On Tuesday night, Netflix posted numbers that missed market expectations, and it dropped 10%. The shares are about 15% off their all-time highs, reached in July.

They reported third-quarter revenue of $11.5 billion, a 17% year-over-year increase. Operating income climbed to $3.25 billion from $2.91 billion a year ago, but operating margins fell to 28.2% from 29.6%.

Margins were hurt by a one-time Brazil tax expense of $619 million, related to a "gross tax on outbound payments". The country's Supreme Court unexpectedly ruled that this tax applied to Netflix, reversing prior lower-court decisions, covering roughly three years of back charges.

Netflix's advertising business is growing nicely, with leadership confident of exceeding its previous 100% year-over-year ad revenue growth target for 2025. CFO Greg Peters emphasized that Netflix is now "in the walking phase" of its ad business, with further plans to launch interactive ad formats and strengthen AI-powered ad capabilities to sustain growth. This part of the business has the potential to be hugely profitable in the future.

I remember the earlier years, when any money that came in went straight out again in the form of content creation. Even though they spend around $20 billion a year on new shows, the company still had free cash flow of $9 billion over the last year, and is sitting on $9 billion in cash in its bank account.

As long as Netflix can stay relevant, it will continue to grow and print cash. In the previous quarter, their KPop Demon Hunters show, an animated film, stormed past 325 million views in just four months, highlighting how they still have the ability to create 'must-watch' content.

We are happy long-term holders of Netflix shares.

Here's an interesting finding by Bloomberg's Joe Weisenthal: AI is turning some cyclical companies into secular growth opportunities.

The example he gives is heavy-equipment maker Caterpillar, describing it as the "ultimate cyclical company" because it's "levered to GDP". He notes that when the economy is growing, and there's a lot of stuff to build, there's more demand for its gear. When the economy is contracting, or slowing down, it goes the other way.

We used to hold Caterpillar in Vestact portfolios, back in the old days, when Chinese industrialisation was the dominant economic trend in the global economy. This was from around 2004 to 2014, when we also owned mining companies like BHP Billiton. We sold the shares and moved on once commodity prices started to fall, and Chinese fixed capital investment slowed, as a percentage of their GDP.

Here's Weisenthal again: "It's always interesting when a cyclical company flips to being a secular winner. So, for example, during the dot-com bubble, at some point people realised that the big parcel shipment companies (like UPS and FedEx) were going to see their businesses boom thanks to the rise of e-commerce. Their businesses went from being GDP-linked to internet-linked."

Caterpillar has become an "AI play" thanks to its natural gas turbine business, and the datacentre demand for them as backup power units. Its stock price is up 200% in the last 3 years, and is trading at an all-time high. Over the past year, it's gone up as much as Nvidia.

According to the FT, AI-related companies accounted for 80% of recent S&P 500 earnings growth. That's quite incredible and makes one realise that regardless of who's in charge of the US, be it Democrats or Republicans, the big US economic machine is far more important.

The American Tailwind, as Buffett likes to call it, is why we are biased towards US-listed stocks. It is comforting to know that the systems in place are designed to promote innovation and business success and that cannot be changed by politicians.

My personal opinion is that the last two presidents of America have been a hindrance, yet the country has still thrived under both of them. I am going to end with another Buffett quote, but change the words slightly to suit my point. "I try to invest in a country that is so wonderful that an idiot can run it because sooner or later, one will."

Salesforce shares surged the most in six months after management promised to bring back double-digit growth. The company expects to reach $60 billion in annual revenue by 2030, not counting its pending Informatica acquisition due in 2026.

Chief Financial and Operating Officer Robin Washington said the return to faster growth will take 12 to 18 months, but the direction of travel is clear. Salesforce also plans a $7 billion share buyback over the next six months, a vote of confidence after the stock's 29% slump this year.

Investors had grown jittery as Salesforce's revenue slipped into single digits for the first time. Many feared the company was losing relevance in an AI-driven world. But Washington dismissed that narrative, calling the "death of application software" a myth.

The company's answer to the AI wave is Agentforce, a tool that automates tasks like customer service and early-stage sales. It already has 12 000 users and is saving itself about $100 million a year.

Having a young population is an asset. These people have decades of work ahead of them - The median age in every country.

YouTube just ate TV, and it's only getting started. In just two decades, it has achieved what cable couldn't - The vision for YouTube's future.

Asian markets are mixed this morning. Most bourses are in the green, with Australia, Hong Kong, Singapore, and South Korea edging higher, while Japan, China, and Taiwan are trading lower.

Big movers in Asia this morning include Sumitomo Heavy Industries, surging nearly 7%, and Kawasaki, up more than 3%. On the flip side, Disco tumbled almost 5%, while Omron, Sumco, Lasertec, and Daikin Industries each slipped close to 4%.

In local company news, Quilter, which is a British financial services group that was spun off from Old Mutual, posted another strong quarter, drawing GBP2.2 billion in net inflows, as assets under management climbed 7% to GBP134.8 billion.

US equity futures are unchanged pre-market. The Rand is trading at around R17.23 to the US Dollar.

Have a good Thursday.