WEBVTT - Bloomberg's Sweeney on Netflix EPS: Slowdown in New Subs(Audio)

0:00:02.360 --> 0:00:05.760
<v Speaker 1>Global business news twenty four hours a day at Bloomberg

0:00:05.800 --> 0:00:08.840
<v Speaker 1>dot com, the radio, plus mobile lapt and on your radio.

0:00:09.119 --> 0:00:13.320
<v Speaker 1>This is a Bloomberg Business Flash for all Bloomberg World headquarters.

0:00:13.360 --> 0:00:16.320
<v Speaker 1>I'm Charlie Public. We are awaiting the latest numbers from Yahoo.

0:00:16.360 --> 0:00:18.919
<v Speaker 1>We did here from Netflix it added one point six

0:00:18.960 --> 0:00:22.560
<v Speaker 1>eight million subscribers in the second quarter, falling short of

0:00:22.560 --> 0:00:26.759
<v Speaker 1>its own forecast. Netflix trading lower IBM second quarter operating

0:00:26.800 --> 0:00:29.600
<v Speaker 1>EPs two ninety five. The gap estimate there was for

0:00:29.760 --> 0:00:33.519
<v Speaker 1>two sixty one. And again we are awaiting those Yahoo numbers.

0:00:33.640 --> 0:00:36.839
<v Speaker 1>Records today for the Dow and the SMP five hundred index,

0:00:37.320 --> 0:00:40.160
<v Speaker 1>SMP up five to twenty one sixty six, up two

0:00:40.159 --> 0:00:44.159
<v Speaker 1>tenths of one percent, Dow up sixteen points to eighteen thousand,

0:00:44.280 --> 0:00:47.000
<v Speaker 1>five hundred thirty three, a record there, up point one percent,

0:00:47.320 --> 0:00:50.120
<v Speaker 1>and has stack up five tenths of one percent. Gold

0:00:50.200 --> 0:00:52.560
<v Speaker 1>up to forty the ounce the thirteen twenty nine of

0:00:52.800 --> 0:00:55.680
<v Speaker 1>two tenths of one percent. Crude oil down sixty eight

0:00:55.680 --> 0:00:58.080
<v Speaker 1>cents of arrel forty five twenty seven, a drop there

0:00:58.200 --> 0:01:01.000
<v Speaker 1>of one and a half percent. I Charlie Pellet, and

0:01:01.160 --> 0:01:05.360
<v Speaker 1>that's a Bloomberg Business flash. This is taking stock with

0:01:05.480 --> 0:01:10.520
<v Speaker 1>pin Box and Kathleen Hayes on Bloomberg Radio shares of Netflix.

0:01:10.560 --> 0:01:13.640
<v Speaker 1>They are sinking there, down about thirteen percent and after

0:01:13.720 --> 0:01:16.680
<v Speaker 1>hours trading here to tell us more, Paul Sweeney, US

0:01:16.720 --> 0:01:21.000
<v Speaker 1>Director of Research, Senior Media Internet analyst for Bloomberg Intelligence.

0:01:21.360 --> 0:01:24.959
<v Speaker 1>Of course, Bloomberg Intelligence providing unique real time research and

0:01:25.040 --> 0:01:27.840
<v Speaker 1>context on a variety of industries as well as markets

0:01:27.880 --> 0:01:31.720
<v Speaker 1>and all government factors that affect business. Our terminal custers

0:01:31.760 --> 0:01:36.240
<v Speaker 1>can access this function at b I go all right,

0:01:36.280 --> 0:01:39.040
<v Speaker 1>Paul Sweeney, you go go ahead, tell us what's going

0:01:39.080 --> 0:01:43.440
<v Speaker 1>on with Netflix and why is the stock down thirteen percent? Yeah,

0:01:43.560 --> 0:01:46.399
<v Speaker 1>you know, growth is really slowing here at Netflix, says

0:01:46.760 --> 0:01:49.040
<v Speaker 1>you know, as I've said all along about this this company,

0:01:49.040 --> 0:01:51.760
<v Speaker 1>in this stock, the stock is really a momentum stock.

