How to Find the Next Apple, Microsoft, or Netflix

In today's Masters Series, originally from the May 24, 2023 issue of the Empire Financial Daily e-letter, Whitney recaps the path to dominance for three tech behemoths... explains why these companies experienced rapid success... and details how you can spot the next blue-chip company before it takes off... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Master Series] Editor's note: [You can rake in profits in this turbulent market if you know where to look](... Everyone is looking for an edge in the stock market right now as high inflation, rampant geopolitical conflict, and a painful recession loom over the economy... This heightened uncertainty could tempt many investors to flee the market, but Wall Street legend Whitney Tilson believes this market volatility could set the stage for big investment opportunities throughout 2024. Whitney founded Empire Financial Research – which has integrated operations with Stansberry Research – and now serves as lead editor of Stansberry's Investment Advisory. In today's Masters Series, originally from the May 24, 2023 issue of the Empire Financial Daily e-letter, Whitney recaps the path to dominance for three tech behemoths... explains why these companies experienced rapid success... and details how you can spot the next blue-chip company before it takes off... --------------------------------------------------------------- How to Find the Next Apple, Microsoft, or Netflix By Whitney Tilson, editor, Stansberry's Investment Advisory In May, I shared the story with Empire readers of how I discovered Amazon (AMZN) before it became the trillion-dollar behemoth we know it as today... I used a similar approach to buy Apple (AAPL) in 2000, Microsoft (MSFT) in 2010, and Netflix (NFLX) in 2012. These investments were one of the reasons I was able to grow my hedge fund from $1 million in assets in 1999 to more than $200 million at its peak. Today, I'll show you exactly how I spotted these future moonshots before they became the mega-cap blue chips we know them as now. Apple, Microsoft, and Netflix all share one common trait... they're extremely "hyperscalable"... Let's look at Apple first. When I bought shares at a split-adjusted $0.35, legendary co-founder and CEO Steve Jobs had returned to the struggling company, which had recently launched its iMac desktop computer. This was years before iPods, iPads, iPhones, AirPods, and the app store ever existed. But I knew Apple was special at the time for a number of reasons... - It had (and continues to have) a base of fiercely loyal users. - At the time, 50 million homes in the U.S. didn't have a personal computer (not to mention hundreds of millions of homes overseas). These people were significantly less technologically sophisticated than average, which played into Apple's strengths of the products being easy to set up and user-friendly. - Apple had a long history of developing stylish, innovative products that differentiated it from its competitors and allowed it to charge a premium price. This is still the case today, and we continue to see this with every new product Apple creates. - The company's balance sheet was pristine, with a huge cash hoard, little debt, and a "light" business model with low inventories and capital expenditures. At the time, Apple was sitting on more than $4 billion of cash and short-term investments, and $819 million in long-term investments, offset by a mere $300 million in long-term debt. That added up to more than two-thirds of its share price. Plus, Apple had the ultimate "wild card" in the form of Jobs, who was a genius and a visionary and who deserved the lion's share of the credit for engineering Apple's comeback. Jobs (sadly) passed away in 2011, but Apple continues to execute brilliantly... The iPhone basically put the nail in the coffin of its top competitor, BlackBerry (BB), which saw its market cap crater from $64 billion when Apple released the first iPhone in 2007 to around $2 billion today. The iPhone was a total game changer, putting computers in the pockets of millions of Americans that allowed them to use social media, send e-mails, stream videos, and play games anywhere they wanted. Apple is the prime example of the "network effect" at work: The value of its products and services increases as the number of people who use them increases. Think about the app store. Rather than hiring hundreds of thousands of developers to create apps, Apple incentivized outside developers to create apps for its users – growing its ecosystem exponentially. The more users there are to download apps, the more developers want to create apps for those users, and so forth. That's what I mean when I say these companies are hyperscalable. --------------------------------------------------------------- Recommended Link: # [Our 25-Year Anniversary Gift to You]( This year marks our firm's 25-year anniversary. To celebrate, we're unveiling an investment breakthrough that has taken us decades and $10 million to create. Since going live, it has outperformed the market by up to 10-fold, gold by up to twice over, and bitcoin by up to 20-fold. Plus, it has crushed almost all of the "Magnificent Seven" stocks. [Click here to claim free access right now](. --------------------------------------------------------------- It was the same case with Microsoft, which I first bought in mid-2010 before it went on to be a 17-bagger... Despite controlling more than 90% of