April 19, 2024 • 23 mins
Featuring:
Geetha Ranganathan, Bloomberg Intelligence US Media Analyst, joins the program to discuss Netflix earnings.
Herald van der Linde, Head of Asia Pacific Equity Strategy at HSBC, joins us to share his perspective on APAC markets.
David Finnerty, Bloomberg FX and Rates Strategist, joins us from Singapore to discuss rate cut outlook and global
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg
Daybreak Aisia podcast. I'm Doug Krisner. You can join Brian
Curtis and myself for the stories, making news and moving
markets in the APAC region. You can subscribe to the
show anywhere you get your podcast and always on Bloomberg Radio,
(00:23):
the Bloomberg Terminal, and the Bloomberg Business.
Speaker 2 (00:25):
App after the bill. Today, Netflix posted its best start
to the year since twenty twenty, Netflix adding nine point
three three million customers in the first quarter of twenty
twenty four. That's nearly double the average estimate from analysts.
Despite that, Netflix shares we're down about five percent in
late trading. The streamer reported a weaker than expected second
(00:47):
quarter revenue forecast. Joining us now for some discussion of
this is Gita Ranganathan, Bloomberg Intelligence US media analyst, to
take a closer look. So, Gita, Netflix, Well, pretty strong rebound,
I think you have to say, albeit with a few qualifications.
On balance, how do you read these results?
Speaker 3 (01:06):
Very very strong results, without a doubt. We're seeing really
good momentum when it comes to the subscribers. And the
big story of course for Netflix is that they are
trying to balance subscriber growth along with their financial metrics.
So the most important metrics here being you know, revenue growth,
and they were guiding to or they were targeting rather
(01:28):
double digit revenue gains, which they delivered and will continue
to deliver it through the rest of the year. And
then of course is profitability. They're one of the only
streamers right now to have very very strong profitability metrics,
and you know, they actually upped their guidance when it
came to operating margins. So on balance, a very very
(01:50):
strong report card, although you did point out the slightly
muted outlook, which is why we're seeing the share reaction.
Speaker 1 (01:57):
Gaeta, I'm trying to understand whether or not this growth
is being powered by original programming or crack down on
password sharing, which is it?
Speaker 4 (02:08):
So it really is.
Speaker 3 (02:09):
I think the biggest driver of this subscriber momentum that
we're seeing is really the password sharing initiative. Netflix had
initially identified about one hundred million global households that we're
not paying for the service, and we know that they've
cracked down on password sharing across all of their global markets,
(02:29):
so this is really the biggest driver. They haven't exactly
outlined how much they've captured or how much is left.
But you know, just kind of given the guidance and
the fact that they alluded to, you know, much slower
subscriber growth in the second half of twenty twenty four
versus the first half, suggests to us that, you know,
the positive tailwinds from this password sharing crackdown will start
(02:52):
to fade pretty soon.
Speaker 2 (02:56):
Now. Netflix shares were up seventy one percent since October, so,
to be fair, a five percent pullback is probably not
very likely an indictment. It was a good quarter, and
you said that, but it's important to talk about the
qualifications too, and Doug raised one. Perhaps another might be
that it's going to the company is going to stop
(03:18):
reporting the number of subscribers. Now, that would raise a
few questions among some what do you see as the
reasons for that?
Speaker 4 (03:26):
What are you hearing?
Speaker 3 (03:28):
Yeah, so, I think what they said is that there
really are so many moving parts to this story. Right
in the in the early days of growth, it was
really just a very very kind of a plain vanilla story.
You had more subscribers, you charge them whatever amount you
were charging them, and you know, you kind of had
this whole growth model. It's kind of become much more
(03:49):
nuanced right now because we're kind of reaching this very
mature stage in the Netflix narrative, and they are they
have a lot of growth levers right Aizing is is
a huge lever that is going to kind of start
ramping up. They're probably going to start introducing new plans
at different price points in different countries, and so it's
(04:10):
kind of becoming harder and harder for them to parse
out everything. And I think that is one of the
reasons why they are suggesting that they don't want to
be tied down to the subscriber metric because we know
that every time Netflix reports, you know, the subscriber numbers,
there is just so much volatility and so much noise
surrounding that one number.
Speaker 4 (04:27):
Now, the lack of that number is also creating a
lot of noise.
Speaker 1 (04:30):
So if you look at markets outside the US and Canada,
away from North America, how is this company performing right now? Globally?
Where is the strength coming from?
Speaker 3 (04:41):
The strength is really broad based. I mean, we know
that the US and Canada is a mature market. It's
almost you know, seventy seventy five percent penetrated that said it.
You know, if you looked at the first quarter numbers,
this was one of the strongest subscriber gains in the
US and Canadian markets. But you know, growth is coming
from other markets as well. If you look outside of
(05:02):
the US, we you know, Europe tends to be a
very very strong market, continues to perform very well. So
is Asia Pacific, which is relatively underpenetrated market. And so
there's obviously a lot of optimism for a growth upside
in many, many years to come.
Speaker 2 (05:18):
Yeah, well, I'm curious in terms of revenue drivers, how's
the AD tier doing.
Speaker 3 (05:26):
So the AD tier, they haven't really given us a
lot of color here other than to say that they
are building, you.
Speaker 4 (05:33):
Know, the infrastructure for this business.
Speaker 3 (05:36):
They do have, you know, programming which will kind of
serve that AD business well. And when I talk about
the programming catering specifically to the AD business, it's.
Speaker 4 (05:45):
Really live sports.
