Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Thank you so much for joining us on this special
Speaker 2: edition of Bloomberg Daybreak. US markets are closed for the
Speaker 2: Martin Luther King Junior Day holiday. I'm Nathan Hager, and
Speaker 2: coming up this hour, we'll look ahead to the federal
Speaker 2: reserves first policy decision of the year, what's in store
Speaker 2: for interest rates after last week's key reports on inflation,
Speaker 2: Plus streaming behemoth Netflix gets set to report earnings. We'll
Speaker 2: have a special Bloomberg Intelligence roundtable with media analyst KEITHA.
Speaker 2: Ronganathan and senior credit analyst Stephen Flynn. But first we
Speaker 2: begin with politics because this is not only MLK Day
Speaker 2: in a rare occurrence, it is also Inauguration Day, as
Speaker 2: Donald Trump officially begins his second term as president. So
Speaker 2: what will the next four years hold in store with
Speaker 2: Trump back as commander in chief. We're pleased to welcome
Speaker 2: Wendy Schiller, director of the Alfred Taubman Center for American
Speaker 2: Politics and Policy at Brown University. Great to speak with
Speaker 2: you on this inauguration Day. Wendy, thanks for being here,
Speaker 2: And of course we saw plenty of dramatic moves in
Speaker 2: the first hundred days of the first Trump administration, how
Speaker 2: could the second first one hundred days be different?
Speaker 3: Hello Nathan, and happy inauguration Day to you too. You know,
Speaker 3: there's just a question mark, you know, will the second
Speaker 3: Trump administration learn from some of the stumbles of the
Speaker 3: first Trump administration, things like the travel band, things like
Speaker 3: you know, sweeping immigration and deportation actions. This time, I
Speaker 3: think the rollout will be much smoother, and I do
Speaker 3: think that the Trump administration is planning ahead for things
Speaker 3: like lawsuits or public challenges to some of the actions
Speaker 3: that's going to take. Clearly it will use more security
Speaker 3: and immigration as some of its pillar foundations in the
Speaker 3: early part of the administration. But politically, you know, the
Speaker 3: Trump administration, led by incoming President Trump, is very focused
Speaker 3: on getting a tax cut bill and certainly making sure
Speaker 3: the debt ceiling gets extended. And so those are the
Speaker 3: things that the Trump administration wants to get done earlier
Speaker 3: in sort of the congressional legislative season. Then we typically
Speaker 3: see I do.
Speaker 2: Want to get to the plans for tax policy. But
Speaker 2: you mentioned the possibility or at least the preparation for
Speaker 2: potential legal challenges to some of what President Trump may
Speaker 2: have in store here. How prepared is the next president
Speaker 2: for what could be coming in terms of the flurry
Speaker 2: of executive orders that he has said he wants to
Speaker 2: enact on day one.
Speaker 3: This is all are very much dependent on the Justice Department.
Speaker 3: You know, should the Attorney I'll be confirmed fairly, smoothly,
Speaker 3: and then what happens to career Justice Department lawyers? Do
Speaker 3: they stay or do they go? How much of an
Speaker 3: exotus will there be in the executive branch for people
Speaker 3: who are still service and who are either fearful of
Speaker 3: served you projects twenty twenty five, or you know, any
Speaker 3: kind of other attempt to cut or eliminate positions. But
Speaker 3: even that, they don't want to carry out Trump administration policies.
Speaker 3: So you know, if you get a hollowing out of.
Speaker 4: The Justice Department.
Speaker 3: I'm not suggesting that there will be a hollowing out,
Speaker 3: but there could be. Then when groups that are gearing
Speaker 3: up that are already prepared to challenge some of these
Speaker 3: executive orders go to court, you know, who's going to
Speaker 3: defend the Trump administration. That's where I think the opponent
Speaker 3: may have a head start, depending on what the staff
Speaker 3: situation looks like in the executive branch. So at the
Speaker 3: same time you want, you know, elon Musk and then
Speaker 3: go almost want me to clean up and limit and
Speaker 3: trim government. He's going to need those people to implement
Speaker 3: his policy.
Speaker 2: Do you think we're going to see the kind of
Speaker 2: sea change that President Trump has talked about if it
Speaker 2: does produce some kind of backlash from the electorate, if
Speaker 2: some of these things are seen as not popular, if
Speaker 2: they come into drastically.
Speaker 3: Well, Nadan, this is a really important part of the
Speaker 3: federal government that a lot of people sort of overlook.