0:01:51.800 --> 0:01:54.000
<v Speaker 1>And it's not an earnings momentum stock. It's not even

0:01:54.040 --> 0:01:57.120
<v Speaker 1>a revenue momentum stock. But it is primarily a stock

0:01:57.120 --> 0:02:00.160
<v Speaker 1>that's driven by a momentum and subscriber growth. In what

0:02:00.200 --> 0:02:04.080
<v Speaker 1>we're seeing is a pretty serious slowdown in new subscriber

0:02:04.120 --> 0:02:07.600
<v Speaker 1>ads for the company. So the company added about one

0:02:07.640 --> 0:02:11.920
<v Speaker 1>point seven million new subscribers globally this quarter um and

0:02:11.960 --> 0:02:15.200
<v Speaker 1>that that missed, however, the company's own guidance of about

0:02:15.200 --> 0:02:18.320
<v Speaker 1>two point five million news subscribers, so a big miss there.

0:02:18.760 --> 0:02:21.200
<v Speaker 1>UM In a year ago period, the company added three

0:02:21.200 --> 0:02:25.120
<v Speaker 1>point three million UH new customers, so UM. We the

0:02:25.160 --> 0:02:28.480
<v Speaker 1>market knew that growth was slowing here, it's just much

0:02:28.639 --> 0:02:31.480
<v Speaker 1>much more pronounced than the market was expecting, and hence

0:02:31.520 --> 0:02:33.880
<v Speaker 1>the big sell off here. And this is the sell

0:02:33.919 --> 0:02:38.600
<v Speaker 1>off connected with higher prices for Netflix subscriptions. I think

0:02:38.600 --> 0:02:41.560
<v Speaker 1>that's partly to blame for it. They the company has,

0:02:41.639 --> 0:02:44.000
<v Speaker 1>you know, has been raising prices and they typically grandfather

0:02:44.160 --> 0:02:46.960
<v Speaker 1>some existing customers into the lower prices, and they were

0:02:47.040 --> 0:02:50.280
<v Speaker 1>rolling off that grandfathering UM. And so we expected the

0:02:50.560 --> 0:02:52.760
<v Speaker 1>turn to pick up in a quarter with which it did.

0:02:53.160 --> 0:02:56.040
<v Speaker 1>But we're really seeing a pronounced slowdown both in UM

0:02:56.480 --> 0:02:59.080
<v Speaker 1>the US market as well as their international markets. Both

0:02:59.080 --> 0:03:03.600
<v Speaker 1>of those markets, UH missed their new subscriber ad UH forecast.

0:03:03.680 --> 0:03:05.840
<v Speaker 1>So you know, in the US market, it's a more

0:03:05.880 --> 0:03:08.200
<v Speaker 1>mature market. Netflix has been here a long time. It's

0:03:08.200 --> 0:03:12.239
<v Speaker 1>a more mature market, more competition, so the market investors

0:03:12.240 --> 0:03:14.799
<v Speaker 1>weren't really expecting a lot of growth coming out of

0:03:14.840 --> 0:03:18.440
<v Speaker 1>the US market. UH. The investors, however, were really banking

0:03:18.520 --> 0:03:21.480
<v Speaker 1>on continued growth and their international markets, and they've rolled

0:03:21.480 --> 0:03:23.320
<v Speaker 1>out there pretty much every market in the world with

0:03:23.360 --> 0:03:26.320
<v Speaker 1>the exception of China. Uh and the international markets had

0:03:26.360 --> 0:03:29.239
<v Speaker 1>in fact been the big growth driver and new subscribers

0:03:29.240 --> 0:03:31.400
<v Speaker 1>offsetting kind of the slow down in the US. But

0:03:31.600 --> 0:03:35.880
<v Speaker 1>even the international markets markedly missed UM their outlook for

0:03:35.960 --> 0:03:38.880
<v Speaker 1>new subscribers in the second quarter, and the company's guidance

0:03:38.920 --> 0:03:41.920
<v Speaker 1>for third quarter in terms of subscriber ads is also

0:03:42.000 --> 0:03:46.680
<v Speaker 1>well below investors forecast. So again, just more confirmation that

0:03:46.800 --> 0:03:49.960
<v Speaker 1>the growth is slowing and slowing faster than the than

0:03:49.960 --> 0:03:52.120
<v Speaker 1>people really thought. Well, Paul, you know they say that

0:03:52.240 --> 0:03:55.520
<v Speaker 1>history doesn't repeat itself, but it rhymes. The last time