the world's operating systems and sporting rising profits, the stock had fallen sharply. Investors were worried that Microsoft was losing to Google in search engines and would lose market share in personal computing to Apple. Plus, its hardware business was struggling. But backing out its nearly $40 billion pile of cash, MSFT shares were trading for just 8 times earnings. As I told a reporter from Reuters at the time, "That's insanely cheap for a company of this caliber and market position." A few years later, Microsoft transitioned to a Software-as-a-Service model, meaning that it charged a few bucks a month in perpetuity for access to the Microsoft Office Suite. That allowed Microsoft to become extremely hyperscalable: It didn't really cost the company anything extra whether it had 1,000 subscribers or 1 billion subscribers. And like Apple, as more and more people used Word and Excel, other people wanted to share the compatibility, leveraging its network effect tremendously. These powerful forces propelled MSFT shares higher, and in 2019, Microsoft joined Apple in the $1 trillion market-cap club. (Amazingly, its market cap has more than doubled in the last few years!) Netflix took a similar path to stardom as Microsoft... At the turn of the century, Netflix had just 400,000 subscribers. Today, that number has exploded to around 247 million... a staggering 61,650% increase. Take a look... In the process, Netflix put Blockbuster Video out of business entirely. (Ironically, Blockbuster had the opportunity to buy Netflix for $50 million back in 2000 but passed. A decade later, Blockbuster filed for bankruptcy.) But as we saw with Apple and Microsoft, Netflix didn't take a smooth ride up, either. In an ill-fated strategy, the company separated out its DVD-by-mail business from its streaming business and gave it a new name – Qwikster – forcing people to subscribe to it separately. Netflix customers revolted – the company lost 800,000 subscribers in that quarter alone – and in less than a month, CEO Reed Hastings walked back the decision. But the damage was done... Netflix went from growing 30% year over year to just above 10% for three quarters. Shares fell from $43 to less than $10. I was famously short Netflix at the time and even published an article called "Why We're Short Netflix"... That prompted Hastings to publish an article of his own, titled "Whitney Tilson: Cover Your Short Position. Now." He and I connected through e-mail and he invited me to brunch at his house in California where he helped me realize I was looking at Netflix with a completely wrong lens. I was looking at how many people were paying $8 per month and trying to figure out how much each subscriber was worth. Instead, Hastings explained that Netflix's streaming platform was already built... and now it was enjoying the network effect as more and more people were using it. Because Netflix paid a fixed amount for its content, it cost Netflix virtually nothing to add a new subscriber. Each new subscription was almost pure profit. I immediately closed my short and, after the stock fell sharply, backed up the truck on Netflix shares. I went on CNBC the exact day Netflix bottomed following the stock's crash in 2011 and predicted it would be the coming decade's Amazon, whose shares were up 1,000% over the past decade. It turns out I was far too conservative: NFLX shares rose 90-fold over the next nine years! Now, take a look at the following chart... As you can see, this hyperscalable model has led to massive revenue growth among all three companies over the past several years... This has, in turn, led to massive returns for shareholders over the same period... I talk to people all the time who kick themselves for not investing in Amazon, Apple, Microsoft, and Netflix... Everyone wishes they had the opportunity to invest in these stocks back then. But I believe that right now, investors have a similar opportunity to make a fortune in the markets. I think people who get into the right stocks today will look back at the market chaos we experienced over the last year as one of the best things that ever happened to their portfolio. Regards, Whitney Tilson --------------------------------------------------------------- Editor's note: With all the recent twists and turns in the market, you're probably wondering what to expect as 2024 rolls along. That's why Whitney is sounding the alarm on Thursday at 10 a.m. Eastern time with an urgent new warning about what's coming next for stocks – and what to do with your cash moving forward... And he's helping reveal a powerful new investment strategy that will help you see which stocks will double your money – one that has been entirely off-limits to all but the wealthiest hedge-fund founders until now. [Click here to get the full details](... --------------------------------------------------------------- Recommended Link: # [2024 Stock Market Shutdown]( One Beltway insider predicts U.S. Treasury Secretary Janet Yellen could soon be forced to close the New York Stock Exchange, Nasdaq, and every other exchange in America – for reasons no one is currently discussing today. It's a nightmare scenario few investors are prepared for... which could have drastic consequences for your money. [Check out his shocking prediction here](. --------------------------------------------------------------- You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. 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