April 18, 2024 • 21 mins
Netflix posted its best start to the year since 2020, attracting more new customers than anyone expected thanks to a strong slate of original programs and a crackdown on password sharing. Bloomberg Businessweek hosts Carol Massar and Tim Stenovec discuss with Bloomberg Surveillance co-host Paul Sweeney, Bloomberg earnings reporter Redd Brown and Bloomberg Intelligence senior US media analyst Geetha Ranganathan for reaction and analysis.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio News.
Speaker 2 (00:07):
This was a blowout number. I can feel like it
shocked all of us. First quarter streaming paid net change
in terms of the subscribers up nine point three to
three million. Timmy estimate was four point eight four million.
Speaker 3 (00:18):
That's not the only beat. First quarter EPs coming at
five dollars and twenty eight cents per share. Estimates were
for four dollars and fifty two cents. The company also
out with second quarter EPs the guidance four sixty eight
versus estimates of four to fifty four, and then another
big headline. We should note they're going to end reporting
quarterly membership numbers next year. We got a great group
of folks with us right now to help us break
(00:39):
down these numbers. Paul Sweeney is co host of Bloomberg Surveillance.
He joins us on the phone from New Jersey. Paul
spent thirty years as a media analyst, also with US
as Bloomberg News earnings reporter Red Brown. Hey, Paul, I
want to start with you, because I got to tell you,
I'm pretty surprised by the reaction to these numbers, considering
they were it was such a blowout quarter Why do
you think the stock is moving lower in the after hours.
Speaker 4 (01:00):
Yeah, I think it's a little bit by the rumor. Still,
the news people have been hyping up this quarter as
a really big quarter because you know, the paid subscription
was going to fuel subscriber growth. Yet again, you're that
a big beat on subs last quarter. Some the stock
was up about twenty five percent since they reported in January,
so it's probably just taking back some of those games.
But you know, across the board, the subscriber numbers really
(01:20):
really were impressive. One thing to note about that big
subscriber beat to the last couple of quarters. These are
kind of short term phenomena, as you know, they the
people that were sharing accounts now are paying for their owns,
and that'll fade out over the next several quarters and
then the focus will become, i think, on the advertising
side of the business as well.
Speaker 2 (01:40):
Yeah, it's interesting. Do you care, Paul to hear that
they're going to end reporting quarterly membership numbers next year?
It feels like it's something we focus on.
Speaker 4 (01:47):
Yeah, yeah, it really is, and that quite frankly, that
had been the primary driver of this stock really since
it switched to this digital streaming format. That was the
metric that moved this stock. The company really wants to
get away from that and get more towards Hey, guys,
just view us as you would any other company stock.
Look at revenue, look at cash flow, look at profitability,
(02:10):
all those types of things, and let's focus less on
subscriber growth because quite frankly, we pretty much got pretty
much everybody that's out there, So it's really not so
much as a subscriber story. It's more how much money
can we make off each subscriber?
Speaker 3 (02:21):
Paul one one more to you. And then I want
to bring in Red Brown, our earnings reporter, who's been
watching these numbers closely. Why would a company? Is there
any positive way to read into a company like Netflix?
No longer reporting this? I mean, no question, the more
data for investors the better. Is this a negative? This
is a negative sign?
Speaker 2 (02:38):
No?
Speaker 4 (02:39):
Oh yeah, I think I think for an investor in
an analyst, you always want more information, particularly when it's
critical information in terms of what drives the growth of
the business. And it's obviously just it's subscribers and how
much revenue you dandergenerate off each subscriber. It's pretty simple.
So I need take one of those data points away.
But we've seen other companies in other industries do that,
(03:01):
subscriber based industries. They try to get you away from
that number and get you back to where are Look
how they are managing the business, and what they're telling
you is we're not managing the business to maximize subscriber
with We're managing the business to maximize revenue and profit
per user. That's our management focus and that's how we
look at it, and that's how we think you should
look at it.
Speaker 2 (03:21):
Red Brown, come on in on it. We talk earnings
with you all the time. You know, I'm watching Netflix
shares that have been bouncing around in the aftermarket, a
lot of moves right now. The stocks still lower down
about three and a half percent.
Speaker 1 (03:33):
Yeah, I mean, I think what might be explaining a
little bit of the negative movement too, is we saw
them actually boost their full year outlook for operating margin.
They beat EPs in the first quarter. They their guidance
to the second quarter was ahead of estimates as well.
But it seems like there's a little bit of a
disconnect between the full year number. If you know, those
two pretty healthy beats are not translating to the full year,
(03:55):
analysts investors might start to question maybe where in the
back half of the year is are things starting to
slow down as well? So I think that might also
be factoring in here a little bit to the to
the negative price movement we're seeing.
Speaker 2 (04:07):
Let's speak a little bit to what Paul was saying,
and I think it's a good point that we talked
about it earlier. Just you know, this stock has been
on fire this year, and you know, it looks like
the numbers are are pretty upbeat, but it has been
such an outperformer this year, and I just do wonder
how much of that is at play as well.
Speaker 1 (04:24):
Yeah, I mean, if you look at what analysts are
rating for the stock, that it's kind of topped out
at the analyst ratings point at this point. So you know,
even with these really impressive numbers, maybe the it's just
kind of a hit hit its ceiling for the time being.
Speaker 3 (04:40):
Hey, Red, it's so interesting, you know, I was saying
as we were going into our Beyond the Bell our
coverage with TV as we you know, waited for these
Netflix earnings, I was saying, you know, this could really
set the tone for the quarter for a lot of
the consumer tech companies that are set to report in
the coming weeks, and yet yet we get a blowout
number pretty much across the board, and we see a
(05:00):
negative reaction like this, and I'm wondering how we can
extrapolate this beyond Netflix.
