, a regular stationary bike is community. Right? You know, it’s, you know, and you know, I teach fitness, I own a studio, I love it, it’s really hard for me to do a class by myself. Like, it’s really hard, right? It is, it’s hard to stay motivated. But when you have you know, somebody else, you see somebody else doing it, even if it’s on Zoom, you feel motivated, to work harder to stay in it. And that’s just, you know, the social nature. And I think that, you know, that we’ve been isolated for so long, you know, and now can come back. I think that that’s why you’re seeing gyms being more more crowded, in addition to you know, people realize that they haven’t done it, you know, they’ve been, you know, watching Netflix for a year. And, you know, it’s time to start moving. And, you know, I want to say, you know, like, that’s okay, right? I mean, like, you know, last year was really crappy. And you know, it’s okay that you know, to do what you need to do. If you’re feeling like it’s time to get back you know, don’t feel guilty you know, people aren’t going to judge you, you know, if it’s ready to go if you’re ready to you know, start moving again. Go for it just just jump in.

 

Dan Kline  

Yeah, and you know what safe you know, if you go someplace and I’ve seen it, there’s a there’s an indoor soccer studio, I feel I don’t know what you call it above where my co work is. And there was no point during the pandemic where they weren’t running full games, no masks, you know, people breathing on each other infecting each other. If you walk into that situation and you see it’s a you know, a Pilates class that has you know, 60 people in it and they’re sharing machines well, that might not be the studio for you, but there’s absolutely places doing it well. I would argue Planet Fitness is probably one of those places they’re franchise owned. So it’s always possible you’ll hit one in the in the you know, that’s not following procedures. But in general there’s a lot of focus on chain gyms and even small gyms on social media to do things correctly. So but even if it is just taking a brisk walk I every day do a two mile loop around my complex I like seeing the different wildlife I keep looking for crocodiles or alligators we haven’t seen one of those yet but there’s signs everywhere that that they’re going to be there

 

So this is a topic we’re going to revisit often we have two healthcare experts here one fitness studio owner and one out of shape but but avid fitness guy here. We’re going to talk about, Maxx put it on the sheet is Bluebird Bio throws a hissy fit? I’m not sure if that’s the technical term.

 

But before we do that, Sam Bailey Why don’t you share your own comment because she said something really nice about Dana’s pick. “I’m so excited to see Dana’s first recommendation. It’s a company my family loves, but didn’t realize was publicly traded. We’ll be starting to position when the recommendations are released”. Yeah, we inform each other. We’re all investing professionals here at 7investing, Sam Bailey isnt’, she’s our marketing director. But we learn things from each other. And I’ve purchased, I don’t know roughly a dozen stocks because I’ve heard various members of the team pitch them and get me excited. I’m really excited by Dana’s first pick, I’ve been really excited with everybody’s pick, but it gives our team an entirely different perspective. So again, if you want to subscribe, that is 7investing.com/subscribe and Dana actually has a class so at some point, it may be after Maxx’s piece, it might be a little bit before she disappears, we didn’t kick her out. She had to go teach a class.

 

But Maxx, what is Bluebird bio? And what happened here?

 

Maxx Chatsko  

Oh where do we begin to? And so this actually ties in nicely to our previous discussion about exercise and focusing on outcomes rather than, you know, drug first mentality. So, Bluebird Bio is a gene therapy pioneer. And they recently, I’m sorry, Dan, if you mute yourself, I think there’s some feedback there. Thank you. Sorry, sorry. So Bluebird Bio has some gene therapies for beta thalassemia, which is a rare blood disorder also developing one for sickle cell disease kind of related. They got approval in Europe in June 2019. But they ran into all kinds of commercial obstacles and missteps, manufacturing, you know, missteps, as well. So the first patient wasn’t dosed outside of a clinical trial until this January, so almost, you know, 18 months later, and now they’re trying to commercialize it across Europe. So even though there’s European Union, every member state, so every country gets actually negotiate on its own terms, and they tend to be a little more aggressive, or a lot more aggressive, actually, than here, the United States where we don’t care, we just let people pay some crazy high price. So Germany actually took a very aggressive stance against Bluebird Bio’s first gene therapy, which they’re trying to price at $1.8 million. So Germany said, no way, we’re not paying that. And rather than negotiate Bluebird Bio actually just said, fine, we’re not actually going to market this in Germany, so call me crazy Dan, but at $1.8 million, I feel like there’s a lot of wiggle room in there.