Speaker 3: It is deeply embedded in every American's daily life. Everything
Speaker 3: we do, the safety, the food we eat, the healthcare system,
Speaker 3: the roads, which of course you know up in New
Speaker 3: England we complain about all the time. Every single thing
Speaker 3: we do is absolutely affected by the federal government. And
Speaker 3: you need people to be implementing those policies and conducting
Speaker 3: oversight of how they're going on the ground level. So
Speaker 3: if you want to gut or trim or eliminate, people
Speaker 3: will feel that. And so the big question is how
Speaker 3: many of those people will be in Republican leading districts
Speaker 3: and whether the House of Representatives they very slim Republican
Speaker 3: majority react to the things that are happening on the
Speaker 3: ground in their districts. So this is the big thing
Speaker 3: that I'm watching for, and we may not see it
Speaker 3: till this summer, but those of those who know history
Speaker 3: go way back to nineteen ninety five and New Cambridge
Speaker 3: to have got out of the gate very fast, very
Speaker 3: successfully in the Republican House, and then by the summer
Speaker 3: the impact of some of those decisions are being self
Speaker 3: and districts and the party started to really fight with itself.
Speaker 3: So we have to see how they roll it out,
Speaker 3: where they roll it out, and what they're actually going
Speaker 3: to cut.
Speaker 2: Of course, it's not just you know, the Department of
Speaker 2: Government efficiency that we've been looking forward to, but there's
Speaker 2: been a lot of talk as well about plans to
Speaker 2: really rain in immigration, boosting border security, a lot of
Speaker 2: executive orders expected there as well. How could the rollout
Speaker 2: of a border policy be different from where it was
Speaker 2: the last time around, when, as you mentioned, it was
Speaker 2: facing a lot of challenges under the first Trump administration.
Speaker 3: Well, Nathan, when you think about the border policy and
Speaker 3: shotainly what outcome President Biden did and many argues far
Speaker 3: too late, But you know understanding that if you are
Speaker 3: seeking asylum, and then refugees are different from assyl leads
Speaker 3: for different kinds of reasons. You know, can you cross
Speaker 3: the border and make the claim and then stay in
Speaker 3: the United States while the claim is being processed. Certainly
Speaker 3: that was the Biden administration policy, and we had millions
Speaker 3: of people come over the border. The Trump administration will
Speaker 3: not have that policy used to be called stay in Mexico.
Speaker 3: But what they're going to say is you cannot come
Speaker 3: here if you are not legally permitted to do so.
Speaker 3: If you don't have legal permanent residents, you cannot come
Speaker 3: and stay. And that will be disruptive to those people
Speaker 3: who are currently have being allowed by the bidenmistration to
Speaker 3: come here stay here. Will the Trump administration force all
Speaker 3: those people to return to their home countries. That's a
Speaker 3: lot of people, So when we think about undocumented, it's
Speaker 3: a very long range of people. But certainly these sylum
Speaker 3: seekers are probably going to be the first target after
Speaker 3: what they view as the criminals. Those people are irrestively
Speaker 3: hard to find, and that will be a steady stream
Speaker 3: of women and children being shown to being deported. And
Speaker 3: we saw last time that did not go overwhel with
Speaker 3: the American public, So they're even disconnecting voters' minds. They
Speaker 3: want border security, they want limited on document and immigration.
Speaker 3: Of course, on the other hand, they don't like the
Speaker 3: images of seeing women and children, you know, forcibly deported
Speaker 3: from the United States.
Speaker 2: We're speaking with Wendy Schiller, director of the Alfred Taubman
Speaker 2: Center for American Politics and Policy at Brown University. Of course,
Speaker 2: the policy that markets are looking for in terms of
Speaker 2: the rollout is tax cuts and the potential for expanded tariffs,
Speaker 2: not just on adversaries but potentially on allies as well.
Speaker 2: When it comes to the tax cut piece, how much
Speaker 2: of a difficulty is the new president going to face
Speaker 2: when the margins in Congress are so much tighter than
Speaker 2: they were when the twenty seventeen tax cuts were passed
Speaker 2: the last time around.
