Crisis investing, Netflix and Coca-Cola

Join the team as they discuss crisis investing, the success of Netflix and Coke's new idea.

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Investors Investing, Netflix and Coca Cola
GS: Welcome to Doddsville I am your host Gaurav Sodhi, joining me today is Research [unclear 0:00:58] Nathan Bell, welcome Nathan.
NB: Thanks Gaurav.
GS: Joining us also is Analyst Jason Prowd, welcome Jason.
JP:Hi Gaurav, hi everyone.
GS: We begin with the news that Australia will no longer be manufacturing cars.
JP:Its over.
GS: It's all gone, yeah its all imports from here. I am really surprised by the reaction to this actually, every newspaper carried headlines, everyone saw this not as a story of progress but as a story of woe that this industry that had been alive for so long is now dying. Its not the way I interpreted events but I am interested to hear what you guys had to say, Nathan is it a big deal, what are your thoughts on it?
NB: Well I think newspapers still need to sell newspapers and advertising space so I am not surprised they are making a big deal out of it. But in terms of the economy and what it means for the future in terms of employment and the performance of the economy and all that sort of thing, I just don't think it's as big a deal as what it has been made out to be. How can we compete with foreigners who have just such low labour costs compared to what we do and actually build much better cars and cars that people want and I think you know there is obviously a lot of issues at stake here but I think also the companies have a lot to answer for given that products that they are making, like nobody wants to buy big 6 cylinder, 8 cylinder Holden and Ford's anymore so its only a matter of time.
JP:The big 6 cylinder Holden …
NB: Yeah [unclear 0:02:15].
GS: Well I think that is entirely the point though, this is really not about excessive wages in Australia. Germany is one of the highest wage countries in the world and it's a huge producer of cars, Japan likewise one of the highest wage countries in the world. The U.S isn't as high a wage but they aren't cheap either and still those three countries make and export cars very successfully. I think it's a story more about the failure of subsidies, it was because the car industry in Australia was subsided to death, actually it was subsided to death.
JP:Yeah I absolutely agree with you, like people are saying oh we should be raising tariffs to protect the industry and give them more handouts and I mean the tariffs are what made the industry lazy in the first place, if they weren't protected by tariffs for years and years and years they only went down to 5 per cent in the 2000's from memory, they were at 10 per cent and higher in the past. Maybe we wouldn't have just been building cars that people didn't want, we would have been having to face market pressures and make cars that people want to buy.
NB: I think Ford in the U.S have really made that decision throughout the JFC that they actually need to change the type of cars they have made and they have been relatively successful in doing it, so I am not sure why it didn't transition to Australia or whether it just came too late.
GS: Ford has been amazing actually, they just announce a profit of I think about 10 billion dollars and they had this new profit sharing agreement where every single employee takes a cut of that profit rather than having a very high wage structure all the time. So there are lots of innovative things that car companies are doing but were prevented from doing here because they were protected from competition. Porsche is another example, when they found that there sports car sales were falling they quickly built a big SUV and a Sudan and both of those models have been really really successful, Australian manufacturers continue to build cars that no one wanted because there was no incentive for them to change. Jason does this mean there is going to be a recession in Australia?
JP:Yes.
GS: This is the flip side of this story.
JP:Yeah.
GS: Yes, there you go it's decided, it's going to happen.
JP:No I don't think so I mean there is approximately 50,000 people employed by the car industry and its related industry. So actually most of the people don't work for Ford or Holden or Toyota they work for the manufacturers of the components that go into the actual cars, now presumably a lot of those businesses will have to shut up shop as well if we are not making cars here. But that is, what less than half a per cent of all employed people in the country, I think it will affect some particular areas and towns like if you think about how much this will affect Jalong and how much it will affect South Australia more than elsewhere but drive the whole country into recession I think that is a bit strong.
GS: Nathan unemployment at 6 per cent is a 10 year high which I a am quite amazed that it still sounds fairly low compared to most of the world, is that something to be concerned about now?