 

Dan Kline  

Well, it depends. What did it cost to develop? And what’s the market? I think we often fixate on price, but like, you know, people were outraged when the first iPhone hit $1,000. But the reality is, the iPhone is an incredibly well made device that has a whole bunch of R&D behind it, you know, that is profitable, whereas devices generally aren’t profitable. So there is some wiggle room and margin there. But is $1.8 million and outrageous price based on what their cost is? Or is it we spent billions of dollars developing this and the market is 40 people, like, am I missing something here?

 

Maxx Chatsko  

So that’s one of the arguments and the actual arguments, you know, hey, look, if you need blood transfusions for the rest of your life, that’s very expensive, it’s probably more expensive than $2 million. So you can justify the price thinking about that, right? If people are cured or don’t need, you know, anywhere near that many transfusions for the rest of their life, then that price can make sense, it can save the healthcare system a lot of money. The problem with that is, you know, this is important to consider for all genetic medicines, right? You know, genes are distributed based on different, you know, populations. So for most patients that have beta thalassemia, or sickle cell disease actually live in much poorer countries. You know, so if Germany is not willing to pay $1.8 million, I guarantee you, Spain, Italy, Portugal, different countries in Africa, or even India aren’t going to pay that price, either. So in my mind, you know, just with all of the missteps that this company has made, this is actually a pretty good example of how not to run a genetic medicines company.

 

And there’s a lot of competition coming to so you know, the fact that they’ve delayed their their commercial launch by, you know, two years, almost, that’s two years less time they have on the market. And there’s other approaches, there’s, you know, some first generation CRISPR gene editing, that’s coming that looks in early trials, anyway, pretty effective and pretty durable. We also have, you know, some next generation genetic medicine, whether it’s CRISPR gene editing, or next generation gene therapies coming as well. So that also is going to put pressure on this $1.8 million price tag, and like we just talked about the point should be helping patients and outcomes. You know, the company’s to date kind of pitched itself as, Oh, we’re always gonna have this value based care system and walking away from Germany and not even negotiating, it doesn’t really fit that narrative, right. So given all the other things that’s going on at Bluebird Bio, you know, it just, it’s a good example of what not to do, in my opinion,

 

Dan Kline  

Maxx, is this a company that’s going to fail? It sounds to me like if you have cheaper competitors below you, and you’re not handling your marketing and positioning, well, that you’re not long for this world.

 

Maxx Chatsko  

So this is actually a good point, right? We, you know, in drug development, we act like successful results in phase three clinical trials is like the final book end. And that’s not quite accurate, right? It’s the final book end in drug development, but it’s only the beginning of commercial development. So doesn’t matter how successful your drug was in clinical trials or if it’s approved. If you can’t manufacture it, you can’t distribute it, you can’t get insurance companies to cover it, you’re not going to be successful, right. So as my colleagues here now and members as well, you know, I look at the technical opportunities and challenges for companies I recommend. I also spend a lot of time in my pitches on the commercial opportunities and challenges because a lot of times it’s hard to understand or learn this lesson, but the best technology doesn’t always win in living technology. A lot of times it doesn’t lead to profitable business. So you really do have to sell a product at the end of the day. So Bluebird Bio so far is not doing very good job at that.

 

Dan Kline  

And that’s often true in any technology marketing plays a part of it. If you watch Shark Tank, there are often times where you will see something that’s an awesome idea. And how the company is bringing it to market is a terrible idea. I, I will say I have a coffeemaker on espresso machine that I bought off of a Facebook ad that is dramatically better than any of the 12 others, the six Nespressos and three Keurigs and whatever that are sitting in various closets of mine, but the company’s strategy of buying Facebook ads doesn’t seem to be all that successful in making it a household name.