Speaker 3 (05:47):
They have a deal for WWE content starting in you know,
twenty twenty five. They're also kind of dipping a toe
dipping their toes a little bit with live events. So
they have this big boxing match between Mike Tyson and
Jake Paul which is coming up in July and that
kind of allows them to test, you know, the appetite
(06:07):
the market for live sports, and we think they will
become a bigger player in the live sports market. That
actually helps them scale their advertising ambitions, I think pretty significantly.
And what we are kind of projecting at Blueberg Intelligence
is that advertising will be roughly ten to fifteen percent
of their business. This is a forty five billion dollar
business in twenty twenty five, the total business, that is,
(06:30):
and we think advertising will be about ten to fifteen
percent of that.
Speaker 1 (06:33):
Geta what do we know about what Netflix intends to
spend on new content going forward? Do they have the
pockets to continue driving on the content side, Oh.
Speaker 4 (06:43):
They absolutely do.
Speaker 3 (06:44):
So they've taken actually a pretty disciplined approach. So for
this year they reaffirmed their content budget of about seventeen
billion dollars. Going forward, we think it'll go up by
about you know, ten to fifteen percent. It probably will
reach about twenty billion dollars or so in the next
two years time. But again that's well within you know,
(07:05):
the range, and they are definitely taking a very disciplined
approach again not just with their original content, but also
they're going in more for licensed content, which tends to
be much more effective and economical.
Speaker 2 (07:20):
So we see that Netflix is number one. I think
Amazon Prime is number two. Right, how are we shaking
out When we look at all of the big streamers.
Speaker 3 (07:31):
Netflix clearly wins, not just in terms of subscriber numbers.
Obviously they have two hundred and seventy million subscribers. They
are the biggest streaming service across the world. But then again,
it's not just that, it's also you know, engagement, and
that is the one key metric that they kept on
talking about over and over again in you know, the
earnings call in their earnings newsletter today, because they do
(07:52):
have they said they have roughly half a billion people
across the globe tuning in every night into Netflix about
two two and a half hours. And so as they
have that engagement, that kind of then speaks to so
much more monetization capabilities, right, so they can increase prices,
They have a captive audience that they can.
Speaker 4 (08:13):
Sell to advertisers.
Speaker 3 (08:14):
So really kind of improves the growth outlook for the
company on so many different fronts.
Speaker 2 (08:18):
KEETERA. Irong Andathan Bloomberg, Intelligence US media analyst, joining us
in our Studios is Harold Vanderlinda, who's head of age
specific equity strategy at HSBC. Perhaps a big sell off
is underway. We've got higher for long grown rates, investors
(08:41):
setting the bar pretty high, and a strong dollar. You
see it that way or do you see things as
maybe more like half full.
Speaker 5 (08:47):
No, I think you're nailing the Sorry, you're hitting the
nail of that. We've gone from a scenario where by
in the beginning of the year we were talking about
maybe four, five, six, seven, I think even the one
point in terms of people that seven rate cuts. Now
what we then saw what inflation was coming down, it
(09:07):
flattened out, and now it's actually ticking up a little
bit and the market is really reshifting that right, So
it's saying there might be no rate cut at all,
and some people are talking about rate hike. Now that
has that changes the macro environment for Asian equities completely, right.
So we have a stronger dollar, we have higher bond
yields and all of these things, and that just doesn't
help Asian equity. So yeah, that's where that pressure is
(09:30):
coming from.
Speaker 1 (09:31):
But if I look at the fact that this is
maybe an illustration of very strong American growth. Demand may
still be a part of the story. And if you're
an exporter anywhere in the APAC region, the outlook for
business is going to be pretty good, is it not.
Speaker 5 (09:44):
Yeah, I mean that's a nice thing of equities, right,
there's always something somewhere happening. So, yeah, you're right exports.
But if you look at the totality of Asia, or
for example, at the Chinese market, the vast majority of
companies are domestic oriented companies, so they they won't be
impacted so much by the strong US. They just have
to deal with the domestic issues. But the ones that
(10:05):
are exporters, and most of the Asian exporters are really
in Korea, Japan, and Taiwan, they benefit on they benefit
on the demand side and on the currency side because
their currency is getting weaker and in so far they
produce something in Korea, Japan or Taiwan, it means that
they have a little bit of currency till winds as
(10:26):
well helps.
Speaker 2 (10:26):
And we're getting chirked around a little bit with some
of the data. Like I was having a look at
the Philadelphia Fed Factory Index. You know, it topped estimates.
In fact in a very big way. The index all
the way up at fifteen point five, the survey only two,
but then price is paid, we're at twenty three versus
three point seven before. So I mean, how do you
(10:47):
actually digest this kind of data? Makes sense of it?
Speaker 5 (10:51):
Yeah, there's a lot of data coming at us, But
I think the overriding picture is simply of just unexpected
and credible strength in the US economy.
Speaker 2 (11:01):
And that leads to higher prices.
Speaker 5 (11:03):
That leads to higher prices and these sort of things.
Then in addition to that, you have oil prices potentially
being a bit volatile. That I mean, the Middle East
has got all sorts of issues there, so that could
lead to oil prices. So all of these things could
fuel into higher prices. Now if you you can also
find good reasons to believe that actually these inflation numbers
(11:25):
will come off again and these sort of things. So
we'll have to see how it goes. But that means
that the market is just very uncertain on what the
path of inflation is and therefore what the path of
interest rates is. That creates that volatility in the stock market.