NB: I guess what I am more concerned about is something we have been talking about for quite a while and it's the end of the big capex spend in the resources industry in this country, we are seeing this week, I think Ford has axed 1500 jobs as it goes into administration and I happen to think this is just the tip of the iceberg, I think we will see more failures of those sorts of businesses in this country over the next two or three years. And if we get a situation where China's growth really does start to slow in addition to the falling investment in the resources industry I think we will have much more unemployment than we have got today.
JP:And it's the stuff in the margins that matter, right so it's the froth coming off and the forges and the light going under, yeah but its only 1500 jobs well there is 1500 jobs there and there is probably 10 other forges we are yet to hear about and those numbers build very quickly.
NB: I think for me though its also the amount of money these people are being getting paid, like because there has been so much going on in a sense they have had the bargaining power so the wages in the industry have been extremely high and also I mentioned a lot of people have taken our their mortgages based on two incomes, so the major income in their family is 200,000 or 150,000 and you can only find a job at 80,000 like that is a huge change even if you can find a job. So I think you still get to play out.
GS: The other I think this brings to light is our obsession with manufacturing, I think most rich countries have an obsession, nostalgia about manufacturing.
JP:Its noble isn't it?
GS: It's a bit like farming people think that manufacturing jobs there is something inherently good about them and in fact when you think about it manufacturing jobs are typically low paid, low wage, dangerous and dirty and I think replacing manufacturing with other things is actually a sign of progress and having a big manufacturing base is a sign of regression. You know would you rather be there sitting there knitting socks or designing them. There is no doubt in my mind that an advance economy is one that doesn't actually sit there and produce simple repetitive things. And so I actually don't think this is a big hit for the country at all and I am really surprised by the reaction it's getting. [ph: Ross Gettens] wrote a really good article about this, surprisingly in the SMH which I don't really associate with good writing anymore but its worth looking at if anyone is interested.
GS: This week B.P the oil giant also announced that the final numbers for the damages for the Gulf oil spill in, when was it Jason 2010? Yeah we will go 2010, 2010 or 2011 a few years ago anyway. The final numbers for those damages is about 40 billion U.S dollars, Nathan you were saying that is about double what the company expected. The share price has actually recovered a lot since the depth of those problems and I think if you had bought at the bottom you would have made more than twice your money today. So even though it has been a disaster for the company investors could have done very well, having said that though Nathan was that the right choice, if you had gone in and bought B.P in the midst of all this trouble when they had this very open ended liability no one knew how much damage it was going to cost them. Was that a sensible decision with the benefit of hindsight?
NB: Yeah not that I am an expert on B.P but the question for me is anytime any company goes into one of these situations and generally almost every business at some point is going to see a stock price dive by 50 per cent, I mean it's virtually a mathematical certainty at some point something is going to go wrong even for the most successful businesses. The question is you have got to ask yourself you know, one are you within your circle of competence to begin with, like if you just went and bought every stock that went down 50 per cent I don't know how that would pan out but I assume pretty poorly because you would be buying all sorts of horrible businesses.
JP:What is the definition of a stock that falls 95 per cent, its one that falls 90 per cent then halves again, right?
NB: So with B.P you had a situation where as you said the liabilities were an open question, you know you can make all sorts of estimates about what those liabilities might be and how much damage was done and who would be able to make the claims, but you never knew so the question was could you actually … you know do you understand B.P for a start because this is a fairly complicated business already and with all sorts of inherent risks involved in the resources industry and extracting resources from around the world in all sorts of difficult places. Then on top of that you have got people suing the company for the next umpteen years and unless you are an environmental expert you probably really don't know what damage is done and whether it's permanent or temporary and who has been affected. As things have turned out it actually has been a good decision but whether it was the right decision I think in these situations it comes down to your understanding of the business and your ability to handicap the future.