Speaker 3: Well, I mean, you know, the Democrats and Republicans will
Speaker 3: vote for a renewal of some version of the original
Speaker 3: trop tax cuts. Congress rarely meets the tax cut. They
Speaker 3: don't want to pay us. And that's true across the
Speaker 3: aisle political aisle. Question is what are the specifics of
Speaker 3: the you know, what are we going to do with corporations,
Speaker 3: what about repatriation coming back to the United States, you know,
Speaker 3: or everything capital gains, particularly you know, the state and
Speaker 3: local tax possession fault, which disproportionately affects a Democrat or
Speaker 3: blue leaning state. These are the sort of nuts and
Speaker 3: bolts of the bill that will bog it down, and
Speaker 3: you'll see very strong differences I think, between the House
Speaker 3: and the Senate based on geography. You know, a district's
Speaker 3: impact from some of this stuff is not the same
Speaker 3: as the space impact, so you know you're going to
Speaker 3: see that. And at the same time, if you see
Speaker 3: tariffs negatively affecting particular industries geographically, that's also going to
Speaker 3: be something that the GOP has to manage internally within
Speaker 3: its caucus. That's where I see the biggest difficulties in
Speaker 3: the response to any kind of sweeping Trump tariffs. You know,
Speaker 3: Pennsylvania went for Trump right like it's starting to lean Republican.
Speaker 3: You start throwing tariff on things, does that affect manufacturing
Speaker 3: in Pennsylvania? So we will see that local nature of
Speaker 3: Congress rear its head, I think, particularly in the Republican
Speaker 3: CLOCKUS in response to.
Speaker 2: What Trump does in terms of the herding of cats
Speaker 2: on Capitol Hill. How do you see President Trump dealing
Speaker 2: with the congressional leadership. Of course, you've got House Speaker
Speaker 2: Mike Johnson and a brand new majority leader in the
Speaker 2: Senate in John Thynne.
Speaker 3: No President denpawn Republican, loved Congress go all aback to
Speaker 3: George Washington is constantly complaining about Congress even before he
Speaker 3: was President of United States. They don't like it. They
Speaker 3: think they got elected their president. They also be able
Speaker 3: to do what they want to do, and the party
Speaker 3: is you know, a trifecta. But Trump will get frustrated
Speaker 3: very quickly if things don't go his way. We've seen
Speaker 3: Mike Johnson even do some small things like you know,
Speaker 3: raising the flags and inauguration around the Capitol. You know,
Speaker 3: we have a period of morning for Jimmy Carter, usually
Speaker 3: supposed to be a half step, they'll be raised because
Speaker 3: Trump complained about it. It may seem small, but if
Speaker 3: it's an indication of the President's influence and House of
Speaker 3: Representatives in the Senate, Johnson's a pretty healthy majority, so
Speaker 3: he doesn't really have to trade away too much. But
Speaker 3: he's got people with Lisa Murkowski, sus and Collins, who
Speaker 3: may not go along with everything, You've still got some
Speaker 3: leeway there. So I think Soon and Trump may have
Speaker 3: a so smoother relationship because soone can deliver in ways
Speaker 3: that Mike Johnson's gonna have very difficult time doing.
Speaker 2: As we get into this new administration, Wendy, we're returning
Speaker 2: to unified government in Washington. We have a Republican president
Speaker 2: and Republican majorities on both sides of Capitol Hill. How
Speaker 2: do Democrats regroup after President Trump's win?
Speaker 3: People think about regrouping politically, these broader teams moving to
Speaker 3: the center. I do see it that way. In the
Speaker 3: first year of the Trump administration. You're going to twenty
Speaker 3: twenty six, which are midterm elections more locally focused. It's
Speaker 3: really hammering home if it happens negative impacts from the
Speaker 3: Trump administration policies on local constituents have to go back
Speaker 3: to their retail routes and really sort of lead bigger
Speaker 3: issues I think on the table probably leading up to
Speaker 3: twenty eight, but for twenty six, it's how are these
Speaker 3: benefiting you or hurting you? And we are the party
Speaker 3: that tries to help you, and this is what we're
Speaker 3: trying to do. And a consistent message. Chancy Pelosi was
Speaker 3: very good at this in two thousand and six, consistent
Speaker 3: message across district about the way that Trump policies are
Speaker 3: hurting voters where they live, where their kids go to school,
Speaker 3: where they work. And that's sort of the key for
Speaker 3: Democrats to regain their footing, and they have a very
Speaker 3: good chance of taking the House back in twenty and
Speaker 3: twenty six. The Republicans are well aware of that, so
Speaker 3: focusing local, focusing on the things they can stop or obstruct,
Speaker 3: and if they can't, focusing on the negative impact of
Speaker 3: their constituents, you know, focusing on the national I don't
Speaker 3: think it's going to get a very cost And.
Speaker 2: In terms of the focus for President Trump, do you
Speaker 2: see him being focused on policy, implementing an agenda or
Speaker 2: how much do you think he's going to be focusing
Speaker 2: on on retribution in the first one hundred days.
