Instant Reaction: Netflix Records Another Strong Quarter

Bloomberg Audio Studios, podcasts, radio news. Let's bring it, Dan Morgan, 0:00:08.119 --> 0:00:11.039 He's senior portfolio manager at Sonova's trust company. They've got 0:00:11.080 --> 0:00:14.200 about nineteen billion dollars in assets under management. Dan, I 0:00:14.240 --> 0:00:17.239 know you are looking closely at your Bloomberg terminal. In 0:00:17.320 --> 0:00:20.560 terms of the news from Netflix just in the last 0:00:20.760 --> 0:00:22.439 nine minutes. What sticks out to you. 0:00:24.079 --> 0:00:26.759 Hi, Tim, I'm alli. Yeah, it looks like overall from 0:00:27.560 --> 0:00:31.000 Ernie's per share and revenue number, it looks pretty strong. 0:00:31.920 --> 0:00:35.400 I heard Scarlett mentioned earlier about the expectations coming into 0:00:35.400 --> 0:00:38.720 this quarter being so high. In the stock trading way up. 0:00:39.080 --> 0:00:41.560 I believe it's up over forty five percent year to date. 0:00:42.520 --> 0:00:45.520 You know, Tim, I had a whisper number on new 0:00:45.600 --> 0:00:48.960 subs for the third quarter anywhere from six to seven million. 0:00:49.400 --> 0:00:50.599 I know they'd beat the consensus. 0:00:50.600 --> 0:00:52.720 That's like the whisper number that Style was talking about. 0:00:53.560 --> 0:00:55.840 Yeah, so they came in with five point zero seven. 0:00:55.920 --> 0:00:57.959 You mentioned the stock is trading down a little bit. 0:00:58.360 --> 0:01:00.480 I just think there wasn't a lot of room for error. 0:01:00.640 --> 0:01:03.160 Well, now it's it started trading down. Now it's hired 0:01:03.160 --> 0:01:04.280 by three point five percent. 0:01:04.959 --> 0:01:08.399 Okay, there we go, but go ahead. Sorry, they came 0:01:08.480 --> 0:01:10.920 up a little bit short on that whisper number and 0:01:10.959 --> 0:01:12.720 turn to pay subs on the third court. 0:01:13.040 --> 0:01:15.920 Hey, okay, Molly's a ton of questions. I know you do. 0:01:16.200 --> 0:01:16.920 Can I just all. 0:01:16.840 --> 0:01:18.559 About love is blind? But you can go first. 0:01:18.720 --> 0:01:20.560 I just want to know what what are you going 0:01:20.640 --> 0:01:22.880 to do? What's an investor going to do when they 0:01:22.880 --> 0:01:25.240 stop with this sub number in twenty twenty five? 0:01:27.319 --> 0:01:29.319 You know you're right, Tim, It's going to be a 0:01:29.360 --> 0:01:33.240 tough sled because you know, we really value Netflix based 0:01:33.280 --> 0:01:35.160 on these sub numbers. I hate to say this, but 0:01:35.200 --> 0:01:37.600 I think what's going to happen and you already see 0:01:37.640 --> 0:01:41.200 this with Apple. You know, Apple will give us no longer, 0:01:41.400 --> 0:01:46.200 you know, different unit volumes on iPhones and iPads and 0:01:46.240 --> 0:01:49.480 so forth, they'll get, you know, they we'll get estimates 0:01:49.600 --> 0:01:52.600 based on revenue by segment, but then a lot of 0:01:52.640 --> 0:01:56.080 analysts will back you know, through average selling prices and 0:01:56.160 --> 0:01:59.280 come up with a unit projection. And I hate to 0:01:59.320 --> 0:02:00.800 say it, guys, but I don't think this is going 0:02:00.880 --> 0:02:02.680 to go a way. I think what you're going to 0:02:02.720 --> 0:02:06.480 see is some estimates based on the revenue numbers in 0:02:06.600 --> 0:02:09.400 terms of what that sub number is, because you know, 0:02:09.440 --> 0:02:11.840 in the past, we've just always traded the stock based 0:02:11.840 --> 0:02:13.880 on how many new members did you sign up for 0:02:13.919 --> 0:02:16.040 the quarter and how many were you signed up next quarter? Right? 0:02:16.800 --> 0:02:19.679 I mean, what's like the next natural key metric then 0:02:19.840 --> 0:02:22.720 for you both to predict and then also to trade 0:02:22.760 --> 0:02:23.040 off of. 0:02:25.000 --> 0:02:26.640 You know, Molly, It's kind of funny because you know, 0:02:26.680 --> 0:02:30.320 we think about like how we trade Microsoft and Amazon 0:02:30.400 --> 0:02:33.560 and all these different stocks based on their ability to 0:02:33.639 --> 0:02:37.400 generate AI revenue, right, And I think it's gonna be 0:02:37.400 --> 0:02:40.399 the same thing here with Netflix. Instead of AI, we're 0:02:40.400 --> 0:02:43.639 going to just be zeroing in on that advertising. You know, 0:02:43.680 --> 0:02:45.919 if we think of what are the catalysts going forward 0:02:45.919 --> 0:02:48.239 for this company. You guys mentioned earlier about a potential 0:02:48.280 --> 0:02:51.680 price increase that's in the mix. They also have that 0:02:51.800 --> 0:02:55.760 paid sharing which we've talked about before and migrating people 0:02:55.760 --> 0:02:58.040 over that. But I think there's a lot of people 0:02:58.080 --> 0:03:01.920 who are hopeful that this AD model will be a 0:03:01.919 --> 0:03:03.839 big generator for them. We have to bear in mind 0:03:03.880 --> 0:03:06.359 about forty five percent of their sign ups, their new 0:03:06.400 --> 0:03:09.240 sign ups are going towards the AD tier model. It's 0:03:09.280 --> 0:03:10.519 about six ninety nine a month. 0:03:10.720 --> 0:03:12.560 Is that is that around the world. 0:03:12.360 --> 0:03:13.680 Which is about fifteen ninety nine. 0:03:13.720 --> 0:03:15.440 I'm sorry, is that around the world. 0:03:17.240 --> 0:03:18.160 Or is that yeah? 0:03:18.000 --> 0:03:20.040 No, is that just an ul like what markets? Is 0:03:20.080 --> 0:03:20.679 that in Dan? 0:03:21.639 --> 0:03:23.800 That would be across the board to him in terms 0:03:23.880 --> 0:03:28.480 of any new subs that they're signing up. In terms 0:03:28.480 --> 0:03:32.640 of across the board, like I said, about forty five percent. 0:03:32.680 --> 0:03:35.240 And you know, as of the end of this year, 0:03:35.560 --> 0:03:37.760 they're projecting now let's say they've got two hundred and 0:03:37.760 --> 0:03:42.480 eighty two hundred eighty five million total subscribers, they should 0:03:42.520 --> 0:03:47.120 have about thirty one million advertising subscribers. So it is 0:03:47.480 --> 0:03:49.600 becoming a bigger piece of the pie for them. It's 0:03:49.600 --> 0:03:52.400 not quite huge, but at least it's over ten percent. 0:03:52.880 --> 0:03:55.760 Shares now hired by five percent in the after hours. 0:03:56.120 --> 0:03:57.840 Just how do you think though about Like I just 0:03:57.960 --> 0:03:59.800 I still find like this decision. I know that this 0:03:59.880 --> 0:04:01.800 is and this isn't the new thing here, but the 0:04:01.840 --> 0:04:05.520 decision to not publish the subscriber numbers so interesting, like. 0:04:05.520 --> 0:04:08.240 Every quarter, even though they announced it a few quarters ago, right, 0:04:08.480 --> 0:04:09.360 just like a harp on it. 0:04:09.400 --> 0:04:12.080 I mean, it just sounds to me like you're almost 0:04:12.120 --> 0:04:14.800 like acknowledging like that the company is moving into like 0:04:14.880 --> 0:04:16.800 a new phase, like maybe like you know that you 0:04:16.880 --> 0:04:19.640 were like maybe a growing company, now you're a more developed, 0:04:19.680 --> 0:04:20.479 mature company. 0:04:20.880 --> 0:04:22.479 I think that is absolutely the correct take. 0:04:22.640 --> 0:04:26.240 Yeah, I mean, but you obviously, like from an investor perspective, like, 0:04:26.320 --> 0:04:28.320 I don't know, Dan, like, do you accept that or 0:04:28.360 --> 0:04:30.039 do you I mean, it just kind of to me 0:04:30.120 --> 0:04:32.400 sounds like I'm almost a little sad in a way, 0:04:32.560 --> 0:04:34.480 like I kind of I always look forward to that 0:04:34.560 --> 0:04:37.080 number is kind of like new and exciting, And I mean, 0:04:37.080 --> 0:04:38.400 how do you view it? Do you think this is 0:04:38.480 --> 0:04:40.839 just a natural maturation of the company. 0:04:42.279 --> 0:04:44.599 I think so, Mollie. And nothing to remember too is 0:04:44.600 --> 0:04:47.520 that the you know, the average revenue they get per 0:04:47.600 --> 0:04:52.520 subscriber in terms of advertising subscriber versus let's say a 0:04:52.560 --> 0:04:57.320 standard subscriber is less. So that could be another reason 0:04:57.360 --> 0:05:00.279 they felt they wanted to migrate to kind of a 0:05:00.320 --> 0:05:05.400 revenue volume based you know, matrix opposed to subs, because 0:05:05.440 --> 0:05:08.320 the subs didn't have as much value that they might 0:05:08.440 --> 0:05:11.400 if it was purely a standard. But you know, Tim 0:05:11.440 --> 0:05:14.000 and Molly, I would agree with you that. I think 0:05:14.279 --> 0:05:17.080 at this point we have to look at Netflix much 0:05:17.120 --> 0:05:19.600 differently than we did two or three years ago. They 0:05:19.640 --> 0:05:22.400 have become a more mature company. You mentioned the cash 0:05:22.400 --> 0:05:26.040 flow numbers that they gave for the physical year being 0:05:26.080 --> 0:05:30.440 above expectations. I think with six to six point five billion. 