JP:Yeah and how much the market is willing to handicap it as well, I think that imagine a scenario where you know the company quite well you think, okay we don't know exactly what is certain here but it appears that the markets pricing a complete collapse and maybe that is not what happens and you can make some money. The local example I think of is Cochlear, now the share price fell from what, over 70 dollars to 45 dollars when they announced there was going to be a recall and the company itself came out and said look this is bad, we think its going to cost us 150 million dollars but there was over 1 billion dollars wiped off the market value of the business. Now the question then becomes well are the company completely wronged, do they not know it all, are they out by a factor of 7 or is the market over reacted or is there something else, you know does that then create an opportunity. And I think when there is a big dislocation between what the likely cost is and the amount written off the market value then its looks a bit more interesting I think.
GS: They key really is if you can put a number on the initial loss and in B.P's case you couldn't in the Cochlear case you could. The other example I was going to throw up was Forge where they have these very large losses from power contracts and those losses were growing, so the certainty in the number wasn't very high and you could actually generate negative value from those contracts.
JP:And it has brought the business …
GS: Well that's right it has actually turned out to be the right choice not to jump in then, those early estimated losses are key. Nathan is there any business come to mind?
NB: Look I just want to make a more general point is even if you get the estimate of these potential losses wrong I think the question also that you need to ask yourself is what can the business do to actually pay off whatever these charges are or can it earn its way through the problems. And I think when we looked at Forge, Forge was just one where you just didn't know … you know these losses were really big and they were a massive component of the market value of the business, so you didn't know 100 per cent whether the business was going to survive or not and that is why we steer clear of it. With something like B.P, like this company has billions and billions of dollars worth of assets all around the world so if someone came and said, look you owe us 20 billion dollars tomorrow then chances are B.P first of all can maybe look at some assets to see where they can be sold and then just pay the money and move forward. And the second thing is particularly something I have seen a lot with the U.S banking sector is the banks have been in the courts since essentially the GFC's that is 5 years now. Now what has happened is all of these banks have done okay during that period even though the liabilities they are having to pay from bad judgements in the courts relating to mortgages that blew up for example, they have had actually 5 years to earn their way through it and so when you are in their courts you can actually argue and fight in the courts for a long period of time which actually gives you time to build up funds in order to pay whatever liabilities you have to in the end.
GS: Just getting back to the B.P case I mean they have been selling assets for years and years. They sold the very profitable Russian joint venture for a pittance really and they have been selling individual fields for many years now, they sold several. They haven't been successful in getting new fields because they have now got this environmental black mark on them. And I think all that does reduce the earnings power of the business in the future, so it's a really difficult answer I am not sure … I wouldn't have bought in and in fact I didn't buy in when that happened and I think that is still the right decision even though we forego a 100 per cent plus gain. Nathan you have got another way that we may be able to benefit from these situations?
NB: Yeah so B.P wasn't the only one that was affected by this spill there was a whole bunch of other companies and one of their oil services companies that was involved, I can't tell you exactly or technically it was involved but everybody thought that this was one of the biggest oil services companies out there called Halliburton which you may have heard of, we mentioned it in a review about 12 months ago I think. This was a company whose share price also created because people were thinking that Halliburton were going to be on the hook for a lot of these liabilities as well. Now what happened in the end was this company got away with something ridiculous like a 600,000 dollar fine and the only reason they got that fine was because it shredded some evidence. So it wasn't actually that they were on the hook for any of these liabilities that B.P is having to pay yet the company, I think the share price fell about 50 per cent as well and its only more recently just came back and actually its still quite interesting I think at the current price. But I think sometimes you can look at the company that maybe the number one company in the headlines and what you might find that lots of other companies in that sector or related field might actually go down in sympathy, so you might actually be able to steer clear of the B.P and actually buy some other pretty decent business it doesn't come with the risk but it comes with a margin of safety because of the low share price.