Speaker 1 (11:37):
One of the things that I'm noting now is that
Japanese inflation for the month of March came in at
a monthly reading of two point seven percent. That was
a little bit below the consensus. I think that Street
was looking at two eight. But we know that Japanese
currency has been under pressure, still trading around a thirty
four year low against the greenback. What choices do policymakers
in Japan have, whether it's the Ministry of Finance can
(12:00):
dering intervention in the foreign exchange or the BOJ.
Speaker 5 (12:04):
Yeah, this is difficult for them because the currency has
been very, very weak. And no we have that there's
this meeting in the IMF, so maybe something will be
discussed there. Who knows, but yeah, the currencies are we
and we've now seen also when Yellen was around that
the Koreans and the Japanese have publicly stated that they
feel somewhat uncomfortable with that. With that currency weakness, Well,
(12:24):
what can they do? The problem? The ultimate problem simply
is that they have an interest rate policy that is
still close to zero. Now you might say, yeah, they've
increased a little bit, but we're talking about minuscule changes.
So interest rates in Japan remain very very low, and
in so far the US is strong and interest rates
remain high. Yeah, that means that you have a massive
(12:45):
interest rate differential. And you see this with Japanese households.
They're taking their money out of Japan and putting into
the US because that's where they get five percent on
a deposits or something like that. In Japan you get nothing.
Speaker 2 (12:57):
Some Japanese companies are benefiting from China growth, but you know,
it's not easy to estimate China growth. We put a
piece out on the terminal today that Bloomberg calculation suggests
that China will contribute more to global growth in the
next five years than all the G seven combined. It's
a staggering number. Yeah, twenty one percent versus twenty percent. Now,
(13:18):
we know that in the short term, China's kind of
gearing up for the May Day holiday and there could
be a lot of spending. How do you see China
moving here in the short term now?
Speaker 5 (13:25):
Now, So, when the GDP numbers came out at the
beginning of the year, a lot of people said for
around five percent, I thought it would be much weaker.
I even know people say I can't believe that particularly number. No,
we now have more data, macro data coming out out
of China that supports that actually the economy is chucking
along reasonably a bit faster than what the market was forecasting.
(13:48):
But we also look at earnings. Now you can say, well, earnings,
you can accountants can fiddle around with that, but cash
earnings what we call cash flow money that you flow
in and out. There's nothing to fiddle there. And actually
it's not too bad. Yeah, the earnings growth has held
a reason to you. Oh, I've got about fifteen percent
cash earnings about eight nine percent. That's probably in line
(14:12):
with the macro numbers that we get. So there is
growth in China and it's probably a little bit better
than what people would have thought it would be three
or six months ago.
Speaker 2 (14:22):
Harold, thanks so much for coming into our studios and
sharing your insights with this. Harold Vanderlinde, had of Asia
Pacific Equity Strategy at HSBC. Our guest is David Finnerty,
Bloomberg Effects and rates strategist, to take a closer look
(14:42):
at markets. So the mood has changed quite a lot
here over the past couple of weeks, David, we talked
about higher for higher for longer rates there in some
of those comments from leading fed proponents, and also the
bar seems to be pretty high now for earnings. We
saw that with a lot of the after hour is
selling and the dollar, ever stronger, is also kind of
(15:04):
wreaking havoc on markets. Do you see that holding for
a while that kind of mood?
Speaker 6 (15:10):
I think yeah. Overall, I'd say yes. I think the
equity market, if you look at it now, is so
much good news was baked into it then I don't
think it takes a lot of bad news to just
give it a nudge down. You know, the S and
P look at run from forty two hundred up to
fifty two basically without much of a correction. So some
sort of correction is quite standard with US yields. I
(15:31):
think the hawkishness has heavily baked in. I think to
get more hawkish in the near to mean really it's
all data dependent now, and you really need strong, strong
data now. Having said that, we don't really have much
data out next week until the USPCE, So without that,
it's like, well, how do yours push higher? And actually
pushing down slightly now because of Middle East tensions? So
(15:51):
if US shields don't push much higher, that does to
some degree limit what the dollar can do. Having said
that the dollar does benefit in a risk off sneer,
But overall, I think the moves we've seen have sort
of been baked in, and I don't think exactly, you know,
I think there's more risks to USU was pushing lower
in the terms slightly and a bit more risk off sentiment.
Speaker 1 (16:14):
So when you look at the price section today, this
weakness that we were seeing in equity markets in the APAC,
where is that money rotating? Is it moving into the
US treasury market? Is it a haven bid that we're
seeing now? I'm looking accrued up nearly one point eight percent.
The dollar is stronger the end, showing a little bit
of strength here, not by much. Do you have a
sense of how this money is moving through the market
(16:34):
right now as we see weaker equities in the APAC?
Speaker 6 (16:37):
Yeah, it's tough to say. I mean it it fluctuates.
Middle East was on the way here. I think I
saw some central headlines coming across from some of the
team saying that something may have been happening in Iran.
And if that is the case, then obviously the market
is very jittery when it comes to anything in the
Middle East at the moment. So the safe haven flows.
Is this where the money tends to go to very quickly,
(16:58):
you know, it's like just go ask questions lates have
is something going on in that area and obviously oil
was reacting into it as well. Obviously that could calm
down once the dust as settled, but the knee jerk
reactions always just go to the safe havens until we
have a clever picture of what's going on.
Speaker 2 (17:12):
We talked about a number of factors that could be
leading to risk off sentiment. In some cases, it's way
worse under the hood than it is with the headline number.
For instance, the S and P down just two tents
of a percent, but it was quite a little bit
of selling attached to some key names that people are
heavily exposed to. I wonder whether or not yields getting
(17:33):
up on the ten year up around you know, four
and a half to five percent, Whether five percent could
be a real kind of inflection point, really sucking in
a lot of money by acid allocators.