Speaker 3: Well, predicting President Trump is a risky business. I think
Speaker 3: he could derail his agenda if he focuses too much
Speaker 3: on retribution. And I think that's where the Democrats may
Speaker 3: have their singular national issue is if he looks like
Speaker 3: his abusing presidential power to go after personal enemies and
Speaker 3: sort of personal grudges. That's going to derail things. It's
Speaker 3: hard for Congress that to send that. It's harder soon
Speaker 3: and Mike Johnson to actually publicly defend that behavior. So
Speaker 3: I think his advisor is going to say, don't do that.
Speaker 3: We play the long game. Got four years. Let's focus
Speaker 3: on wins. And I think the president wants to keep
Speaker 3: his very high approval rating highest he's never had. It's
Speaker 3: comparable for Reagan and Clinton at the end of their administrations.
Speaker 3: He's going to want to keep that and stay popular.
Speaker 3: So he'll want win after win after win. But I
Speaker 3: think he's less concerned with the actual policy and more
Speaker 3: concernable with the outfix of winning.
Speaker 2: Really good to have you with us on what happens
Speaker 2: to be an inauguration day on a federal holiday. Wendy
Speaker 2: Schiller there, Director of Brown Universities, Alfred Taubman Center from
Speaker 2: American Politics and Policy, and up next, we're going to
Speaker 2: preview earnings tomorrow from Netflix and a special Bloomberg Intelligence roundtable,
Speaker 2: So stay with us for that. I'm Nathan Hager, and
Speaker 2: this is Bloomberg. Welcome back to this special edition of
Speaker 2: Bloomberg daybreak, markets are closed from the Martin Luther King holiday.
Speaker 2: I'm Nathan Hager, and Wall Street gets back to work
Speaker 2: tomorrow with a key earnings report on the docket. After
Speaker 2: the close of trading, we get the latest quarterly numbers
Speaker 2: from Netflix. So what should we expect from the streaming behemoth.
Speaker 2: Let's find out with a special Bloomberg Intelligence roundtable. Joining
Speaker 2: us now Bloomberg Intelligence Media analyst Geeta Ranganathan and BI
Speaker 2: Senior credit analyst Stephen Flint. Great to have both of
Speaker 2: you with us as we wait for these results. And
Speaker 2: as I recall, Githa, Netflix had a pretty solid quarter
Speaker 2: last time around, So what are we expecting now?
Speaker 4: Yeah, they've had solid multiple quarters, Nathan, and I think
Speaker 4: we're going to continue to see that play out again
Speaker 4: for the fourth quarter when they report results. So you know,
Speaker 4: it's actually been this perfect moment for them because they've
Speaker 4: had one of the strongest content cycles ever in their history.
Speaker 4: They've made this very big foray into live events. We
Speaker 4: had two huge live events that they streamed on their
Speaker 4: service actually in the fourth quarter. One was the big
Speaker 4: Mike Tyson Versus Jake Paul boxing event, which happened in
Speaker 4: November and then in December, on Christmas Day, you had
Speaker 4: two NFL games, and both those along with the release
Speaker 4: of their biggest hit ever, which was Quid Game Season
Speaker 4: two on December twenty sixth, is believed to have really
Speaker 4: kind of boosted those subscriber numbers. So we're expecting roughly
Speaker 4: about eleven million or so subscriber editions will make, you know,
Speaker 4: one of their biggest years ever in terms of adding subscribers.
Speaker 2: And Stephen, in terms of the numbers that you look
Speaker 2: at on the credit side, what are your expectations. Yeah, well, Netflix's.
Speaker 5: Credit profile is very strong and we believe it's likely
Speaker 5: to stay that way given the companies capital allocation priorities
Speaker 5: and its ability to generate significant free cash flow. The
Speaker 5: company has a pretty conservative approach to cash and debt
Speaker 5: and I don't see that changing.
Speaker 2: When it comes to that cash flow. Githa, Is it
Speaker 2: all about the subscriber numbers? Is it about the advertising
Speaker 2: revenue that they're starting to generate now with these new
Speaker 2: ads supported tiers? What are you looking at?
Speaker 4: It's a little bit of everything, Nathan. So remember after
Speaker 4: this report, they will stop disclosing subscriber metrics, So you know,
Speaker 4: Netflix of course, we all kind of think and we
Speaker 4: know highly anticipate the subscriber numbers when they come out
Speaker 4: every quarter, but they will no longer be providing those metrics.