0:03:55.600 --> 0:03:58.440
<v Speaker 1>I really heard about subscriber growth that had to do

0:03:58.480 --> 0:04:01.440
<v Speaker 1>with those numbers from America Online. You'd watch to see

0:04:01.480 --> 0:04:04.120
<v Speaker 1>whether there were more subscribers month over month and whether

0:04:04.160 --> 0:04:08.720
<v Speaker 1>they reached the analyst estimate. Sales for Netflix were up

0:04:08.760 --> 0:04:11.880
<v Speaker 1>twenty eight percent compared to a year ago. And to

0:04:11.960 --> 0:04:14.560
<v Speaker 1>confirm your thoughts about the US market, there are forty

0:04:14.600 --> 0:04:17.840
<v Speaker 1>seven million customers in the United States. So where does

0:04:17.920 --> 0:04:21.560
<v Speaker 1>Netflix go next? Well, I think Netflix, Um. It's funny

0:04:21.560 --> 0:04:24.080
<v Speaker 1>you mentioned America Online I was actually the third analyst

0:04:24.120 --> 0:04:26.880
<v Speaker 1>to pick up coverage of that stock in I have

0:04:26.960 --> 0:04:30.279
<v Speaker 1>to confess, I really do remember you. That's the analogy

0:04:30.320 --> 0:04:32.400
<v Speaker 1>I make to a lot of investors that reminds me

0:04:32.440 --> 0:04:35.039
<v Speaker 1>a lot of the early a world years. UM. But

0:04:35.080 --> 0:04:38.640
<v Speaker 1>I think for obviously, the market place here for Netflix

0:04:38.720 --> 0:04:42.600
<v Speaker 1>is just an extraordinary, really large market. UM. Netflix is

0:04:42.720 --> 0:04:45.560
<v Speaker 1>the brand they preferred brand in the market. They also

0:04:45.600 --> 0:04:48.520
<v Speaker 1>have first to market mover advantage in most of their markets,

0:04:48.560 --> 0:04:51.880
<v Speaker 1>so they have a tremendous amount of resources and growth

0:04:51.880 --> 0:04:54.039
<v Speaker 1>ahead of them. I think it's simply a question they're

0:04:54.080 --> 0:04:56.840
<v Speaker 1>finding that in a lot of these international markets, UH,

0:04:56.839 --> 0:04:59.680
<v Speaker 1>there's a lot more nuances to these markets, and therefore

0:04:59.720 --> 0:05:01.920
<v Speaker 1>the growth rates aren't what they thought they would be.

0:05:02.160 --> 0:05:05.839
<v Speaker 1>In some markets, UM, local programming plays a lot better

0:05:05.960 --> 0:05:09.800
<v Speaker 1>than Western programming or or American programming, and a lot

0:05:09.839 --> 0:05:13.840
<v Speaker 1>of markets there's more established UH competitors in the marketplace,

0:05:14.400 --> 0:05:17.479
<v Speaker 1>like France and in Germany, for for example. UM So,

0:05:17.560 --> 0:05:19.400
<v Speaker 1>I think they're coming into the market which a little

0:05:19.400 --> 0:05:21.400
<v Speaker 1>a little bit more competitive, a little bit more mature,

0:05:21.720 --> 0:05:23.440
<v Speaker 1>and they're not getting some of the growth that they

0:05:23.480 --> 0:05:26.039
<v Speaker 1>were seeing in some of their earlier international forays. Just

0:05:26.080 --> 0:05:29.080
<v Speaker 1>several years ago. So I think the the overall long

0:05:29.200 --> 0:05:32.840
<v Speaker 1>term opportunity still very large for Netflix, But this was

0:05:32.880 --> 0:05:36.039
<v Speaker 1>the stock that was really pricing in uh, you know,

0:05:36.560 --> 0:05:41.440
<v Speaker 1>continued exceptional growth rates and subscribers and revenue, uh that

0:05:42.000 --> 0:05:43.919
<v Speaker 1>it doesn't appear that the company can do. This is

0:05:44.080 --> 0:05:45.560
<v Speaker 1>really the second quarter in a row we've had a

0:05:45.600 --> 0:05:50.159
<v Speaker 1>real uh kind of uh disappointment in new subscriber ads. Uh, Paul,