Speaker 6 (17:43):
Yeah, I think five. Obviously five is the nice round numbers,
so it could draw a lot of interest. I don't
think there's a five percent is the number, but I
think look, anything around this level just you know, four
sevens to five or anything around that is certainly of
interest to people. Of course, the catches you come in
something your funds and you're trying to go long duration.
You've been burned so many times before that it's a
(18:06):
bit like broken record and you're worried. Now cap tip
with this rhetoric coming out of the Fed like, hey,
we are considered rate hike if needed, or that possibilities
on the table if the data backs up, and of
course should that happen again, this is all lots of caveats,
but the ideas and you will see you see whats
go even higher. So I think the interesting thing becomes
(18:26):
is you go, oh, four to seven is attractive, but
you go our five's attractive, and you get the five,
and you go, actually five point two is attractive. So
it's a bit of a moving line in the sand.
And I think it's really only when the markets see
that data flip and the confident that the data's flipped,
that the rate hikes off the table and the rate
cuts are back in, then I think the market will
jump very quickly into treasure.
Speaker 1 (18:48):
We had comments from the Japanese Finance minister. Suzuki was
talking about the interest rate grap the differential between the
US and Japan, and that's really what's been weighing on
the end. Yeah, maybe there are a few other factors.
Then we get this reading today on consumer inflation in Japan. Okay,
excluding fresh food, we're up two point six percent. That's
still above the boj's target, but it's below estimates. Is
(19:11):
that in keeping with this idea that the Bank of
Japan will continue to tighten or are they kind of
in a holding pattern right now, particularly when of the
data is not making a compelling case.
Speaker 6 (19:22):
I think base of the rhetoric Bank of Japan has
said one thing and done the other. So, but if
you're based with the rhetoric, I think at the moment
they are in the holding pattern. I mean, the consensus
in the markets is if they're going to hike, it
looks more like October or potentially September, which sort of
makes sense. You're going to wait till all the way
data is fed through, which comes through in basically July August.
(19:42):
You get all the impacts on the labor cost earnings
fully fed through, and then you obviously have the call
leave reports later in that in that third quarter. So
I think they'll wait till then. Obviously the next week
Bankageman and got in your way, there's gonna be grilled
on the exchange way. I think there's gonna be no
shock on that. I don't think they'll do any thing.
But how he reacts to the exchange rate. People can
(20:03):
be looking at that words of you know, well, would
you consider right high and one of the governors said yes,
They said, okay, that's not really what you'd be using
the exchange rate policy muntly policy for. But you know
they'll be looking to see what your aid as says
in the comment and go from that.
Speaker 2 (20:19):
So, in terms of risk gone and risk off, not
being too specific about one market here or one market there,
we do have the dollar and yields getting kind of
close to I guess levels that you know there might
be some resistance to get to the other.
Speaker 4 (20:35):
Side of that.
Speaker 2 (20:36):
Is it also quite possible that if you if you
got you know, all sort of beared up here, that
you could get your face ripped off because the rally
can come back at any time.
Speaker 6 (20:45):
Oh yeah, I think certainly with the dollar. Look, I've
been a big dollar ball the whole year, but even
now I just put a piece that will be going
to shortly say that I think the neartime upsides a
bit limited for the dollar, and the reason's been is,
you know, ye would have the market prices only pricing
thirty eight bases point cuts this year. That's not really
that much and you need a lot more data to
back that up, which can happen, certainly, but you need
(21:06):
time for that and the other things to factor is
also the other side of the effects equation, certainly on
the euro, which is the bigger side, biggest portion of
a dollar index or the bloomboat dollar index. Germany's economies
starting to turn the corner, that being my data starting
to improve, and I think if that starts to happen,
the market sunny, it starts going, well, we were too
aggressive on the FED ruck cuts this year. Are we
(21:28):
too aggressive on the ECB rate cuts this year? Yes,
tune's can be rate cut up, but after that these
be is very vague. So something you go, well, why
should I go from three cuts down to two? If
you do, that's europositive, dollar negative. So I do think
the upside it's a lot more harder for the dollar
to rally in the near term. Having said that, as
you alluded to, the downside is a bit limited because
(21:49):
you're here, aren't going to tank anytime soon, and if
they really did, it would because a big risk off,
which is dollar positive anyway, So dollar upside is limited.
I think a period of consolidation in the near term
is what's going to happen.
Speaker 1 (22:02):
David, very quickly, before we let you go, I want
to get your thoughts on the Chinese currency. We haven't
talked much about what's happening in China. We're seven twenty
five seventy right now. If shore you want what's your
outlook here?
Speaker 6 (22:14):
Well, I think, obviously to fix the state around the
seven to ten level. I thought they may go back
in the seven or nine handle. But when the PBOC
didn't do that, when it had the opportion earlier this week,
then it did say, well, we can let it go
weak if we wanted to. But again, though we're going
to let it go very, very gradually. They're in no
hurry to have to get towards the seven thirty or
above seven thirty anytime soon, so I think any weakness
(22:38):
will be a grind.
Speaker 1 (22:40):
Shall we say?
Speaker 2 (22:41):
All right, David, thank you for joining us. David Finnerty,
Bloomberg EFX and Rate Strategist.
Speaker 1 (22:47):
This has been the Bloomberg Daybreak Asia podcast, bringing you
the stories making news and moving markets in the Asia Pacific.