Speaker 4: So really this is kind of almost this watershed moment
Speaker 4: for Netflix because investors have to kind of really refocus
Speaker 4: how they think about Netflix, and so the metrics that
Speaker 4: we are really going to be focusing on is revenue growth,
Speaker 4: is operating income growth, as well as operating margins. And
Speaker 4: if you just kind of see the profile for Netflix
Speaker 4: over the next few years, you're absolutely right. Advertising is
Speaker 4: going to be a significant portion driving that revenue growth.
Speaker 4: So we're expecting obviously ten plus percent revenue growth for
Speaker 4: the next few years, as well as operating margin, and
Speaker 4: all of those actually then factor into free cash flow
Speaker 4: because remember Netflix, along with increasing its revenue as well
Speaker 4: as subscribers, has also really been very disciplined when it
Speaker 4: comes to costs, and that has really helped fuel free
Speaker 4: cash flow pretty dramatically.
Speaker 2: Gud, you reminded me about the end of subscriber number reporting,
Speaker 2: because Steven raises the question for you about what kind
Speaker 2: of metrics you're going to be looking at in terms
Speaker 2: of gauging the ongoing health of this company.
Speaker 5: Yeah, so from the credit side, we look at a
Speaker 5: lot of the traditional credit metrics. We look at free
Speaker 5: cash flow, what the company is doing with the free
Speaker 5: cash flow. Obviously leverage. Netflix's leverage is very low. Net
Speaker 5: leverages less than one times, and it should remain around
Speaker 5: the one times area going forward. I mean compare that
Speaker 5: to companies like very highly rated Disney or Comcast. They
Speaker 5: each have a net leverage ratio about two point four times,
Speaker 5: so Netflix is very conservative relative to them. Netflix has
Speaker 5: no plans to add debt to its balance sheet to
Speaker 5: fund dividend or fund buybacks, so they're very conservative. We'd
Speaker 5: like to keep a couple of billion dollars of cash
Speaker 5: on hands. We look at a lot of those metrics
Speaker 5: going forward, and Netflix's credit profile looks very strong.
Speaker 2: Another way even to look.
Speaker 5: At it is if you look at Netflix's debt versus
Speaker 5: its equity market cap, it shows you how conservative they are.
Speaker 5: The company has about sixteen billion dollars at debt right
Speaker 5: now and the market cap is, you know, over three
Speaker 5: hundred and fifty billion dollars, so it's a very conservative profile.
Speaker 2: And Githa. When it comes to then you mentioned some
Speaker 2: of the live events and the scripted content that Netflix
Speaker 2: is expected to put out. What more are you looking
Speaker 2: for when it comes to the type of content that
Speaker 2: Netflix is putting out there and how it could stack
Speaker 2: up to some of its competitors.
Speaker 4: It stacks up really, really well, Nate than compared to
Speaker 4: its competitors, And we are actually going to see Netflix
Speaker 4: make a deeper and deeper foray into live events, especially
Speaker 4: as it looks to build that advertising business. So we
Speaker 4: talked a little bit about, you know, the Jake Paul
Speaker 4: Mike Tyson event, we talked a little bit about the
Speaker 4: NFL games, but the real big move happened actually a
Speaker 4: few weeks back when Netflix really started streaming WWE's raw
Speaker 4: content every Monday. So that's live on Netflix globally, and
Speaker 4: we're going to see you know, Netflix actually make I think,
Speaker 4: bigger investments, you know, and MLB and NFL rights may
Speaker 4: be available in the next few years, you know, we think.
Speaker 4: And Netflix definitely obviously gained in terms of both subscribers
Speaker 4: as well as made good advertising money as well on
Speaker 4: the Christmas Day games, and so I think this is
Speaker 4: going to definitely become a bigger portion of their content strategy.
Speaker 4: Going forward. Along with that, of course, we do have
Speaker 4: you know, all the usual hits in terms of scripted content.
Speaker 4: So if you just kind of look at the slate
Speaker 4: for twenty twenty five, it's once again it's a blockbuster slate.
Speaker 4: So you have you know, hit shows like Stranger Things, Wednesday,
Speaker 4: Squid Game, you Cobraki, So it's just endless. So again,
Speaker 4: the content cycle looks extremely strong for the next twelve months.
Speaker 2: And Stephen, when we think about those kinds of investments,
Speaker 2: not just in the scripted content but live events, how
Speaker 2: could that affect the balance sheet for Netflix?
Speaker 5: Well, Netflix has plenty of cash flow to handle that.
Speaker 5: It's very interesting you think about the history of Netflix.
Speaker 5: For many, many years, it was a high yield rated
Speaker 5: company that would borrow to invest in its business, and
Speaker 5: it had pretty significant free cash flow losses every year.