 

We’re going to hit the homestretch coming up next. So we’re gonna say goodbye to Dana, who is not going to be with us when we come out of this. But I sat down with GreenPrint CEO, Pete Davis to talk about sustainability and how that is going to impact stocks and the market and personal finance and credit cards. So Sam Bailey, if you want to hit that video, we would appreciate it.

 

And welcome back. I am Dan Klein. I am being joined today by GreenPrint CEO, Pete Davis. We’re going to discuss his company’s Business of Sustainability Index, Pete, welcome to 7investing Now.

 

Pete Davis

Thanks, Dan. Thanks for having me.

 

Dan Kline  

I’m excited to have you, this is a topic we’ve talked about a lot. It’s one that it’s a little bit difficult to put reality to. But Pete, why don’t you explain a little bit about what GreenPrint does before we get into your research?

 

Pete Davis

Yeah, sure. GreenPrint is an environmental technology company. We’re a public benefit corporation. And we provide sustainability services in 16 countries. We basically help companies, our clients develop and meet sustainability goals, while increasing brand value and customer loyalty. And so we make it easy for businesses to do well by doing good. We’re an Inc. 500 company. And we’re on track to offset about 30 million metric tons of carbon by 2025 in a couple years.

 

Dan Kline  

And you did a really interesting survey here. So let’s let’s talk some of the highlights of your research. This shows that Americans want eco friendly products and personal finance options, but they struggle to identify them. You found out that Americans are more willing to purchase sustainable products, when they’re able to clearly differentiate them. You also found that a majority that was 56% would even use a credit card that could calculate and offset the environmental footprint of their purchases. Some of your other key findings were that 64% of Americans are willing to pay more for sustainable products, but 74% don’t know how to identify them. Let’s go to the first question here. Do you believe that sustainability will play an increased role in purchasing decisions?

 

Pete Davis

Absolutely. So we see it all day long. GreenPrint works with clients to develop these sustainability goals, communicate them clearly. And then measure the results. And we survey our clients, consumers and stakeholders, we see across the board, they’re more loyal, they’re less price sensitive. We conducted the business’s Sustainability Index to kind of look at American consumers more broadly. And we found that kind of across the board all age ranges and demographics. Sustainability is a top concern for consumers among basically every demographic profile driven by younger consumers.

 

Dan Kline  

Is this one of those areas, though, where it’s easy to say you’ll do the right thing. But then, oh, those K-Cups are so convenient. Like, is there a bit of a disconnect between action and sort of intent?

 

Pete Davis

Yeah, I think certainly, it’s human nature. For people to do the right thing when it’s easy, and it’s a little bit more challenging when it’s difficult. And so it’s our job as sustainability experts to make it convenient. So do the hard work behind the scenes and make it convenient for consumers to choose the sustainable option and not ask them to change behavior too drastically. So take take recycling as an example. 20 years ago, almost no one recycled, it was really inconvenient, right? You had to wash things out and store them and then put them in your trunk and find a recycling depot and drive to the recycling depot and almost no one did it. And today, most consumers do like 90% depending on the stats you look at, because all you have to do is find the blue bin or take out the bin with your trash can. We see the same thing, so three out of four Millennials are willing to pay more for sustainable products. Think about the dairy case, you’re standing front of the dairy case. And most consumers today choose to pay $4 for a dozen eggs from free range, humanely treated, you know, free range chickens instead of two dollars for regular eggs, so people are willing to pay twice as much for a product and feel better about it when it’s sustainable.

 

Dan Kline  

Is this something that’s being driven by younger consumers?

 

Pete Davis  

Absolutely. So, you know, anecdotally, after interacting with younger consumers, it becomes pretty apparent that they’re purpose driven and focused on sustainability. The facts, support the anecdotes, and so 75% of Millennials are willing to pay more for sustainable products. And then we see 64% of Gen X and 57% of Boomers. And so this is a nice little trend line showing that younger customers are really purpose driven. And if you want to stay relevant, with the customer, and even the employee of today, and tomorrow, you know, and you’re a business looking to attract these consumers and employees, you need to invest in sustainability and clearly communicate your plans. So you build trust with customers.