Speaker 1 (05:04):
Yeah, it's a good question. I mean, people have been
really focused on earnings this quarter, and a lot of
analysts are saying, you know, focus on the numbers, don't
buy unto the hype and has really big implications for
the stock market at general at the moment. So I
don't know if people kind of are on edge and
looking for any excuse to sell at the moment. Yeah,
(05:25):
it could paint a pessimistic picture for the remainder of
the quarter here, probably for us.
Speaker 2 (05:30):
Paul Sweenie, come on back in here. I'm just thinking,
you know, we're getting ready for the analyst calls, and
I feel like there's going to be a fair amount
of questions, especially as you see the stock kind of
bouncing around here. What's kind of the top one or
two questions that you would want to be putting up
on that call.
Speaker 4 (05:43):
Yeah, one revenue and one cost question. The revenue side
is talk to us about the advertising component how well
is that catching on with subscribers. How many subscribers are
going to the advertising tier and that's a big thing
because that's gonna be one of the drivers going forward.
And then a second one on the call side is
where are we on our programming budget? You need to
spend more to drive more subscriber growth? Or or is
(06:06):
a company and a good level of spend because if
they are at a good level of spend, boy, the
profits just really start churning for this company and the
free cash flow as well.
Speaker 3 (06:14):
I do want to bring in some of the advertising
information that you mentioned, Paul in the letter. The company
did come out and say that ADS membership grew sixty
five percent quarter on quarter after rising nearly seventy percent
sequentially in each of Q three twenty three and Q
four twenty three. They're also saying that over forty percent
of all sign ups in our ads markets, remember it's
not fully rolled out, are coming from our ads plan
(06:36):
for advertisers. The companies focusing on measurement solutions, including new
partnerships with Kantar and Lucid for brand awareness and recall,
and then Nielsen Catalina solutions for sales lift Paul, I
don't have to tell you because you've been covering this
for years. How wild is it for us to talk
about Netflix and measurement because this is a company that
for years was like, we don't care about ratings, We're
never going to share any numbers. We're never going to
(06:58):
do ads, never, never, never, And here they are talking
about yis Yeah, exactly, this is crazy.
Speaker 4 (07:04):
It's a great point. They're going to have to start
the disclosing audience levels of some degree. But we already
know that the advertising video on demand model is a
very successful model. Advertisers are switching some linear TV broadcasting
cable to the more digital platforms, and they've been itching
to get to the streaming base of Netflix. So there
(07:26):
will be a lot of advertisers demand. And you know,
Netflix is going to have to provide the advertisers and
their agencies with some data the consistent they can just
get a sense of pricing and value.
Speaker 5 (07:37):
Yeah, you know.
Speaker 2 (07:37):
And the other thing is like I'm thinking about content, right,
you know, original content versus licensing. And when we were
talking with Githa rang an ant On earlier, she said,
you know, one of the upsides is that they are
you know, doing a lot of licensing deals.
Speaker 5 (07:48):
They had suits.
Speaker 2 (07:49):
They just did something with Sex and the City that's
just coming out. I mean, when you think about it,
Paul as an analyst and somebody who understands the space,
I mean, cheaper to do a licensing deal versus creating
that original content.
Speaker 4 (08:01):
It is generally speaking, it is much cheaper to license
the show than to create it, particularly the shows that
they make, which are extraordinarily high quality, and they have
very big budgets and other good and that's the that's
the investment part. The good is is it does drive
subscriber growth. So I think most investors would say that's
a good investment to make in original programming. But you
(08:23):
got to find a balance here and so, and that's
the same. And that's true for the media companies. They
have to find a balance on what they licensed to
Netflix and what they keep on their own streaming services.
Speaker 3 (08:32):
Red Let's say you had a chance to ask management
a question today on the call that's coming up. What
do you want to hear about.
Speaker 1 (08:37):
Yeah, I mean we're talking about programming and what's going
to be driving growth in the future. I think there's
a big question around sports. Yeah, what what what level
of investment are they planning on putting in that that area.
We know it's highly competitive, it's really crowded, it's very expensive.
They are kind of stipping their toe in with some
of these combat sports. But yeah, it would be w
E WWE the Jake Paul and Mike Tyson fight later
(09:00):
this summer. We will want to hear kind of what
is their strategy. They've been on the sidelines for a
while now, and you know, have they been able to
see the mess that sports streaming has been from, you know,
paying billions and millions of dollars? Do they have a
different strategy like they have in so many other cases
in the market.
Speaker 2 (09:18):
I do wonder too, And I'm just looking at something
like a Walt Disney in the aftermarket, and obviously it's
not just about streaming. It's just down slightly down about
one tenth of one percent here, Warner Brothers, Discovery, same story.
I mean, Paul, is there anything that you kind of
extrapolgalate when you look at something like a Netflix and
then what it means for some of the other streaming
services that are out there.
Speaker 4 (09:38):
I think it's actually all net positive, which is it
just shows you the strength of the streaming business model.
We now know when you look at Netflix's financials that
it can be extraordinarily profitable generate really high returns. So
now the question is who else can join Netflix with
those types of financial metrics Ken Disney do it, Warner Brothers, Discovery,
(10:00):
Ken Powermount. That's kind of the question a lot of
those investors are asking themselves, but they can be done
here if you look at Netflix.
Speaker 2 (10:08):
Listen, Paul Sweeney, thank you so much. We so appreciated
our own Paul Sweeney, who has covered the media industry
and did as a banker for many years, thirty years
as a media analyst, so really great to get his insight.
We're going to continue with Red Brown. We're also going
to roll into it our Githa Ranganathan, who covers the
media space for our Bloomberg intelligence team. You know, getha
you called it on the subscriber number.
Speaker 3 (10:30):
She did, she really did. Can you remind everyone what
she told us a couple hours ago?