Speaker 5: But they were able to finance that in the bond
Speaker 5: market until they got to the point where they got
Speaker 5: scale and they were able to flip that to pause
Speaker 5: a free cash flow. And the credit has significantly improved
Speaker 5: over the past couple of years, and so they have
Speaker 5: plenty of cash, plenty of cash on hand, plenty of
Speaker 5: free cash flow coming in the future to invest in
Speaker 5: their business, and the company could even easily borrow to invest,
Speaker 5: but there's no need for them to do that, and
Speaker 5: they seem to have no desire to do that.
Speaker 2: Speaking with Steven Flynn, Senior credit analyst for Bloomberg Intelligence
Speaker 2: along with Bimedia analyst Githa Rongganathan, as we look ahead
Speaker 2: to Netflix earnings this week. Githa, we've been talking about content, subscribers, advertising.
Speaker 2: How is the advertising environment right now? Do you see
Speaker 2: advertisers willing to spend to be on Netflix, particularly with
Speaker 2: some of these live events.
Speaker 4: I absolutely think so. So advertisers are going to go
Speaker 4: wherever eyeballs go, and we are seeing more and more
Speaker 4: content move to streaming. So we've seen this big shift
Speaker 4: away NASAN from linear TV into what is known as
Speaker 4: connected TV. Linear TV is know was a sixty sixty
Speaker 4: five billion market, but connect to TV has been really
Speaker 4: growing at a very very rapid pace and advertisers are
Speaker 4: kind of really scrambling to make sure that they reach
Speaker 4: their audiences. We've seen some pretty hefty numbers in terms
Speaker 4: of viewership for all of these Netflix events. So if
Speaker 4: you look at those Christmas Day games, for instance, we
Speaker 4: had an average twenty seven million people you tune into
Speaker 4: those games. That compares very nicely to broadcast television. So
Speaker 4: they were able to kind of gain the same amount
Speaker 4: of reach that broadcast TV has had, which means that
Speaker 4: they should be very easily able to command the same
Speaker 4: amount of advertising revenue.
Speaker 2: And how do you see the ad environment, Steven, not
Speaker 2: just for Netflix, but for the streaming and a linear
Speaker 2: industream more broadly.
Speaker 5: Yeah, well, obviously linear has its challenges with subscribers moving
Speaker 5: from linear television to streaming services or just you know,
Speaker 5: cutting the cord completely. I think overall advertising is going
Speaker 5: to be better in twenty twenty five, giving a stronger
Speaker 5: underlying economic environment.
Speaker 2: And for subscriber churn Githa, We've talked about that in
Speaker 2: the past, you know, customers canceling, renewing depending on how
Speaker 2: they can handle it. How do things look for Netflix
Speaker 2: when it comes to that now that we do have
Speaker 2: these ads supported tiers as well.
Speaker 4: So churn actually has been historically pretty low for Netflix,
Speaker 4: and we think it will continue to trend downwards. And
Speaker 4: that's really mainly a factor of industry dynamics nation. So
Speaker 4: we've seen you know, obviously the streaming wars were very
Speaker 4: intense at one point of time, but we've seen kind
Speaker 4: of Netflix really cement its dominance. They've they've kind of
Speaker 4: become the go to TV viewing options, so they are
Speaker 4: the undisputed leader right now in streaming. So not a
Speaker 4: lot of cancelations right now as we see, you know,
Speaker 4: for Netflix, and then if in the future, you know,
Speaker 4: obviously one of the main triggers for chure and for
Speaker 4: subscriber cancelations are price sikes. And even if Netflix does
Speaker 4: decide to high prices in the near future, they obviously
Speaker 4: do have that the AD tier, which can handle that
Speaker 4: because it's a much more cheaper economic option that people
Speaker 4: could kind of defall to.
Speaker 2: And Stephen, you've mentioned how much cash on hand Netflix has.
Speaker 2: Do you see a need for the company to raise
Speaker 2: rates at any point?
Speaker 5: Well, they have the power to do it, but I
Speaker 5: don't think they would need to do it for generating
Speaker 5: enough cash. Company does generate a lot of cash.
Speaker 2: KEITHA. Where do you see the stock price going for Netflix?
Speaker 2: The last time I looked at the A and R
Speaker 2: function on the Bloomberg terminal, there are a lot of
Speaker 2: buys for the stock, not very many cells and a
Speaker 2: pretty wide range in terms of price targets. After we
Speaker 2: get these earnings, do you expect a lot of change
Speaker 2: in terms of how Wall Street looks at this company?