0:05:50.680 --> 0:05:54.600
<v Speaker 1>We're waiting for Yahoo to release its results. Will there

0:05:54.600 --> 0:05:57.040
<v Speaker 1>be any surprises and what should we look for? Well,

0:05:57.040 --> 0:05:58.560
<v Speaker 1>you know those two two things here. One is just

0:05:58.600 --> 0:06:00.919
<v Speaker 1>the core operations of the butt, and I think the

0:06:00.960 --> 0:06:03.720
<v Speaker 1>expectations remain very low there. I think, you know, street

0:06:03.760 --> 0:06:07.359
<v Speaker 1>consensus is for another twenty percent decline in revenue, again

0:06:07.360 --> 0:06:11.560
<v Speaker 1>in a business that's growing in terms of the industry growth. Uh.

0:06:11.560 --> 0:06:14.040
<v Speaker 1>So the question here is, uh, where is the company

0:06:14.080 --> 0:06:17.159
<v Speaker 1>in terms of selling this core business? And final bids

0:06:17.160 --> 0:06:20.640
<v Speaker 1>were due today, so the market's clearly looking for some

0:06:20.720 --> 0:06:24.120
<v Speaker 1>color there and some guidance there as to um, you know,

0:06:24.360 --> 0:06:26.479
<v Speaker 1>do we have a final bid or what is the price?

0:06:26.680 --> 0:06:29.120
<v Speaker 1>What is the future this operating company? Because it looks

0:06:29.160 --> 0:06:31.880
<v Speaker 1>like clearly Merissa Meyer and her management team have been

0:06:31.960 --> 0:06:35.200
<v Speaker 1>unable to turn this story around. UH. So investors are

0:06:35.200 --> 0:06:37.920
<v Speaker 1>clearly not really focused on the core fundamentals, but more

0:06:37.960 --> 0:06:41.120
<v Speaker 1>about who's gonna own this thing going forward and then sex. Secondarily,

0:06:41.120 --> 0:06:43.800
<v Speaker 1>it's simply a question of the real value of this

0:06:43.880 --> 0:06:47.560
<v Speaker 1>company continues to be the company's investment in Ali Baba

0:06:47.640 --> 0:06:51.720
<v Speaker 1>and in Yahoo Japan. UM And the question there is okay,

0:06:51.839 --> 0:06:55.000
<v Speaker 1>uh management team at Yahoo and board, what is your

0:06:55.000 --> 0:06:59.080
<v Speaker 1>plan now for monetizing that value for shareholders? They have

0:06:59.200 --> 0:07:02.000
<v Speaker 1>not been able to put a credible plan on the

0:07:02.000 --> 0:07:04.599
<v Speaker 1>table yet. It's been well over a year. Uh. And

0:07:04.640 --> 0:07:07.599
<v Speaker 1>I think people are simply, uh, you know, really looking

0:07:07.600 --> 0:07:09.880
<v Speaker 1>for some clarity there. Want want once, once and for all.

0:07:10.240 --> 0:07:15.920
<v Speaker 1>Just give you a five seconds. Is Mersa Meyers jobs secure? Uh?

0:07:16.360 --> 0:07:18.480
<v Speaker 1>I would doubt it. I think any new buyer will

0:07:18.520 --> 0:07:20.360
<v Speaker 1>probably want to put their own management team in place.

0:07:20.640 --> 0:07:23.760
<v Speaker 1>Thanks very much. Paul Sweeney, US director of Research and

0:07:23.840 --> 0:07:28.920
<v Speaker 1>senior media Internet analysts for Bloomberg Intelligence also form an

0:07:28.920 --> 0:07:33.720
<v Speaker 1>analyst for on America Online. This is taking stock. I'm

0:07:33.800 --> 0:07:47.440
<v Speaker 1>pim Fox, and this is Bloomberg coming up. Bloomberg Laws

0:07:47.440 --> 0:07:50.080
<v Speaker 1>brought to you by Bentley University. What you're developing apps

0:07:50.080 --> 0:07:53.480
<v Speaker 1>at Facebook and analyzing data at Biogen Heaven, Common and

0:07:53.680 --> 0:07:56.720
<v Speaker 1>MBA from Bentley University, where you will explore innovation and

0:07:56.840 --> 0:07:59.480
<v Speaker 1>leadership Because businesses everywhere prepare here