Speaker 2 (10:33):
You said it was going to be a much higher number.
It is a much higher number. Walk us through the
quarter and why is it that?
Speaker 5 (10:40):
Though?
Speaker 2 (10:40):
First of all, are you I'm assuming you're watching the
stock in the aftermarket, it's down about two point six percent.
It just has been bouncing around a lot. Walk us
through the quarter, maybe why you think, I mean, should
investors be disappointed here?
Speaker 6 (10:53):
So absolutely, right, Carol, it was a blowout quarter. I mean,
I think it came in much higher than expected. We
were kind of thinking maybe six seven million dollar seven
million subscriber ads net ads range. This was of course
way above that. But I think what is really kind
of causing a little bit of concern here is that
they are going to stop reporting subscriber metrics altogether, and
(11:16):
that I think is coming as a little bit of
a disappointment. I mean, Netflix is out and out a
subscriber story, or at least it always has been, and
so this is kind of going to require a complete
change in the mindset of investors, right. You know, this
is this was always such an easy model to follow.
You know, you just multiply subscribers by the monthly price
(11:37):
that you pay, and you you, you know, you kind
of have your whole model. But now they're going to
stop reporting subscriber numbers. They're going to stop reporting the
average revenue per user. So it's kind of going to
it's it's definitely becoming. It's I would say, it's gone
from kind of high growth to now more you know, uh,
definitely a very profitable company. But obviously they do seem
(12:00):
to be kind of signaling that subscriber growth that the
party is going to be over at some point.
Speaker 3 (12:05):
Correct me if I'm wrong, getha. But did Netflix used
to report churn and then they stopped reporting churn and
that was a really big deal to investors when that happened.
Speaker 6 (12:15):
That was a very very long time ago. Yes, they did,
they would, they would mention it, and yeah, they did
stop reporting it. But subscribers, again, this is the bread
and butter of this whole streaming business. So I think
it's it's definitely going to require people are going to
take some time to kind of digest that.
Speaker 1 (12:33):
Getha. We've seen them, they have started to give us
a little bit more viewership on information over the past
year or so. Do you think that that is part
of or them kind of trying to signal that, you know,
ads are going to become a bigger part of our business,
and you know how big of a part of their business.
Do you think that will be in the next couple
of years.
Speaker 6 (12:52):
Yeah, so right now, they haven't really given us any
concrete metrics around advertising, I mean, other than the first
number that they gave us in January, which was roughly
about twenty five million active users. They did report something
today by saying, you know that they've seen like forty
percent of their new signups are actually on the ad tyear,
but we don't actually have a concrete number.
Speaker 5 (13:11):
That said.
Speaker 6 (13:12):
I think what they're doing, they're they're they're still kind
of taking pretty a pretty measured approach, but there are
signals that they really are looking to get or to
scale up their advertising business, and I think sports is
obviously a big way that they're going to do that.
You know, you obviously saw that the WWE deal. There
are a few more things that are out there on
the horizon, obviously the NBA being a big one, and
(13:35):
if they if they make an aggressive bid for that,
then that really tells us how serious they are about advertising.
And I think potentially what they're what we're looking at
in terms of advertising dollars, if they get everything right.
It has been a little bit underwhelming so far, but
if they you know, if they're able to execute with
the sports and the other live events expected to be
(13:55):
at least ten to fifteen percent of their revenue by
twenty twenty five. So you know, you're looking at a
forty forty five billion dollar business. I think you're going
to see four to five billion at least in advertising.
Speaker 2 (14:06):
It is kind of interesting, you know, Githa, We all
kind of kid. It's like, I only have so many
hours to watch all this stuff, and so we're picking
and choosing, and it seems like there's so much out there.
I mean, the company said in their letter to shareholders,
with more than two people per household on average, we
have an audience of over half a billion. And then
they go on to say no entertainment companies ever programmed
at this scale and with this ambition before. But it
(14:28):
does feel like, you know, and listening to you talk about,
you know, them not reporting their quarterly membership numbers in
the future, that they are conceding that there is just
a point that we're going to max out. We can
just only sign up so many people. And that means
even on a global scale, right.
Speaker 6 (14:46):
Yes, on a global scale. So back in the day,
you know, maybe even about three four years ago, they
would always talk about this one billion number as their
total addressable market about two years ago. That's when the
great Netflix reset and the Great Correction happened.
Speaker 5 (14:59):
They kind of toned that down.
Speaker 6 (15:00):
They said, you know, it's probably closer to about four
hundred five hundred million as the total addressable market looks
like it's you know, probably even slightly smaller than that.
You know, so they definitely are conceding that there is
an upper limit, There is a ceiling to kind of
the growth here.
Speaker 2 (15:17):
But is there something like I always laugh about this
sometimes when we talk about some of these big tech names.
We used to talk about this a lot. By Apple,
We'd be like, Oh, it's a disappointing number. Yet they
still sell a lot of stuff, And I understand it's
growth trends and trajectory. Can we still, though, can see
that Netflix still is kind of the big behemoth in
this space.
Speaker 5 (15:34):
They absolutely are.
Speaker 6 (15:35):
They They have completely cemented their dominance when it comes
to this whole streaming wars. I mean, I think the
streaming wars are pretty much over. They are the winner,
there's no.
Speaker 5 (15:44):
Doubt about that.
Speaker 6 (15:45):
And now it's just about them kind of you know,
getting into different verticals, kind of becoming that you know
that one service they probably will you know, kind of
absorb absorb a lot of the other smaller streaming services,
I think just because they're licensing so much of content
from them and they you know, it's just but at
this point, it's definitely going to become you know, how
(16:06):
much pricing power do they have? So right now we
are at about fifteen and a half dollars for a
standard plan in the US. How much upside is there?
Can that go to twenty twenty five dollars? That is
kind of the big question.