Speaker 4: Valuation is definitely very, very demanding for Netflix. It currently
Speaker 4: trades at about twenty nine times forward but about forty
Speaker 4: two times forward PE. And just for context there, Nathan Disney,
Speaker 4: for instance, trades about twenty times forward PE. So definitely
Speaker 4: rich valuation. But I think it has definitely grown into
Speaker 4: those metrics, and you know, after it reports, I think
Speaker 4: what investors are really going to look for is color
Speaker 4: on advertising and how it can potentially be a driver
Speaker 4: off that double digit revenue growth. So we're seeing fifteen
Speaker 4: percent revenue growth in twenty twenty four. The question is
Speaker 4: can it sustain that same level for the next few years,
Speaker 4: And if they do provide some color would suggest that
Speaker 4: advertising is going to ramp significantly. We think that those
Speaker 4: levels of valuation can be supported.
Speaker 2: And not to put either of you on the spot
Speaker 2: here in our last minute, but are there shows coming
Speaker 2: up on Netflix or any of the other streamers that
Speaker 2: you're particularly excited about? Steven, I'll start with you.
Speaker 5: I have talked to my wife. She tells me about that.
Speaker 2: Okay, Gita, you mentioned quite a few What are you
Speaker 2: looking for Love Blind? Oh my goodness, Really tell me
Speaker 2: more about why you look forward to Love is Blind.
Speaker 4: That's interesting. It's the perfect show. And you know it's
Speaker 4: interesting because it's reality television. They have actually Love is
Speaker 4: Blind now and you know they're running so many different
Speaker 4: shows across different parts of the university. You know, you
Speaker 4: have Love is Blind US, you have Japan, you have Brazil,
Speaker 4: and it's so interesting to see the difference in cultures.
Speaker 4: I think it's one of the most fascinating watches on Netflix.
Speaker 2: Well, you know, there is a lot more reality TV
Speaker 2: across all these streaming services. It just goes to show
Speaker 2: you how the landscape has changed. Used to see it
Speaker 2: on cable. Now, like everything else, it's moved on to streaming.
Speaker 2: Thanks for this roundtable. Really appreciate you having you both
Speaker 2: on with us today. That's Githa Ranganathan, media analysts for
Speaker 2: Bloomberg Intelligence, and BI Senior credit analyst Stephen Flynn, head
Speaker 2: of the Netflix earnings this week. Up next, we'll take
Speaker 2: a look at the fed's first interest rate decision of
Speaker 2: the year. We'll speak with Bloomberg International Economics and Policy
Speaker 2: correspondent Michael McKee. I'm Nathan Hager, and this is S Blimberg.
Speaker 2: We're just over a week away from the Federal reserves
Speaker 2: first policy decision of twenty twenty five. How many rate
Speaker 2: cuts are in store after the latest reports on inflation
Speaker 2: and employment?
Speaker 6: For more.
Speaker 2: We're joined by Bloomberg International Economics and Policy correspondent Michael McKee.
Speaker 2: Great to speak with you, Mike, But before we get
Speaker 2: to you, here's what Chair Powell had to say. The
Speaker 2: last time the Fed cut rates.
Speaker 7: We reduced our policy rate now by one hundred basis points,
Speaker 7: were significantly closer to neutral at four point three percent
Speaker 7: and change. We believe policy is still meaningfully restrictive. But
Speaker 7: as for additional cuts, we're going to be looking for
Speaker 7: further progress on inflation, as well as continued strength in
Speaker 7: the labor market.
Speaker 2: That was just over a month ago, and here we
Speaker 2: are with a dip in core consumer prices and the
Speaker 2: paper market sure looks strong. Is there room for the
Speaker 2: Fed to start thinking about thinking about cutting again?
Speaker 4: Mike.
Speaker 6: I suppose there's room to start thinking about thinking about
Speaker 6: but there's no room for them to actually start cutting.
Speaker 6: Why not January I know, I'm the party pooper here.
Speaker 6: The FED has basically said they're going to be on hold,
Speaker 6: and the underlying reason, which they won't say out loud,
Speaker 6: is Donald Trump and the fact that he's now president
Speaker 6: and what's he going to do. They don't know the
Speaker 6: impact that his policies are going to have on the economy,
Speaker 6: so better to wait and see a lot of the
Speaker 6: policies he's talked about could be inflationary. You've heard that before,
Speaker 6: the tariffs and deportations and things. But until we know
Speaker 6: what the details are, is no way to tell. So
Speaker 6: right now, the Fed's on hold in January. The real
Speaker 6: question is what are they going to do in March,
Speaker 6: and that'll depend in part on what Trump proposes and
Speaker 6: in part on how inflation develops between now and then.
