Oct

21

AV1 is a new video compression format that may reduce the size of a video file by up to 50%. The big advantage is that videos will be up to half the size, with the exact same image and audio quality.

Two big consequences may ensue (when AV1 is fully adopted):

- Internet bills for streaming Netflix will reduce.
A 2 GB movie will only cost 1 GB from the perspective of a customer paying their Internet Service Provider. So more frequent subscriptions?

- Netflix will cut its bandwidth costs by 50%. So the profit margin (respective to bandwidth costs) will go up by 50% if users fully adopt AV1?

Currently, AV1 is only available on select hardware chips (listed table on Wikipedia) Maybe as users get new devices, use of AV1 will grow. This will likely happen gradually over several years (maybe half a decade). But an obvious winner would be Netflix & YouTube (Google Stock). Maybe bandwidth is so cheap it won't make a dent in the business revenues? But all major companies seem very enthusiastic about implementing AV1. Maybe bandwidth has it's (less talked about) variant of Moore's law. Where after a few years it gets easier to move stuff around the internet.

Cagdas Tuna wonders:

How many nuclear plants we need to feed that endless “technology”?

Nils Poertner asks:

How would you express this into a trade idea, Asindu? I find it easy to put ideas into a trade - it encourages deeper thinking and gives a feedback when wrong. eg, I was bullish housing London property 2007, but short-term it didn't really work out at all! longerterm yes. it was fuzzy thinking of my behalf.

Asindu Drileba answers:

Going long $NFLX since the business is largely about streaming video. The same pattern occurred in Tesla when the cost of efficient batteries dropped by like 90%. So margins automatically go up. (in theory) Tesla could have still gone under due to debt or something else. So, of course it may may fail (most likely)

Another big draw back is that such "qualitative" insights cannot be tested in the past. Maybe a good analogy would be to go long Starbucks $SBUX if you think the price of coffee wil drop the next 5 years by 50%.

So the ideas may be generalized to:

- Find key Ingredient company X uses in thier products

- Find out if the drop in key ingredient's price over 5 years improves profit margin over X years -> positively impacts stock prices.

This general idea, may then be tested across several industries for example:

- MacDonalds (drop in price of beef)

- TSMC, ASML, INTEL, NVDA (drop price of silver) as silver is very essential in chip manufacturing.

Hopefully testing this across multiple industries on different historical accounts may yield some consistent patterns.

Nils Poertner responds:

Good to write it down in a trading journal and look in a few months what happened. Started writing hand-written letters to friends now. In our digital age, everyone incl me, is going for speed, but deeper thinking - also quality in thinking /research is underrated. Intuitively speaking - we are prob getting some unexpected moves coming, as well.


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