Speaker 3 (16:19):
So it's funny as you're saying this, I'm thinking to myself, Okay, well,
you know, twenty years ago, all we wanted was it
all the card options for TV, and we kind of
got that now. And I think a lot of us
are spending more on all a combination of all these
services given that you know, it's Paramount, it's Hulu, It's Max,
it's Disney Plus, it's Netflix, just to name a few.
I do wonder, Githa, where the growth is for Netflix
at this point. Is it is it in the ad
(16:40):
supported model, is it outside of the United States? Where
where is that growth coming from? As the company matures?
Is it raising prices?
Speaker 6 (16:49):
Yeah, it's actually Jim, it's all of the above, and
it's just you know, it's going to be a very
it's a very tough balancing act for them because they
don't want to do anything too quickly and too rashly,
which is why when they were kind of implementing their
whole password sharing crackdown, they were very careful not to
raise prices because you know, they didn't want to anger
you know, existing customers. So again, it's going to be
(17:10):
it's going to be tricky. They're kind of walking a
tight trope here, but yeah, they are going to use
all the different levers that they have to kind of
keep profitability, which is their main metric right now, profitability
and margins kind of climbing up.
Speaker 1 (17:24):
Githa. Before the report and the analyst I was speaking
to a lot of them made a big deal about
the T Mobile partnership that they were working on. How
do you see that factoring into the future. Do you
think that that has been a successful program and do
you can you expect to see them maybe do some
some more types of those partnerships.
Speaker 6 (17:44):
Absolutely, I think that is going to become a critical
critical factor for Netflix if it really kind of wants
to grow its subscribers. So what they did with T
Mobile was kind of they're offering their ad supported plan,
which is a seven dollars monthly plan to you know,
select T Mobile members for free, and they're going to
do a lot more of that. The having a low
priced plan kind of really gives them a lot of
(18:05):
flexibility because they can add subscribers. But then again, they're
not necessarily losing our poop because remember they're the greater
the subscribers they have, they can always kind of appeal
to advertise the advertising community, so and kind of makeup
or offset for any of that ar foo differential from
from their advertising dollars. So I think that's going to definitely,
(18:25):
uh play a much bigger role, not just in the US,
but of course across the world as well. They're going
to have lots of those kinds of telecom partnerships.
Speaker 2 (18:32):
Keetha, what do we you know, kind of pull from
this when it means to like Disney Streaming and Warner
Brothers Discovery and some of the other services that are
out there.
Speaker 6 (18:41):
So for all of those other services, I think subscriber
growth is not the primary focus anymore.
Speaker 5 (18:46):
It's kind of moved now.
Speaker 6 (18:48):
Carol to profitability, where obviously, again Netflix leads the back.
A lot of these other services have made good progress,
I would say really good progress when it comes to
at least they're not profitable yet, but they're you know,
moderating their losses. Disney obviously is the big one to
watch for there, and now they have the model in place.
(19:08):
You know, you've seen exactly what Netflix has accomplished. They
all know exactly what they have to do. It's just
going to be a question of how well they do
it and can they get there quick enough.
Speaker 3 (19:17):
Githa, do you think there's any consumer confusion? I mean, okay,
I know the answer to this is yes, and I
just don't know how to solve it. The consumer confusion
about where to watch something. Yeah, I mentioned Sex and
the City and I was shocked to hear that that's
on Netflix. It's an HBO show. Somebody in our simulcast
chat mentioned in the office, Well, I think that's now
on Peacock, but it was on Netflix. Friends, a former
NBC show or No Seinfeld is now on Netflix. I
(19:39):
believe it's confusing, is that right? I don't know, like
you know it is.
Speaker 6 (19:44):
How Discovery is the biggest's not content anymore. It's really
just discovery is the biggest problem right now in the
whole of you know, the streaming space. And at the
end of the day, we're kind of looking for that
one or what we're waiting for is that one aggregator
or reaggregator that can kind of take all the shows
that you really want to watch and do it.
Speaker 5 (20:04):
I don't know who it's going to be. Is it
going to be YouTube? Maybe it is.
Speaker 6 (20:07):
It could be Amazon, it could be Apple, but but
we're all waiting for that. Again, I'm not sure when
exactly it's going to happen.
Speaker 3 (20:14):
Roku doesn't Okay, Roku does a really good job of that,
but you've got to have be signed into everything on
your Roku and plus that means you're only watching on TV.
You're not watching it on the iPad or on like
your phone, and.
Speaker 5 (20:24):
It's there's still is friction.
Speaker 3 (20:26):
Yeheah, there is still a lot of friction.
Speaker 2 (20:27):
Final thought, Githa, I'm just thinking of our investor audience
as we work through this. Netflix share is still down
about three and a quarter percent here.
Speaker 6 (20:37):
Yeah, So I think the big question is really going
to be, you know, on the call of you know
what how many subscribers do or how many you know
subscribers you think you've captured from the whole password sharing initiative.
I think the numbers that they're originally identified was one
hundred million households. I think people will definitely want to
know what percentage of that has already been kind of captured,
(20:57):
just given the strong subscriber metrics, and then they'll kind
of try to figure out how much more runway is
left Rockstar.
Speaker 2 (21:03):
As always, Githa Ringing Athen thank you so much. Tech
and media analyst a Bloomberg Intelligence Red Brown, final thoughts
for you just twenty seconds here. I mean stocks down
in the aftermarket, but we'll see what happens tomorrow.
Speaker 1 (21:11):
Yeah, we'll see what happens tomorrow. And for the remainder
of the year. I think, you know, they put up
strong financials and that could easily bounce back. You know,
this quick reaction, but the investors love the short term.
Speaker 3 (21:21):
It depends on what they say.
Speaker 2 (21:22):
On the call exactly, and it'll be interesting to do
if some investors may say, well, wait, it's a little
bit cheaper than it was and I want the exposure.