GS: Yeah that is a really good point, Anadarko which is a largish oil producer about the same size as Woodside Petroleum they had a small stake in that field and they weren't the operator, so if something goes wrong they are not on the hook for any of the liabilities their losses are kept to the loss of production and that share price absolutely tanked and I think that was one that recovered very fast. So it's a good example of what you are talking about, on Halliburton I would have to say they got off very very lightly, I think they were extremely lucky it was caused by an equipment failure, the whole thing was caused by their equipment failing and so again I would have steered clear of Halliburton under those circumstances as well plus its co-chaired by Dick Chainey so who wants to be a part of that.
NB: I think, you know maybe one way to play these situations too is not to buy just one company its to buy a basket of them and buy three or four companies affected 1 per cent in each and try and reduce your risk that way.
GS: Jason have you started watching season two of House of Cards?
JP:I have, I watched the first episode last night.
GS: Shocking wasn't it?
JP:Brilliant show if you haven't seen it yet it's a political drama about congress in the U.S and its very well worth watching. Best new show of 2013.
GS: Yeah I think that is fair best new show of 2013.
NB: Led by Kevin Spacey I am sure is an actor many people will know.
GS: He reminds me a lot of Iago from Othello he is just a really conniving, manipulating bastard and he talks to the camera a lot so you get a lot of interaction from the audience, so it's really good.
JP:Ruthless pragmatism.
GS: Oh it's fantastic, but the strange thing is you find yourself rooting for him even though he is so evil that is the brilliance of the show. But look we bring this up partly because I wanted to chat to Jason about it and partly because it's the first show produced by Netflix. Now Netflix is probably best known as a DVD by mail service or a content by streaming service and it's operated out of the U.S, it has actually expanded to be much more than that the share price has gone up by 4 times in the space of about 2 years. The CEO of Netflix went on record a couple of weeks ago saying that he is doing to cable television what cable television was doing to network television and he already thinks network television is dead. Jason these are some very big claims admittedly from a very successful business what do we make of that, is Netflix really such a big threat to traditional content providers?
JP:Yes and specifically content distributors, I think that is where Netflix disrupts the model the most. So instead of having to pay 80 dollars a month which is the kind of average U.S cable price to access a whole host of TV shows, you can pay 8 dollars a month, so one tenth to access what Netflix have on offer over the internet and increasingly with people getting cheaper access to fast broadband and Netflix being able to get better access to great content and even creating the content themselves I think that this is a massive change. If I was running a cable network I would be worried.
GS: They don't seem to be very concerned, Nathan do you have any idea about how they are responding, what is the response from the traditional media been?
NB: Yeah, I am certainly not the expert in this area but one thing I have noticed is that it seems to be that a lot of the companies that investors are favouring are the ones with big international operations, so not necessarily completely tied to the U.S market but in Latin America for example where there is still a lot more growth to come over the next decade and where people don't have the ability to stream movies on their televisions or internet. So I don't know how the U.S cable companies are going to fight that but it just seems to me that the investors are trying to hedge their bets by getting that emerging market exposure.
JP:And they are doing also by M&A which is the sort of classic we are a dying business kind of strategy.
GS: Yeah, let's get together and die together.
JP:Yeah, like we have seen cable companies or content distribution businesses merging with telecommunication businesses so they can essentially switch from selling people cable connection to selling them broadband internet connection.
NB: This idea that Netflix is producing its own content to me is actually to me that is a real … say this it's actually a game changer but it has changed a lot of game in its short history. But to me that is a huge step in progression for that business and to actually produce great content that you know you guys are loving, I should just point out that I only tend to watch things on Soho when the series has been out for about 10 years and they start at the very beginning and take you through on a daily basis.
JP:Probably a better way to be you can watch the whole series without having to wait for a new series to be released.
NB: I am currently trying to catch up on about 10 series over the last 12 years that I have missed. So I have been watching arrested development lately, our producer here Steph is one person who put me onto it, its very funny and it actually didn't rate very well in the U.S there was only three seasons I think before they took it off. Interestingly they brought it back on in 2013 with some new cast members and it was Netflix that brought it back on so the fact that this business has more from a DVD in the mail business to streaming and now producing its own content, you know maybe this is another 6th or 7th pillar in the content industry which is quite amazing.