0:05:30.480 --> 0:05:33.440 They also beat for the quarter. So they they're just 0:05:33.520 --> 0:05:35.480 kind of a different animal than they were let's say 0:05:35.480 --> 0:05:37.599 two or three years ago. Was kind of just add 0:05:37.600 --> 0:05:39.920 as much content as you can, try to get as 0:05:39.920 --> 0:05:42.280 many subs as you can, and don't worry about it. 0:05:42.320 --> 0:05:44.559 And now they've become more kind of a cash flow 0:05:45.520 --> 0:05:48.320 you know story, more of a story of slower top 0:05:48.360 --> 0:05:51.160 line growth. I know Romain mentioned top line growth slowing 0:05:51.240 --> 0:05:54.240 down in subsequent years going forward, and I think the 0:05:54.279 --> 0:05:56.640 streets kind of accepted that. And you know, you look 0:05:56.640 --> 0:06:00.240 at the current multiple, you're looking like thirty five, you know, 0:06:00.320 --> 0:06:02.840 to forty times earning. This stock used to trade, you know, 0:06:02.920 --> 0:06:06.000 close to over one hundred times earning. So the multiple 0:06:06.040 --> 0:06:09.159 has come down in line with the expectations in terms 0:06:09.160 --> 0:06:09.640 of growth. 0:06:09.760 --> 0:06:11.799 Well let's stick on that multiple for a second, because 0:06:11.839 --> 0:06:14.080 we had a great story on the terminal earlier about 0:06:14.080 --> 0:06:18.000 this today about just how expensive Netflix trades right now 0:06:18.080 --> 0:06:21.279 relative to earnings. I mean, if you're like somebody who's 0:06:21.279 --> 0:06:23.240 looking to get in on this stock, right now that's 0:06:23.360 --> 0:06:25.520 up like three hundred and fifty percent in the last 0:06:25.560 --> 0:06:28.000 two years. Like, I don't know, is there a good 0:06:28.120 --> 0:06:29.920 entry point or did you miss it? 0:06:31.920 --> 0:06:34.480 Yeah, So right now you're trading about thirty seven times 0:06:34.520 --> 0:06:38.200 twenty four estimates and you're about thirty times physical year 0:06:38.279 --> 0:06:41.560 twenty twenty five. So that's kind of where your multiples 0:06:41.560 --> 0:06:45.159 are right now based on earnings. You mentioned that the 0:06:45.200 --> 0:06:49.400 current multiple has moved up dramatically from where it was. Again, 0:06:49.440 --> 0:06:51.520 the stock is up forty five to fifty percent for 0:06:51.560 --> 0:06:55.400 the year, and again we're expecting growth to kind of 0:06:55.440 --> 0:06:58.480 slow down a little bit, right and going into twenty 0:06:58.480 --> 0:07:01.960 five at least top line growth. So, you know, Molly 0:07:01.960 --> 0:07:04.440 and Tim, the stock is definitely a little stretched here 0:07:04.480 --> 0:07:06.680 in terms of, you know, the recent run that it's had, 0:07:07.360 --> 0:07:11.760 and obviously the stock is, you know, trading a bit 0:07:11.800 --> 0:07:14.640 of a premium to what the expectations are going forward 0:07:15.040 --> 0:07:17.440 terms of earnings growth and the remainder of twenty four 0:07:17.480 --> 0:07:18.080 and twenty five. 0:07:18.160 --> 0:07:20.960 I own Githa ragnathin earlier today, Dan telling us that 0:07:21.800 --> 0:07:23.680 it's been a while since we've seen a price increase 0:07:23.720 --> 0:07:26.200 here in the US. I would imagine investors want to 0:07:26.240 --> 0:07:28.920 see prices go up, customers might not want to how 0:07:29.000 --> 0:07:31.520 much pricing power does Netflix have just in the last 0:07:31.600 --> 0:07:33.800 forty seconds we have with you, because there is this 0:07:33.960 --> 0:07:38.080 balance between making sure to raise prices not so much 0:07:38.080 --> 0:07:38.720 that people quit. 0:07:39.000 --> 0:07:40.760 You're right, Tim, you know we mentioned the ad tier 0:07:40.920 --> 0:07:44.200 six ninety nine, standard fifteen ninety nine. They drop the basic. 0:07:44.920 --> 0:07:46.640 But you know what's kind of interesting Tim and Molly 0:07:46.680 --> 0:07:49.920 is if you look at where Netflix stands right now 0:07:49.920 --> 0:07:52.840 in terms of pricing versus their competitors like you know, 0:07:52.920 --> 0:07:56.960 Disney plus Paramot all these other major you know streamers, 0:07:57.040 --> 0:07:59.560 they're right in that pack. And you might make a 0:07:59.560 --> 0:08:01.760 case to And that people are willing to pay a 0:08:01.800 --> 0:08:03.760 premium for Netflix because of the content