Red Brown, thank you so Also a rock Star, Yes, yes,
rock Crease here right now.
Speaker 3 (21:34):
Yeah, we had a great group.
Bloomberg Audio Studios, podcasts, radio News.
Speaker 2 (00:07):
This was a blowout number. I can feel like it
shocked all of us. First quarter streaming paid net change
in terms of the subscribers up nine point three to
three million. Timmy estimate was four point eight four million.
Speaker 3 (00:18):
That's not the only beat. First quarter EPs coming at
five dollars and twenty eight cents per share. Estimates were
for four dollars and fifty two cents. The company also
out with second quarter EPs the guidance four sixty eight
versus estimates of four to fifty four, and then another
big headline. We should note they're going to end reporting
quarterly membership numbers next year. We got a great group
of folks with us right now to help us break
(00:39):
down these numbers. Paul Sweeney is co host of Bloomberg Surveillance.
He joins us on the phone from New Jersey. Paul
spent thirty years as a media analyst, also with US
as Bloomberg News earnings reporter Red Brown. Hey, Paul, I
want to start with you, because I got to tell you,
I'm pretty surprised by the reaction to these numbers, considering
they were it was such a blowout quarter Why do
you think the stock is moving lower in the after hours.
Speaker 4 (01:00):
Yeah, I think it's a little bit by the rumor. Still,
the news people have been hyping up this quarter as
a really big quarter because you know, the paid subscription
was going to fuel subscriber growth. Yet again, you're that
a big beat on subs last quarter. Some the stock
was up about twenty five percent since they reported in January,
so it's probably just taking back some of those games.
But you know, across the board, the subscriber numbers really
(01:20):
really were impressive. One thing to note about that big
subscriber beat to the last couple of quarters. These are
kind of short term phenomena, as you know, they the
people that were sharing accounts now are paying for their owns,
and that'll fade out over the next several quarters and
then the focus will become, i think, on the advertising
side of the business as well.
Speaker 2 (01:40):
Yeah, it's interesting. Do you care, Paul to hear that
they're going to end reporting quarterly membership numbers next year?
It feels like it's something we focus on.
Speaker 4 (01:47):
Yeah, yeah, it really is, and that quite frankly, that
had been the primary driver of this stock really since
it switched to this digital streaming format. That was the
metric that moved this stock. The company really wants to
get away from that and get more towards Hey, guys,
just view us as you would any other company stock.
Look at revenue, look at cash flow, look at profitability,
(02:10):
all those types of things, and let's focus less on
subscriber growth because quite frankly, we pretty much got pretty
much everybody that's out there, So it's really not so
much as a subscriber story. It's more how much money
can we make off each subscriber?
Speaker 3 (02:21):
Paul one one more to you. And then I want
to bring in Red Brown, our earnings reporter, who's been
watching these numbers closely. Why would a company? Is there
any positive way to read into a company like Netflix?
No longer reporting this? I mean, no question, the more
data for investors the better. Is this a negative? This
is a negative sign?
Speaker 2 (02:38):
No?
Speaker 4 (02:39):
Oh yeah, I think I think for an investor in
an analyst, you always want more information, particularly when it's
critical information in terms of what drives the growth of
the business. And it's obviously just it's subscribers and how
much revenue you dandergenerate off each subscriber. It's pretty simple.
So I need take one of those data points away.
But we've seen other companies in other industries do that,
(03:01):
subscriber based industries. They try to get you away from
that number and get you back to where are Look
how they are managing the business, and what they're telling
you is we're not managing the business to maximize subscriber
with We're managing the business to maximize revenue and profit
per user. That's our management focus and that's how we
look at it, and that's how we think you should
look at it.
Speaker 2 (03:21):
Red Brown, come on in on it. We talk earnings
with you all the time. You know, I'm watching Netflix
shares that have been bouncing around in the aftermarket, a
lot of moves right now. The stocks still lower down
about three and a half percent.
Speaker 1 (03:33):
Yeah, I mean, I think what might be explaining a
little bit of the negative movement too, is we saw
them actually boost their full year outlook for operating margin.
They beat EPs in the first quarter. They their guidance
to the second quarter was ahead of estimates as well.
But it seems like there's a little bit of a
disconnect between the full year number. If you know, those
two pretty healthy beats are not translating to the full year,
(03:55):
analysts investors might start to question maybe where in the
back half of the year is are things starting to
slow down as well? So I think that might also
be factoring in here a little bit to the to
the negative price movement we're seeing.
Speaker 2 (04:07):
Let's speak a little bit to what Paul was saying,
and I think it's a good point that we talked
about it earlier. Just you know, this stock has been
on fire this year, and you know, it looks like
the numbers are are pretty upbeat, but it has been
such an outperformer this year, and I just do wonder
how much of that is at play as well.
Speaker 1 (04:24):
Yeah, I mean, if you look at what analysts are
rating for the stock, that it's kind of topped out
at the analyst ratings point at this point. So you know,
even with these really impressive numbers, maybe the it's just
kind of a hit hit its ceiling for the time being.
Speaker 3 (04:40):
Hey, Red, it's so interesting, you know, I was saying
as we were going into our Beyond the Bell our
coverage with TV as we you know, waited for these
Netflix earnings, I was saying, you know, this could really
set the tone for the quarter for a lot of
the consumer tech companies that are set to report in
the coming weeks, and yet yet we get a blowout
number pretty much across the board, and we see a
(05:00):
negative reaction like this, and I'm wondering how we can
extrapolate this beyond Netflix.
Speaker 1 (05:04):
Yeah, it's a good question. I mean, people have been
really focused on earnings this quarter, and a lot of
analysts are saying, you know, focus on the numbers, don't
buy unto the hype and has really big implications for
the stock market at general at the moment. So I
don't know if people kind of are on edge and
looking for any excuse to sell at the moment. Yeah,
(05:25):
it could paint a pessimistic picture for the remainder of
the quarter here, probably for us.