GS: They have been forced into that position though because one of the things that stopped their growth was content providers ganging up on Netflix and saying we are not going to provide you with a cheap source of content anymore so you can cream the extra bit as margin. So they actually increased all their content fees to Netflix and then Netflix's response was to say well we will just create our own content, and they have now budgeted … I mean this is a 26 billion dollar business that only makes 100 million dollars a year but they have budgeted 2 billion dollars a year on content development which seems to be an incredibly aggressive push into creating their own shows. And I just wonder if the industry had played nice with Netflix they wouldn't have done such an aggressive push and everyone could have made decent money?
JP:They are protecting a very cosy profitable arrangement, the difficulty with streaming verses traditional cable distribution is its just more efficient you can deliver it at 8 dollars a month because you can just deliver one show when someone wants to watch it, the reason cable has to cost 80 dollars a month is because you have to provide a whole connection, a whole suite of products that is why its all bundled together, that's why in Australia if you sign up to Foxtail you have to have at least 40 plus channels, not just the ones you want because to justify the cost of distributing any of it to you they might as well put it altogether in a pack no one would pay 80 dollars a month just to watch one show when you could download it off ITunes for a tenth of the price. So it's a more efficient distribution model but creating your own content is really interesting, the one that we have talked about yet is sport, I think sport is where cable still wins hands down they still have all the licensed rights. The first really big contract to come up for renewal I think it is the NFL in 2015 and I am half expecting an Apple or a Google or one of these tech companies to potentially get involved as well. Once someone starts buying the sports distribution rights than traditional cable TV is going to be on its last legs.
GS: I agree with you there sport is really where a lot of the profit is being made, even if you look in Australia channel 10's resurgence has come from sport largely but I think that is a game that is difficult to sustain because the owners of the sport realise they are in a powerful position and the competitors to the distributors, you know the other cable channels they are all watching this cable channel with the sport rights making lots of money. So inevitably the rights to broadcast sport just gets bid up and the players are the ones who benefit most from people's love affair with sport. So the sport as a saviour is probably not going to work in the long term, one thing they have been doing is broadcasting a lot more live events and orchestrating lots of live events. I saw in the Discovery Channel recently they hired some guy to walk across the grand canyon on a wire or something like that, you know this harks back to the days where Evel Knievel used to be prime time superstar. That is probably the way that television is returning to. Nathan we know you are a fan of original content by committing to spending 2 billion dollars of your own content does that change the nature of Netflix, this is now a very capital intensive business and success depends not just on outlaying capital but picking the right shows. Surely this is a much more risky strategy for the company in the future?
NB: Yeah, they way I would think about it its almost like research and development for [ph: CSL] its money that has to be spent to grow revenues in the future and that is actually what I think is amazing about Netflix I am sure when they sat there originally and there was a DVD service in the mail I doubt they were thinking they were going to be producing House of Cards. But to me what it tells you its just how modern technology is reducing barriers to entry in industries that you would have thought, you know even as little as two or three years ago where you know uninterruptable like this is very powerful people, and a lot of these people are involved in politics as well and you know its their businesses that are getting disrupted at the moment and the fact that Netflix is actually producing its own content if that business starts to get scale they are really going to be able to push these other guys much harder and if they can … what essentially the competitors have let them do now is let them start to get enough cash flow where they may actually start competing for those sports rights like you have talked about. To me that just completely changes the industry and if Netflix can do it in such a short amount of time and then it tells me the barriers to entry have fallen and potentially there is going to be more of these types of services in the future.
GS: Jason is this a concern for media operators in Australia, so far they have been fairly well protected both Fox and the Network TV stations have been protected from foreign competition, that doesn't look like its going to last is it?