Visit the Bloomberg Podcast channel on YouTube to get more
episodes of this and other shows from Bloomberg. Subscribe to
the podcast on Apple, Spotify, or anywhere else you listen
and always on Bloomberg Radio, the Bloomberg Terminal, and the
(23:08):
Bloomberg Business app.
Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg
Daybreak Aisia podcast. I'm Doug Krisner. You can join Brian
Curtis and myself for the stories, making news and moving
markets in the APAC region. You can subscribe to the
show anywhere you get your podcast and always on Bloomberg Radio,
(00:23):
the Bloomberg Terminal, and the Bloomberg Business.
Speaker 2 (00:25):
App after the bill. Today, Netflix posted its best start
to the year since twenty twenty, Netflix adding nine point
three three million customers in the first quarter of twenty
twenty four. That's nearly double the average estimate from analysts.
Despite that, Netflix shares we're down about five percent in
late trading. The streamer reported a weaker than expected second
(00:47):
quarter revenue forecast. Joining us now for some discussion of
this is Gita Ranganathan, Bloomberg Intelligence US media analyst, to
take a closer look. So, Gita, Netflix, Well, pretty strong rebound,
I think you have to say, albeit with a few qualifications.
On balance, how do you read these results?
Speaker 3 (01:06):
Very very strong results, without a doubt. We're seeing really
good momentum when it comes to the subscribers. And the
big story of course for Netflix is that they are
trying to balance subscriber growth along with their financial metrics.
So the most important metrics here being you know, revenue growth,
and they were guiding to or they were targeting rather
(01:28):
double digit revenue gains, which they delivered and will continue
to deliver it through the rest of the year. And
then of course is profitability. They're one of the only
streamers right now to have very very strong profitability metrics,
and you know, they actually upped their guidance when it
came to operating margins. So on balance, a very very
(01:50):
strong report card, although you did point out the slightly
muted outlook, which is why we're seeing the share reaction.
Speaker 1 (01:57):
Gaeta, I'm trying to understand whether or not this growth
is being powered by original programming or crack down on
password sharing, which is it?
Speaker 4 (02:08):
So it really is.
Speaker 3 (02:09):
I think the biggest driver of this subscriber momentum that
we're seeing is really the password sharing initiative. Netflix had
initially identified about one hundred million global households that we're
not paying for the service, and we know that they've
cracked down on password sharing across all of their global markets,
(02:29):
so this is really the biggest driver. They haven't exactly
outlined how much they've captured or how much is left.
But you know, just kind of given the guidance and
the fact that they alluded to, you know, much slower
subscriber growth in the second half of twenty twenty four
versus the first half, suggests to us that, you know,
the positive tailwinds from this password sharing crackdown will start
(02:52):
to fade pretty soon.
Speaker 2 (02:56):
Now. Netflix shares were up seventy one percent since October, so,
to be fair, a five percent pullback is probably not
very likely an indictment. It was a good quarter, and
you said that, but it's important to talk about the
qualifications too, and Doug raised one. Perhaps another might be
that it's going to the company is going to stop
(03:18):
reporting the number of subscribers. Now, that would raise a
few questions among some what do you see as the
reasons for that?
Speaker 4 (03:26):
What are you hearing?
Speaker 3 (03:28):
Yeah, so, I think what they said is that there
really are so many moving parts to this story. Right
in the in the early days of growth, it was
really just a very very kind of a plain vanilla story.
You had more subscribers, you charge them whatever amount you
were charging them, and you know, you kind of had
this whole growth model. It's kind of become much more
(03:49):
nuanced right now because we're kind of reaching this very
mature stage in the Netflix narrative, and they are they
have a lot of growth levers right Aizing is is
a huge lever that is going to kind of start
ramping up. They're probably going to start introducing new plans
at different price points in different countries, and so it's
(04:10):
kind of becoming harder and harder for them to parse
out everything. And I think that is one of the
reasons why they are suggesting that they don't want to
be tied down to the subscriber metric because we know
that every time Netflix reports, you know, the subscriber numbers,
there is just so much volatility and so much noise
surrounding that one number.
Speaker 4 (04:27):
Now, the lack of that number is also creating a
lot of noise.
Speaker 1 (04:30):
So if you look at markets outside the US and Canada,
away from North America, how is this company performing right now? Globally?
Where is the strength coming from?
Speaker 3 (04:41):
The strength is really broad based. I mean, we know
that the US and Canada is a mature market. It's
almost you know, seventy seventy five percent penetrated that said it.
You know, if you looked at the first quarter numbers,
this was one of the strongest subscriber gains in the
US and Canadian markets. But you know, growth is coming
from other markets as well. If you look outside of
(05:02):
the US, we you know, Europe tends to be a
very very strong market, continues to perform very well. So
is Asia Pacific, which is relatively underpenetrated market. And so
there's obviously a lot of optimism for a growth upside
in many, many years to come.
Speaker 2 (05:18):
Yeah, well, I'm curious in terms of revenue drivers, how's
the AD tier doing.
Speaker 3 (05:26):
So the AD tier, they haven't really given us a
lot of color here other than to say that they
are building, you.
Speaker 4 (05:33):
Know, the infrastructure for this business.
Speaker 3 (05:36):
They do have, you know, programming which will kind of
serve that AD business well. And when I talk about
the programming catering specifically to the AD business, it's.
Speaker 4 (05:45):
Really live sports.
Speaker 3 (05:47):
They have a deal for WWE content starting in you know,
twenty twenty five. They're also kind of dipping a toe
dipping their toes a little bit with live events. So
they have this big boxing match between Mike Tyson and
Jake Paul which is coming up in July and that
kind of allows them to test, you know, the appetite
(06:07):
the market for live sports, and we think they will
become a bigger player in the live sports market. That
actually helps them scale their advertising ambitions, I think pretty significantly.