Speaker 2 (05:30):
Paul Sweenie, come on back in here. I'm just thinking,
you know, we're getting ready for the analyst calls, and
I feel like there's going to be a fair amount
of questions, especially as you see the stock kind of
bouncing around here. What's kind of the top one or
two questions that you would want to be putting up
on that call.
Speaker 4 (05:43):
Yeah, one revenue and one cost question. The revenue side
is talk to us about the advertising component how well
is that catching on with subscribers. How many subscribers are
going to the advertising tier and that's a big thing
because that's gonna be one of the drivers going forward.
And then a second one on the call side is
where are we on our programming budget? You need to
spend more to drive more subscriber growth? Or or is
(06:06):
a company and a good level of spend because if
they are at a good level of spend, boy, the
profits just really start churning for this company and the
free cash flow as well.
Speaker 3 (06:14):
I do want to bring in some of the advertising
information that you mentioned, Paul in the letter. The company
did come out and say that ADS membership grew sixty
five percent quarter on quarter after rising nearly seventy percent
sequentially in each of Q three twenty three and Q
four twenty three. They're also saying that over forty percent
of all sign ups in our ads markets, remember it's
not fully rolled out, are coming from our ads plan
(06:36):
for advertisers. The companies focusing on measurement solutions, including new
partnerships with Kantar and Lucid for brand awareness and recall,
and then Nielsen Catalina solutions for sales lift Paul, I
don't have to tell you because you've been covering this
for years. How wild is it for us to talk
about Netflix and measurement because this is a company that
for years was like, we don't care about ratings, We're
never going to share any numbers. We're never going to
(06:58):
do ads, never, never, never, And here they are talking
about yis Yeah, exactly, this is crazy.
Speaker 4 (07:04):
It's a great point. They're going to have to start
the disclosing audience levels of some degree. But we already
know that the advertising video on demand model is a
very successful model. Advertisers are switching some linear TV broadcasting
cable to the more digital platforms, and they've been itching
to get to the streaming base of Netflix. So there
(07:26):
will be a lot of advertisers demand. And you know,
Netflix is going to have to provide the advertisers and
their agencies with some data the consistent they can just
get a sense of pricing and value.
Speaker 5 (07:37):
Yeah, you know.
Speaker 2 (07:37):
And the other thing is like I'm thinking about content, right,
you know, original content versus licensing. And when we were
talking with Githa rang an ant On earlier, she said,
you know, one of the upsides is that they are
you know, doing a lot of licensing deals.
Speaker 5 (07:48):
They had suits.
Speaker 2 (07:49):
They just did something with Sex and the City that's
just coming out. I mean, when you think about it,
Paul as an analyst and somebody who understands the space,
I mean, cheaper to do a licensing deal versus creating
that original content.
Speaker 4 (08:01):
It is generally speaking, it is much cheaper to license
the show than to create it, particularly the shows that
they make, which are extraordinarily high quality, and they have
very big budgets and other good and that's the that's
the investment part. The good is is it does drive
subscriber growth. So I think most investors would say that's
a good investment to make in original programming. But you
(08:23):
got to find a balance here and so, and that's
the same. And that's true for the media companies. They
have to find a balance on what they licensed to
Netflix and what they keep on their own streaming services.
Speaker 3 (08:32):
Red Let's say you had a chance to ask management
a question today on the call that's coming up. What
do you want to hear about.
Speaker 1 (08:37):
Yeah, I mean we're talking about programming and what's going
to be driving growth in the future. I think there's
a big question around sports. Yeah, what what what level
of investment are they planning on putting in that that area.
We know it's highly competitive, it's really crowded, it's very expensive.
They are kind of stipping their toe in with some
of these combat sports. But yeah, it would be w
E WWE the Jake Paul and Mike Tyson fight later
(09:00):
this summer. We will want to hear kind of what
is their strategy. They've been on the sidelines for a
while now, and you know, have they been able to
see the mess that sports streaming has been from, you know,
paying billions and millions of dollars? Do they have a
different strategy like they have in so many other cases
in the market.
Speaker 2 (09:18):
I do wonder too, And I'm just looking at something
like a Walt Disney in the aftermarket, and obviously it's
not just about streaming. It's just down slightly down about
one tenth of one percent here, Warner Brothers, Discovery, same story.
I mean, Paul, is there anything that you kind of
extrapolgalate when you look at something like a Netflix and
then what it means for some of the other streaming
services that are out there.
Speaker 4 (09:38):
I think it's actually all net positive, which is it
just shows you the strength of the streaming business model.
We now know when you look at Netflix's financials that
it can be extraordinarily profitable generate really high returns. So
now the question is who else can join Netflix with
those types of financial metrics Ken Disney do it, Warner Brothers, Discovery,
(10:00):
Ken Powermount. That's kind of the question a lot of
those investors are asking themselves, but they can be done
here if you look at Netflix.
Speaker 2 (10:08):
Listen, Paul Sweeney, thank you so much. We so appreciated
our own Paul Sweeney, who has covered the media industry
and did as a banker for many years, thirty years
as a media analyst, so really great to get his insight.
We're going to continue with Red Brown. We're also going
to roll into it our Githa Ranganathan, who covers the
media space for our Bloomberg intelligence team. You know, getha
you called it on the subscriber number.
Speaker 3 (10:30):
She did, she really did. Can you remind everyone what
she told us a couple hours ago?
Speaker 2 (10:33):
You said it was going to be a much higher number.
It is a much higher number. Walk us through the
quarter and why is it that?
Speaker 5 (10:40):
Though?