JP:Not at all I would say we are on the cusp of a really significant change, it's really only in the last year or two that internet speeds across enough people in Australia justify actually watching TV via an I Pad or via some kind of streaming service. What we now need is the regulatory environment to catch up with the technology, at the moment its rules that are stopping Netflix being available in Australia without some kind of IP workaround and this is partly because the big media companies have been very successful, the are owned by wealthy people who have managed to keep the media rules in this country protecting them. And I don't really see how it protects the end consumer we would be much better off being able to buy an AFL subscription directly off there [unclear 0:25:52] watching it over the internet and then maybe an HPO subscription or a Netflix subscription for 8 dollars a month rather than paying Foxtail 100 dollars a month for the privilege.
GS: It seems to be the way its going, the NBA recently signed a deal with direct distribution rights so they bypassed TV stations and cable channels and they are selling the broadcast rights directly and that is a huge game changer, cricket Australia has done a similar deal and I think it was 5 dollars a game, you can watch an entire test match. So that seems to be the way that content owners are going they recognise the power of their position and then trying to keep profits in house. We will look at Netflix when we move onto long and short in a moment.
GS: And to our final segment Long or Short. Nathan, Whitney Tilson an American hedge fund manager famously went short Netflix and then turned around and went long and made a different gain from the stock as it has been …
NB: Good call.
GS: Yeah, very good call but that was an impressive decision just to be able to change like that. What do you think about the business now if you are forced to make a decision and that is what we are doing now, would you go long or short?
NB: I am long Netflix and I think their disruptiveness is going to be around for long enough to have a buyer recommendation on their business I should say until the next decade, I don't know what happens beyond there though.
GS: He is a believer.
NB: Sorry that is for the caveat of price.
GS: Jason?
JP:Yeah absolutely long the idea, I am not as sold that just Netflix will succeed I think Nathan is right about the points maybe for about lowering barrier entry, if Netflix can do this so are a whole bunch of other guys and maybe that means that we will end up with a much richer, cheaper TV viewing experience but whether that means Netflix makes lots of profits along the way that is yet to be seen. If you are paying 26 billion dollars, is that right?
GS: Yeah that is right 26 billion.
JP:For a company that makes 100 million dollars a year you have got to get a lot of growth before you can justify a current buyer. And they have already got 30 million customers, I don't know how many they can get across the world, maybe they can get the 300 million and then maybe its very very cheap now in current prices but I would have to think a bit more about that growth trajectory before getting involved in buying the stock level.
GS: Yeah look I would probably have to go short on Netflix in fact I think on valuation grounds it just looks real expensive. Now that was true back when Whitney Tilson wanted to short it as well so this is a business that always make you look a little bit silly and I think if you want go short it. But you are right there are no barriers to entry anymore in this business they have got 30 million subscribers, they reckon that the maximum they can get in the U.S is about 90 million, they only make 100 million dollars a year and they trade on a pier of over 200 so it's a 26 billion dollar business. I think if you are thinking of it in terms of potential, lets say they have 90 million subscribers, they make 100 bucks a year from their subscriber base you are still only really looking at 1 billion dollars in profit if things carry on as they are and so you are pricing in an awful lot of extraordinary growth that doesn't seem to be baked into the business plan. So I would probably go short this, I think it will probably be a success but that success will be shared with lots of different companies.
JP:There is probably a bit of take over potential here as well I am wondering what Google or someone who has got just mince amounts of resources are going to do in that television space. All those tech companies must be just sitting there watching this going how do we make a play here, how do we get involved and Google did that Chrome casting and sold that really well last year and I think they are all thinking about it, there is rumours that Apple are about to release some new device to make television watching better but we will see.
GS: Final words on Netflix guys? No silence, right …
JP:I just want to make sure its clear I wasn't saying buy the stock I believe in 10 years Netflix will be a bigger, stronger business than it is today.
GS: Okay, well on the topic of bring strong businesses there is very few bigger and stronger than Coke, although they released a really strange deal. Jason we were talking about this earlier Coke has made an alliance with Green Mountain Coffee and Green Mountain Coffee will produce these machines, these little coke manufacturing capsule machines that will be available for people to buy in their homes and you can actually have that hit of coke at home like this espresso machines, like those big hits. What do you think about that idea, that to me is smacks of gimmickry and a little bit of desperation, do you agree with that or is this the next big thing would you go long or short?