 

Dan Kline  

As a company whose business is sustainability, how do you sort of separate optics and reality, I’ll give an example. We’ve gotten rid of plastic straws pretty much everywhere. I’m pretty sure plastic straws were not nearly the problem that plastic cups are or, you know, and I know the paper straw is a really poor substitute for the plastic straw. So those optics don’t really work for me, because as my straw is melting while I’m having my coffee, I find it really disappointing. And it’s a lot easier to carry a mug, which I can wash out in the bathroom than it is to carry a glass or a metal straw, which is difficult to to wash up. How do you sort of balance that with the companies you work with?

 

Pete Davis  

Yeah, I think that’s a great question. I think the the, the goal is to start and to communicate clearly and acknowledge that, you know, we as companies or as products have a footprint, and we intend to do the right thing. And we want to kind of measure our impact today and put in place plans to transition our business, our products, to the circular economy and not not get over our skis and over promise, but to clearly communicate kind of backup, what we’re doing with third party validation. So that we can build trust with customers, because that’s the most important thing. And so we’re not going to get it right the first time. But get in the game. You know, a lot of large companies are already doing this. If you’re in the middle market, or you know, small to large company that hasn’t started yet. The goal is to start, it’s not overly complicated to kind of dive in and start building sustainability plans and goals. Just be transparent. clearly state what your goals are, communicate and realize you’re not going to get it right the first time.

 

Dan Kline  

So one of the things your survey found was that people want personal finance products and even credit cards that lean into sustainability. I don’t even have any idea what that looks like. I pick a credit card based on rewards and interest rates. I’m not entirely sure I care if my credit card, you know, plants a tree or whatever it is. So what would that look like for consumers?

 

Pete Davis  

Yeah, you know, it’s a, it’s a great question. And great findings, we found across the board, like 76% of Americans would switch to an eco friendly consumer products in the grocery store. 74% would switch fuels. So if a gas station offset carbon emissions on fuel, three quarters of people would switch to that brand. And we found similarly, in the credit card space, I think 71% of Millennials said that they would switch and use a carbon neutral credit card. And I think the card space is really interesting, because it gets back to the convenience factor that you mentioned, right. So there’s a lot going on plastic straws and paper straws. And so there’s confusion in the marketplace. Consumers typically don’t trust what companies say. And I think large retailers and even credit card companies are in a unique position. They have a trusted relationship with consumers. And they’re kind of at the top of the funnel. And so they can make it convenient. And so when I go to a large retailer, you know, there are 1000s of brands that I’m buying the large retailers in position to help me weed through the clutter and figure out which brands are sustainable, and they get kind of a consistent, trusted message. And similarly, a card issuer is in a unique position, they own their relationship with me as a trusted consumer. And while I want to be sustainable, you know, 74% of consumers say they don’t kind of believe and they don’t know how to identify sustainable products, the card issuer can help me kind of measure and identify transactions that are sustainable, and they can offset the emissions. So I know from one trusted source, all of my transactions are carbon neutral.

 

Dan Kline  

Final question here, the companies you work with how do you build that trust? I agree, I’m pretty skeptical of most companies I deal with and I cover, you know, industries that will put up reports, we’re going to be you know, carbon neutral by 2035. Well, I’m going to be an Olympic runner by 2035, that to me is basically just kicking the can down the road. How do you counsel companies, you know, to work towards believability?

 

Pete Davis

Yeah, you know, I think we see a lot of goals that are out in the future. And that’s because a lot of large companies are trying to, you know, shift the cruise ship. And it takes time, I think we’d like to have kind of clearly communicated short term goals as well as long term goals, and then frequently, kind of update and benchmark those goals. So Earth Day is a perfect example. Right? It happens once a year. It’s a great time, we work with all of our clients to communicate internally and externally, on Earth Day and other times in the year to set kind of checkpoints and benchmark their progress against their goals. We act as a third party validated, but there are others out there. And so it’s not just the company and our client, stating what they’re doing. There’s third party auditors and validators behind the scenes. There’s nonprofit organizations we and others can work with to kind of kind of bolster our claims and validate the work that we’re doing. And so there’s long term goals, hitting targets by 2030, or 2050. And in their short term kind of tactics along the way.