Speaker 2 (10:40):
First of all, are you I'm assuming you're watching the
stock in the aftermarket, it's down about two point six percent.
It just has been bouncing around a lot. Walk us
through the quarter, maybe why you think, I mean, should
investors be disappointed here?
Speaker 6 (10:53):
So absolutely, right, Carol, it was a blowout quarter. I mean,
I think it came in much higher than expected. We
were kind of thinking maybe six seven million dollar seven
million subscriber ads net ads range. This was of course
way above that. But I think what is really kind
of causing a little bit of concern here is that
they are going to stop reporting subscriber metrics altogether, and
(11:16):
that I think is coming as a little bit of
a disappointment. I mean, Netflix is out and out a
subscriber story, or at least it always has been, and
so this is kind of going to require a complete
change in the mindset of investors, right. You know, this
is this was always such an easy model to follow.
You know, you just multiply subscribers by the monthly price
(11:37):
that you pay, and you you, you know, you kind
of have your whole model. But now they're going to
stop reporting subscriber numbers. They're going to stop reporting the
average revenue per user. So it's kind of going to
it's it's definitely becoming. It's I would say, it's gone
from kind of high growth to now more you know, uh,
definitely a very profitable company. But obviously they do seem
(12:00):
to be kind of signaling that subscriber growth that the
party is going to be over at some point.
Speaker 3 (12:05):
Correct me if I'm wrong, getha. But did Netflix used
to report churn and then they stopped reporting churn and
that was a really big deal to investors when that happened.
Speaker 6 (12:15):
That was a very very long time ago. Yes, they did,
they would, they would mention it, and yeah, they did
stop reporting it. But subscribers, again, this is the bread
and butter of this whole streaming business. So I think
it's it's definitely going to require people are going to
take some time to kind of digest that.
Speaker 1 (12:33):
Getha. We've seen them, they have started to give us
a little bit more viewership on information over the past
year or so. Do you think that that is part
of or them kind of trying to signal that, you know,
ads are going to become a bigger part of our business,
and you know how big of a part of their business.
Do you think that will be in the next couple
of years.
Speaker 6 (12:52):
Yeah, so right now, they haven't really given us any
concrete metrics around advertising, I mean, other than the first
number that they gave us in January, which was roughly
about twenty five million active users. They did report something
today by saying, you know that they've seen like forty
percent of their new signups are actually on the ad tyear,
but we don't actually have a concrete number.
Speaker 5 (13:11):
That said.
Speaker 6 (13:12):
I think what they're doing, they're they're they're still kind
of taking pretty a pretty measured approach, but there are
signals that they really are looking to get or to
scale up their advertising business, and I think sports is
obviously a big way that they're going to do that.
You know, you obviously saw that the WWE deal. There
are a few more things that are out there on
the horizon, obviously the NBA being a big one, and
(13:35):
if they if they make an aggressive bid for that,
then that really tells us how serious they are about advertising.
And I think potentially what they're what we're looking at
in terms of advertising dollars, if they get everything right.
It has been a little bit underwhelming so far, but
if they you know, if they're able to execute with
the sports and the other live events expected to be
(13:55):
at least ten to fifteen percent of their revenue by
twenty twenty five. So you know, you're looking at a
forty forty five billion dollar business. I think you're going
to see four to five billion at least in advertising.
Speaker 2 (14:06):
It is kind of interesting, you know, Githa, We all
kind of kid. It's like, I only have so many
hours to watch all this stuff, and so we're picking
and choosing, and it seems like there's so much out there.
I mean, the company said in their letter to shareholders,
with more than two people per household on average, we
have an audience of over half a billion. And then
they go on to say no entertainment companies ever programmed
at this scale and with this ambition before. But it
(14:28):
does feel like, you know, and listening to you talk about,
you know, them not reporting their quarterly membership numbers in
the future, that they are conceding that there is just
a point that we're going to max out. We can
just only sign up so many people. And that means
even on a global scale, right.
Speaker 6 (14:46):
Yes, on a global scale. So back in the day,
you know, maybe even about three four years ago, they
would always talk about this one billion number as their
total addressable market about two years ago. That's when the
great Netflix reset and the Great Correction happened.
Speaker 5 (14:59):
They kind of toned that down.
Speaker 6 (15:00):
They said, you know, it's probably closer to about four
hundred five hundred million as the total addressable market looks
like it's you know, probably even slightly smaller than that.
You know, so they definitely are conceding that there is
an upper limit, There is a ceiling to kind of
the growth here.
Speaker 2 (15:17):
But is there something like I always laugh about this
sometimes when we talk about some of these big tech names.
We used to talk about this a lot. By Apple,
We'd be like, Oh, it's a disappointing number. Yet they
still sell a lot of stuff, And I understand it's
growth trends and trajectory. Can we still, though, can see
that Netflix still is kind of the big behemoth in
this space.
Speaker 5 (15:34):
They absolutely are.
Speaker 6 (15:35):
They They have completely cemented their dominance when it comes
to this whole streaming wars. I mean, I think the
streaming wars are pretty much over. They are the winner,
there's no.
Speaker 5 (15:44):
Doubt about that.
Speaker 6 (15:45):
And now it's just about them kind of you know,
getting into different verticals, kind of becoming that you know
that one service they probably will you know, kind of
absorb absorb a lot of the other smaller streaming services,
I think just because they're licensing so much of content
from them and they you know, it's just but at
this point, it's definitely going to become you know, how
(16:06):
much pricing power do they have? So right now we
are at about fifteen and a half dollars for a
standard plan in the US. How much upside is there?
Can that go to twenty twenty five dollars? That is
kind of the big question.
Speaker 3 (16:19):
So it's funny as you're saying this, I'm thinking to myself, Okay, well,
you know, twenty years ago, all we wanted was it
all the card options for TV, and we kind of
got that now. And I think a lot of us
are spending more on all a combination of all these
services given that you know, it's Paramount, it's Hulu, It's Max,
it's Disney Plus, it's Netflix, just to name a few.