JP:Its catch up strategy, it's looking at the success of Soda Stream which is an Israeli based company that allows you to carbonate your own beverages at home, so a little device and you put in a gas canister and some water and you can add flavourings. Coke and Pepsi are genuinely worried about this trend, Soda Stream has been very successful over the last couple of years, more and more people are buying these machines there is rumours that Pepsi might do some deal with Soda Stream, I think Coke is trying to get back in front of the game and get involved by bringing out their own machine. I mean Coke missed a few tricks in the beverage market over the last few years they underestimated the demand for energy drinks, the looked at Red Bull and said oh nobody is going to want them. They looked at Monster Energy and thought no one is going to buy that and it has been the fastest growing drinks category, non alcoholic drinks category. So I would say that is what Coke is thinking we are doing this deal and Green Mount Coffee Roast has had some experience in doing this, they brought out this [unclear 0:31:38] its like an espresso system.
GS: It has been enormously successful.
JP:Yeah really successful in an espresso like system and I think they are wanting to do the same with soft drinks. I think it can be successful I don't think its necessarily a gimmick, the kitchen has become more of a show piece in most peoples home, anyone who has been watching Master Chef or looking at renovation shows especially in Australia we love spending money on our kitchens, we build really big impressive showy kitchens and we like the single serving devices, they are really quite nice to use.
GS: Alright, Jason is going long. Nathan?
NB: I just want to make an interesting point at least what I think is interesting anyway about this situation. If anyone really wanted to see why people whose short stocks are generally more stressed out have a look at the chart of Green Mountain Coffee Roasters in 2011 I was there listening to David Ironhorn present 162 page slide document, 162 slides just amazing research into this company, how he collected that information I will never know. Now I don't know whether he got out of this short but essentially he shorted at the top it was about 85 dollars I think and it fell to about 17 dollars so I don't know whether he exited his short along here. But since then it has gone up five fold and this deal is just one of those things that you could never have predicted and has helped in the share price up again. So I just make the point if you wonder why people whose short stocks are stressed out this is why. Because they really can get away from you very quickly, I mean if that was a 1 per cent position that has gone against you 5 or 6 per cent now. So anyway I am short on this as it all sounds pretty desperate to me. We talked about how amazing Netflix is, how is amazing that people in North America are now consuming less coke, just ridiculous.
GS: Well this is what has driven this entire thing, it's the per capita consumption of coke has actually fallen quite a bit and this is true for all carbonated drinks now. So that is why I think this smacks of a little bit of desperation. Nathan you are going short am I correct?
NB: Yeah I think this idea has got [0:33:42].
GS: Yeah look I would probably have to agree with you, the difference with coffee and beer is that their art is in products where people are proud to sort of bring you out a coffee capsule and serve it to you, goodness knows I have drunken so many cups of that capsule coffee that I have never really wanted to for the sake of being polite. But coke is not quite the same thing you know no one proudly gives you a glass of coke from a capsule and wants to show that off really. I think the distribution model they have has been really successful and it's a good thing that they are looking elsewhere because you are right Jason they have missed a few things in that energy market and its good they are looking but I am not sure I would be banking on this particular one, so I will go short.
NB: It might have some niche issues like if you have got a bar for example, like you have a permanent set up in there so you never had a coke or something like that, but coke is a huge business a hundreds of billions of dollars of business and I don't think this 1 billion dollar investment which even if they lost all the money it doesn't matter but its interesting they have already made 400 million dollars off the investment staking in Green Mountain Coffee Roasts already but I don't think this is an area which is going to boost a lot of money for them.
GS: But this is what is encouraging they are such a big business they can afford to take a few bets and try new things and so I am glad to see they are trying new things and if they fail then it's perfectly okay for them. Anything else to add gentleman? We shall leave it there, Jason and Nathan thanks very much for joining me and for everyone else thank you for listening.