 

Dan Kline

Thank you, Pete Davis, the CEO of GreenPrint. If our viewers want to get in touch with someone at your company, how do they go about doing that?

 

Pete Davis  

They can email us at Info@GreenPrint.eco. They can email me at Pete@GreenPrint.eco or go to our website GreenPrint.eco.

 

Dan Kline  

Ok, we appreciate you doing this. Thank you.

 

Pete Davis  

Thank you, Dan.

 

Dan Kline  

And we are back live, Maxx Chatsko, thank you for finishing up the program with me if there are guests you would like to see us have on, if there are subject matters you’d like us to tackle. Hit me up @worstideas7 on Twitter, you can share it publicly, you can private message me even if we’re not connected. I’ve set my messages so I can see them all and I can accept them. So always fun to do an interview. We’re going to break that one out as an article so people can see it with the video embedded.

 

But Sam Bailey it is near the end of the program, let’s hit our finisher, “Which broken industry do you think is in the most need of disruption”? Maxx, this was a rout, it was health insurance with 70%. And I tend to agree I had a bad internet and cable experience last night, and Sam you can take the graphic down, but I do think health insurance is largely flawed in that many people who have health insurance. Don’t feel all that confident that is going to cover them when something goes wrong. Maxx. I’ll give you the first and last word here.

 

Maxx Chatsko  

Yeah, insurance like that, like health insurance. dental insurance is probably even worse. It almost feels like a scam, right? You pay and it covers like nothing. And you’re like well, why do I pay

 

Dan Kline  

Not feels like a scam. dental insurance is a scam. When you’re paying into something that’s basically like a discount card like like dental insurance is slightly more effective than when I get my sixth frozen yogurt. The seventh one is free. It is not insurance. It’s a discount plan. But uh, sorry to step onto their Maxx.

 

Maxx Chatsko  

No, yeah, I mean, I would agree, I don’t know what the distribution would look like. I mean, it’s hard to imagine that comes from private industry. That’s kind of how we got in this mess, not to get political or anything, but like you do kind of need scale for health insurance. So, but hopefully, you know, this decade some of the changes. I don’t know,

 

Dan Kline  

I think we’re seeing it being led by Big Tech, you know, telemedicine has made some of the more expensive parts of healthcare, I mean, you can’t have, I don’t know your appendix taken out over a Teladoc appointment. But you can replace a doctor’s visit. And that increases efficiency on multiple levels. First of all, from a record keeping point of view, all your information is typed in, because you had to say what was wrong in order to get there. And then a doctor might be able to see 12 patients in an hour instead of say five or six, because they’re not physically moving because they have all the information at hand. So there are absolutely ways where we can get more efficient. You know, there’s putting more doctors into the chain of deciding on healthcare. And taking bureaucrats out can get things more efficient.

 

How many people are dealing with some life threatening disease, and their health insurance company denies them the medicine that their doctor tells them to take, and then they have to fight it for months. So I think you’re gonna see some disruption here. This is something we’re going to talk about on future episodes, but we are out of time today.

 

If you’d like to get in touch with us, that is very easy to do, it’s info@7investing.com. That’s for questions about our service, questions as a member, questions if you’d like to be a member. Don’t ask us to research specific companies. We’re happy to talk about companies on social media if we follow them or on the show, but we tend to not do it one to one because it’s not a great use of our time. And of course you can reach us as a team on twitter @7investing. That is the number “7”investing. This has been fun for Dana Abramovitz, for Maxx Chatsko for Sam Bailey behind the glass for the rest of the 7investing team, who are of course watching at home. I am Dan Klein. I will see you Friday.

 

 

 

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