I do wonder, Githa, where the growth is for Netflix
at this point. Is it is it in the ad
(16:40):
supported model, is it outside of the United States? Where
where is that growth coming from? As the company matures?
Is it raising prices?
Speaker 6 (16:49):
Yeah, it's actually Jim, it's all of the above, and
it's just you know, it's going to be a very
it's a very tough balancing act for them because they
don't want to do anything too quickly and too rashly,
which is why when they were kind of implementing their
whole password sharing crackdown, they were very careful not to
raise prices because you know, they didn't want to anger
you know, existing customers. So again, it's going to be
(17:10):
it's going to be tricky. They're kind of walking a
tight trope here, but yeah, they are going to use
all the different levers that they have to kind of
keep profitability, which is their main metric right now, profitability
and margins kind of climbing up.
Speaker 1 (17:24):
Githa. Before the report and the analyst I was speaking
to a lot of them made a big deal about
the T Mobile partnership that they were working on. How
do you see that factoring into the future. Do you
think that that has been a successful program and do
you can you expect to see them maybe do some
some more types of those partnerships.
Speaker 6 (17:44):
Absolutely, I think that is going to become a critical
critical factor for Netflix if it really kind of wants
to grow its subscribers. So what they did with T
Mobile was kind of they're offering their ad supported plan,
which is a seven dollars monthly plan to you know,
select T Mobile members for free, and they're going to
do a lot more of that. The having a low
priced plan kind of really gives them a lot of
(18:05):
flexibility because they can add subscribers. But then again, they're
not necessarily losing our poop because remember they're the greater
the subscribers they have, they can always kind of appeal
to advertise the advertising community, so and kind of makeup
or offset for any of that ar foo differential from
from their advertising dollars. So I think that's going to definitely,
(18:25):
uh play a much bigger role, not just in the US,
but of course across the world as well. They're going
to have lots of those kinds of telecom partnerships.
Speaker 2 (18:32):
Keetha, what do we you know, kind of pull from
this when it means to like Disney Streaming and Warner
Brothers Discovery and some of the other services that are
out there.
Speaker 6 (18:41):
So for all of those other services, I think subscriber
growth is not the primary focus anymore.
Speaker 5 (18:46):
It's kind of moved now.
Speaker 6 (18:48):
Carol to profitability, where obviously, again Netflix leads the back.
A lot of these other services have made good progress,
I would say really good progress when it comes to
at least they're not profitable yet, but they're you know,
moderating their losses. Disney obviously is the big one to
watch for there, and now they have the model in place.
(19:08):
You know, you've seen exactly what Netflix has accomplished. They
all know exactly what they have to do. It's just
going to be a question of how well they do
it and can they get there quick enough.
Speaker 3 (19:17):
Githa, do you think there's any consumer confusion? I mean, okay,
I know the answer to this is yes, and I
just don't know how to solve it. The consumer confusion
about where to watch something. Yeah, I mentioned Sex and
the City and I was shocked to hear that that's
on Netflix. It's an HBO show. Somebody in our simulcast
chat mentioned in the office, Well, I think that's now
on Peacock, but it was on Netflix. Friends, a former
NBC show or No Seinfeld is now on Netflix. I
(19:39):
believe it's confusing, is that right? I don't know, like
you know it is.
Speaker 6 (19:44):
How Discovery is the biggest's not content anymore. It's really
just discovery is the biggest problem right now in the
whole of you know, the streaming space. And at the
end of the day, we're kind of looking for that
one or what we're waiting for is that one aggregator
or reaggregator that can kind of take all the shows
that you really want to watch and do it.
Speaker 5 (20:04):
I don't know who it's going to be. Is it
going to be YouTube? Maybe it is.
Speaker 6 (20:07):
It could be Amazon, it could be Apple, but but
we're all waiting for that. Again, I'm not sure when
exactly it's going to happen.
Speaker 3 (20:14):
Roku doesn't Okay, Roku does a really good job of that,
but you've got to have be signed into everything on
your Roku and plus that means you're only watching on TV.
You're not watching it on the iPad or on like
your phone, and.
Speaker 5 (20:24):
It's there's still is friction.
Speaker 3 (20:26):
Yeheah, there is still a lot of friction.
Speaker 2 (20:27):
Final thought, Githa, I'm just thinking of our investor audience
as we work through this. Netflix share is still down
about three and a quarter percent here.
Speaker 6 (20:37):
Yeah, So I think the big question is really going
to be, you know, on the call of you know
what how many subscribers do or how many you know
subscribers you think you've captured from the whole password sharing initiative.
I think the numbers that they're originally identified was one
hundred million households. I think people will definitely want to
know what percentage of that has already been kind of captured,
(20:57):
just given the strong subscriber metrics, and then they'll kind
of try to figure out how much more runway is
left Rockstar.
Speaker 2 (21:03):
As always, Githa Ringing Athen thank you so much. Tech
and media analyst a Bloomberg Intelligence Red Brown, final thoughts
for you just twenty seconds here. I mean stocks down
in the aftermarket, but we'll see what happens tomorrow.
Speaker 1 (21:11):
Yeah, we'll see what happens tomorrow. And for the remainder
of the year. I think, you know, they put up
strong financials and that could easily bounce back. You know,
this quick reaction, but the investors love the short term.
Speaker 3 (21:21):
It depends on what they say.
Speaker 2 (21:22):
On the call exactly, and it'll be interesting to do
if some investors may say, well, wait, it's a little
bit cheaper than it was and I want the exposure.
Red Brown, thank you so Also a rock Star, Yes, yes,
rock Crease here right now.
Speaker 3 (21:34):
Yeah, we had a great group.
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