And what we are kind of projecting at Blueberg Intelligence
is that advertising will be roughly ten to fifteen percent
of their business. This is a forty five billion dollar
business in twenty twenty five, the total business, that is,
(06:30):
and we think advertising will be about ten to fifteen
percent of that.
Speaker 1 (06:33):
Geta what do we know about what Netflix intends to
spend on new content going forward? Do they have the
pockets to continue driving on the content side, Oh.
Speaker 4 (06:43):
They absolutely do.
Speaker 3 (06:44):
So they've taken actually a pretty disciplined approach. So for
this year they reaffirmed their content budget of about seventeen
billion dollars. Going forward, we think it'll go up by
about you know, ten to fifteen percent. It probably will
reach about twenty billion dollars or so in the next
two years time. But again that's well within you know,
(07:05):
the range, and they are definitely taking a very disciplined
approach again not just with their original content, but also
they're going in more for licensed content, which tends to
be much more effective and economical.
Speaker 2 (07:20):
So we see that Netflix is number one. I think
Amazon Prime is number two. Right, how are we shaking
out When we look at all of the big streamers.
Speaker 3 (07:31):
Netflix clearly wins, not just in terms of subscriber numbers.
Obviously they have two hundred and seventy million subscribers. They
are the biggest streaming service across the world. But then again,
it's not just that, it's also you know, engagement, and
that is the one key metric that they kept on
talking about over and over again in you know, the
earnings call in their earnings newsletter today, because they do
(07:52):
have they said they have roughly half a billion people
across the globe tuning in every night into Netflix about
two two and a half hours. And so as they
have that engagement, that kind of then speaks to so
much more monetization capabilities, right, so they can increase prices,
They have a captive audience that they can.
Speaker 4 (08:13):
Sell to advertisers.
Speaker 3 (08:14):
So really kind of improves the growth outlook for the
company on so many different fronts.
Speaker 2 (08:18):
KEETERA. Irong Andathan Bloomberg, Intelligence US media analyst, joining us
in our Studios is Harold Vanderlinda, who's head of age
specific equity strategy at HSBC. Perhaps a big sell off
is underway. We've got higher for long grown rates, investors
(08:41):
setting the bar pretty high, and a strong dollar. You
see it that way or do you see things as
maybe more like half full.
Speaker 5 (08:47):
No, I think you're nailing the Sorry, you're hitting the
nail of that. We've gone from a scenario where by
in the beginning of the year we were talking about
maybe four, five, six, seven, I think even the one
point in terms of people that seven rate cuts. Now
what we then saw what inflation was coming down, it
(09:07):
flattened out, and now it's actually ticking up a little
bit and the market is really reshifting that right, So
it's saying there might be no rate cut at all,
and some people are talking about rate hike. Now that
has that changes the macro environment for Asian equities completely, right.
So we have a stronger dollar, we have higher bond
yields and all of these things, and that just doesn't
help Asian equity. So yeah, that's where that pressure is
(09:30):
coming from.
Speaker 1 (09:31):
But if I look at the fact that this is
maybe an illustration of very strong American growth. Demand may
still be a part of the story. And if you're
an exporter anywhere in the APAC region, the outlook for
business is going to be pretty good, is it not.
Speaker 5 (09:44):
Yeah, I mean that's a nice thing of equities, right,
there's always something somewhere happening. So, yeah, you're right exports.
But if you look at the totality of Asia, or
for example, at the Chinese market, the vast majority of
companies are domestic oriented companies, so they they won't be
impacted so much by the strong US. They just have
to deal with the domestic issues. But the ones that
(10:05):
are exporters, and most of the Asian exporters are really
in Korea, Japan, and Taiwan, they benefit on they benefit
on the demand side and on the currency side because
their currency is getting weaker and in so far they
produce something in Korea, Japan or Taiwan, it means that
they have a little bit of currency till winds as
(10:26):
well helps.
Speaker 2 (10:26):
And we're getting chirked around a little bit with some
of the data. Like I was having a look at
the Philadelphia Fed Factory Index. You know, it topped estimates.
In fact in a very big way. The index all
the way up at fifteen point five, the survey only two,
but then price is paid, we're at twenty three versus
three point seven before. So I mean, how do you
(10:47):
actually digest this kind of data? Makes sense of it?
Speaker 5 (10:51):
Yeah, there's a lot of data coming at us, But
I think the overriding picture is simply of just unexpected
and credible strength in the US economy.
Speaker 2 (11:01):
And that leads to higher prices.
Speaker 5 (11:03):
That leads to higher prices and these sort of things.
Then in addition to that, you have oil prices potentially
being a bit volatile. That I mean, the Middle East
has got all sorts of issues there, so that could
lead to oil prices. So all of these things could
fuel into higher prices. Now if you you can also
find good reasons to believe that actually these inflation numbers
(11:25):
will come off again and these sort of things. So
we'll have to see how it goes. But that means
that the market is just very uncertain on what the
path of inflation is and therefore what the path of
interest rates is. That creates that volatility in the stock market.
Speaker 1 (11:37):
One of the things that I'm noting now is that
Japanese inflation for the month of March came in at
a monthly reading of two point seven percent. That was
a little bit below the consensus. I think that Street
was looking at two eight. But we know that Japanese
currency has been under pressure, still trading around a thirty
four year low against the greenback. What choices do policymakers
in Japan have, whether it's the Ministry of Finance can
(12:00):
dering intervention in the foreign exchange or the BOJ.
Speaker 5 (12:04):
Yeah, this is difficult for them because the currency has
been very, very weak. And no we have that there's
this meeting in the IMF, so maybe something will be
discussed there. Who knows, but yeah, the currencies are we
and we've now seen also when Yellen was around that
the Koreans and the Japanese have publicly stated that they
feel somewhat uncomfortable with that. With that currency weakness, Well,
(12:24):
what can they do? The problem? The ultimate problem simply
is that they have an interest rate policy that is
still close to zero. Now you might say, yeah, they've
increased a little bit, but we're talking about minuscule changes.
So interest rates in Japan remain very very low, and
in so far the US is strong and interest rates
remain high. Yeah, that means that you have a massive
(12:45):
interest rate differential. And you see this with Japanese households.
They're taking their money out of Japan and putting into
the US because that's where they get five percent on
a deposits or something like that. In Japan you get nothing.
Speaker 2 (12:57):
Some Japanese companies are benefiting from China growth, but you know,
it's not easy to estimate China growth. We put a
piece out on the terminal today that Bloomberg calculation suggests
that China will contribute more to global growth in the
next five years than all the G seven combined. It's
a staggering number. Yeah, twenty one percent versus twenty percent. Now,
(13:18):
we know that in the short term, China's kind of
gearing up for the May Day holiday and there could
be a lot of spending. How do you see China
moving here in the short term now?
Speaker 5 (13:25):
Now, So, when the GDP numbers came out at the
beginning of the year, a lot of people said for
around five percent, I thought it would be much weaker.
I even know people say I can't believe that particularly number. No,
we now have more data, macro data coming out out
of China that supports that actually the economy is chucking
along reasonably a bit faster than what the market was forecasting.
(13:48):
But we also look at earnings. Now you can say, well, earnings,
you can accountants can fiddle around with that, but cash
earnings what we call cash flow money that you flow
in and out. There's nothing to fiddle there. And actually
it's not too bad. Yeah, the earnings growth has held
a reason to you. Oh, I've got about fifteen percent
cash earnings about eight nine percent. That's probably in line
(14:12):
with the macro numbers that we get. So there is
growth in China and it's probably a little bit better
than what people would have thought it would be three
or six months ago.
Speaker 2 (14:22):
Harold, thanks so much for coming into our studios and
sharing your insights with this. Harold Vanderlinde, had of Asia
Pacific Equity Strategy at HSBC. Our guest is David Finnerty,
Bloomberg Effects and rates strategist, to take a closer look
(14:42):
at markets. So the mood has changed quite a lot
here over the past couple of weeks, David, we talked
about higher for higher for longer rates there in some
of those comments from leading fed proponents, and also the
bar seems to be pretty high now for earnings. We
saw that with a lot of the after hour is
selling and the dollar, ever stronger, is also kind of
(15:04):
wreaking havoc on markets. Do you see that holding for
a while that kind of mood?
Speaker 6 (15:10):
I think yeah. Overall, I'd say yes. I think the
equity market, if you look at it now, is so
much good news was baked into it then I don't
think it takes a lot of bad news to just
give it a nudge down. You know, the S and
P look at run from forty two hundred up to
fifty two basically without much of a correction. So some
sort of correction is quite standard with US yields. I
(15:31):
think the hawkishness has heavily baked in. I think to
get more hawkish in the near to mean really it's
all data dependent now, and you really need strong, strong
data now. Having said that, we don't really have much
data out next week until the USPCE, So without that,
it's like, well, how do yours push higher? And actually
pushing down slightly now because of Middle East tensions? So
(15:51):
if US shields don't push much higher, that does to
some degree limit what the dollar can do. Having said
that the dollar does benefit in a risk off sneer,
But overall, I think the moves we've seen have sort
of been baked in, and I don't think exactly, you know,
I think there's more risks to USU was pushing lower
in the terms slightly and a bit more risk off sentiment.
Speaker 1 (16:14):
So when you look at the price section today, this
weakness that we were seeing in equity markets in the APAC,
where is that money rotating? Is it moving into the
US treasury market? Is it a haven bid that we're
seeing now? I'm looking accrued up nearly one point eight percent.
The dollar is stronger the end, showing a little bit
of strength here, not by much. Do you have a
sense of how this money is moving through the market
(16:34):
right now as we see weaker equities in the APAC?
Speaker 6 (16:37):
Yeah, it's tough to say. I mean it it fluctuates.
Middle East was on the way here. I think I
saw some central headlines coming across from some of the
team saying that something may have been happening in Iran.
And if that is the case, then obviously the market
is very jittery when it comes to anything in the
Middle East at the moment. So the safe haven flows.
Is this where the money tends to go to very quickly,
(16:58):
you know, it's like just go ask questions lates have
is something going on in that area and obviously oil
was reacting into it as well. Obviously that could calm
down once the dust as settled, but the knee jerk
reactions always just go to the safe havens until we
have a clever picture of what's going on.
Speaker 2 (17:12):
We talked about a number of factors that could be
leading to risk off sentiment. In some cases, it's way
worse under the hood than it is with the headline number.
For instance, the S and P down just two tents
of a percent, but it was quite a little bit
of selling attached to some key names that people are
heavily exposed to. I wonder whether or not yields getting
(17:33):
up on the ten year up around you know, four
and a half to five percent, Whether five percent could
be a real kind of inflection point, really sucking in
a lot of money by acid allocators.
Speaker 6 (17:43):
Yeah, I think five. Obviously five is the nice round numbers,
so it could draw a lot of interest. I don't
think there's a five percent is the number, but I
think look, anything around this level just you know, four
sevens to five or anything around that is certainly of
interest to people. Of course, the catches you come in
something your funds and you're trying to go long duration.
You've been burned so many times before that it's a
(18:06):
bit like broken record and you're worried. Now cap tip
with this rhetoric coming out of the Fed like, hey,
we are considered rate hike if needed, or that possibilities
on the table if the data backs up, and of
course should that happen again, this is all lots of caveats,
but the ideas and you will see you see whats
go even higher. So I think the interesting thing becomes
(18:26):
is you go, oh, four to seven is attractive, but
you go our five's attractive, and you get the five,
and you go, actually five point two is attractive. So
it's a bit of a moving line in the sand.
And I think it's really only when the markets see
that data flip and the confident that the data's flipped,
that the rate hikes off the table and the rate
cuts are back in, then I think the market will
jump very quickly into treasure.
Speaker 1 (18:48):
We had comments from the Japanese Finance minister. Suzuki was
talking about the interest rate grap the differential between the
US and Japan, and that's really what's been weighing on
the end. Yeah, maybe there are a few other factors.
Then we get this reading today on consumer inflation in Japan. Okay,
excluding fresh food, we're up two point six percent. That's
still above the boj's target, but it's below estimates. Is
(19:11):
that in keeping with this idea that the Bank of
Japan will continue to tighten or are they kind of
in a holding pattern right now, particularly when of the
data is not making a compelling case.
Speaker 6 (19:22):
I think base of the rhetoric Bank of Japan has
said one thing and done the other. So, but if
you're based with the rhetoric, I think at the moment
they are in the holding pattern. I mean, the consensus
in the markets is if they're going to hike, it
looks more like October or potentially September, which sort of
makes sense. You're going to wait till all the way
data is fed through, which comes through in basically July August.
(19:42):
You get all the impacts on the labor cost earnings
fully fed through, and then you obviously have the call
leave reports later in that in that third quarter. So
I think they'll wait till then. Obviously the next week
Bankageman and got in your way, there's gonna be grilled
on the exchange way. I think there's gonna be no
shock on that. I don't think they'll do any thing.
But how he reacts to the exchange rate. People can
(20:03):
be looking at that words of you know, well, would
you consider right high and one of the governors said yes,
They said, okay, that's not really what you'd be using
the exchange rate policy muntly policy for. But you know
they'll be looking to see what your aid as says
in the comment and go from that.
Speaker 2 (20:19):
So, in terms of risk gone and risk off, not
being too specific about one market here or one market there,
we do have the dollar and yields getting kind of
close to I guess levels that you know there might
be some resistance to get to the other.
Speaker 4 (20:35):
Side of that.
Speaker 2 (20:36):
Is it also quite possible that if you if you
got you know, all sort of beared up here, that
you could get your face ripped off because the rally
can come back at any time.
Speaker 6 (20:45):
Oh yeah, I think certainly with the dollar. Look, I've
been a big dollar ball the whole year, but even
now I just put a piece that will be going
to shortly say that I think the neartime upsides a
bit limited for the dollar, and the reason's been is,
you know, ye would have the market prices only pricing
thirty eight bases point cuts this year. That's not really
that much and you need a lot more data to
back that up, which can happen, certainly, but you need
(21:06):
time for that and the other things to factor is
also the other side of the effects equation, certainly on
the euro, which is the bigger side, biggest portion of
a dollar index or the bloomboat dollar index. Germany's economies
starting to turn the corner, that being my data starting
to improve, and I think if that starts to happen,
the market sunny, it starts going, well, we were too
aggressive on the FED ruck cuts this year. Are we
(21:28):
too aggressive on the ECB rate cuts this year? Yes,
tune's can be rate cut up, but after that these
be is very vague. So something you go, well, why
should I go from three cuts down to two? If
you do, that's europositive, dollar negative. So I do think
the upside it's a lot more harder for the dollar
to rally in the near term. Having said that, as
you alluded to, the downside is a bit limited because
(21:49):
you're here, aren't going to tank anytime soon, and if
they really did, it would because a big risk off,
which is dollar positive anyway, So dollar upside is limited.
I think a period of consolidation in the near term
is what's going to happen.
Speaker 1 (22:02):
David, very quickly, before we let you go, I want
to get your thoughts on the Chinese currency. We haven't
talked much about what's happening in China. We're seven twenty
five seventy right now. If shore you want what's your
outlook here?
Speaker 6 (22:14):
Well, I think, obviously to fix the state around the
seven to ten level. I thought they may go back
in the seven or nine handle. But when the PBOC
didn't do that, when it had the opportion earlier this week,
then it did say, well, we can let it go
weak if we wanted to. But again, though we're going
to let it go very, very gradually. They're in no
hurry to have to get towards the seven thirty or
above seven thirty anytime soon, so I think any weakness
(22:38):
will be a grind.
Speaker 1 (22:40):
Shall we say?
Speaker 2 (22:41):
All right, David, thank you for joining us. David Finnerty,
Bloomberg EFX and Rate Strategist.
Speaker 1 (22:47):
This has been the Bloomberg Daybreak Asia podcast, bringing you
the stories making news and moving markets in the Asia Pacific.
Visit the Bloomberg Podcast channel on YouTube to get more
episodes of this and other shows from Bloomberg. Subscribe to
the podcast on Apple, Spotify, or anywhere else you listen
and always on Bloomberg Radio, the Bloomberg Terminal, and the
(23:08):
Bloomberg Business app.
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