Speaker 2: So does this mean that the FED is moving from
Speaker 2: a data dependent FED to a Trump dependent FED or
Speaker 2: is it a combination of the two or what.
Speaker 6: Well, it's a combination of the two, because they won't
Speaker 6: move up or down if the data don't support it.
Speaker 6: But if they're thinking about what the Trump administration may do,
Speaker 6: they have to look forward because it takes maybe a
Speaker 6: year to get a rate move into the markets and
Speaker 6: into the loans that people actually take out in the economy,
Speaker 6: and so they got to think about what's going to
Speaker 6: be happening going forward. Obviously President Trump can propose something immediately,
Speaker 6: how long is that going to take to get done.
Speaker 6: You've got all the Washington analysts saying extending the tax
Speaker 6: cuts to the extent they do, that won't happen until
Speaker 6: the fall. Yes, there's going to be a certain eyes
Speaker 6: cast at what the administration proposes, but it also has
Speaker 6: to be that inflation is continuing to fall towards two
Speaker 6: percent and unemployment doesn't go down too much more for
Speaker 6: the Fed to consider cutting again.
Speaker 2: So is there some thinking in the market that that
Speaker 2: could be why investors have dialed back their expectations for
Speaker 2: the number of cuts they're expecting from the Fed this year,
Speaker 2: something like one for the whole year, just because it
Speaker 2: could take some time for not just Trump policies to
Speaker 2: take effect, but for Trump policies to get passed.
Speaker 6: I think the investors are more looking at the inflation
Speaker 6: outlook and the fact that the economy has been growing
Speaker 6: faster than anticipated, and we haven't got the fourth quarter
Speaker 6: numbers yet, but when we do, it's expected to suggest
Speaker 6: that the economy grew as strongly or a little more
Speaker 6: than in the third quarter. So for the year, things
Speaker 6: were pretty good and it sets us up for a
Speaker 6: good beginning to twenty and twenty five. That means that
Speaker 6: you're more likely to have in some inflationary pressures because
Speaker 6: demand stays high, and so that's kind of what the
Speaker 6: markets are looking at, and then they're trying to combine
Speaker 6: that with well, what could Trump mean for all of this.
Speaker 6: I think that's why you have seen because there's this uncertainty,
Speaker 6: all these jitters in markets, and for the last week
Speaker 6: or two we've seen incredible volatility in bonds. Yields went
Speaker 6: way up ahead of the data that we got at
Speaker 6: the end of last week. The middle of last week,
Speaker 6: CPI came out and everybody changed their mind again because
Speaker 6: they thought inflation's under control. It's hard to know exactly
Speaker 6: where the markets are going to come down on all this,
Speaker 6: but for right now they don't have to worry about
Speaker 6: the FED through the end of the month, just.
Speaker 2: To put policy uncertainty aside. I know that's a big
Speaker 2: ask because it's so important to the market, but based
Speaker 2: on the data that we've seen so far on inflation
Speaker 2: cooling last month and the labor market still showing signs
Speaker 2: of strength. What would that say for the Fed? Again
Speaker 2: putting Trump policy uncertainty.
Speaker 6: Aside, I think you have to wait. You have to wait,
Speaker 6: and I know it is the problem if you're just
Speaker 6: looking at it in a world minus and administration. I
Speaker 6: don't say by style Trump, but if Joe Biden wasn't
Speaker 6: there either, you would be looking at an economy that
Speaker 6: is moving in the right direction but still very strong,
Speaker 6: and so you have that underlying possibility of inflation. But
Speaker 6: inflation is coming down from where it was, and we've
Speaker 6: had a lot of idiosyncratic reasons for inflation to go higher.
Speaker 6: We had the hurricanes ripped through the southeast, destroyed many
Speaker 6: many people's cars. They got to get to work, so
Speaker 6: they go out and buy a new used car. That
Speaker 6: pushes up the prices of used cars, and that tends
Speaker 6: to fade out, so then there'll be something else. End
Speaker 6: of the year, we saw airfares go up significantly and
Speaker 6: that will probably not continue. It'll sort of level out.
Speaker 6: So it just depends on how strong the economy is
Speaker 6: and whether some of these idiosyncratic moves start to level off.
Speaker 6: We did see housing in the CPI continue its lower move.
Speaker 6: It went up a tenth of a percent on a
Speaker 6: rounding basis, But in general, housing prices have started to
Speaker 6: do what the Fed's been waiting for them to do,
Speaker 6: which has come down. And if that continues, that continue
Speaker 6: to put downward pressure on inflation, and hopefully if inflation
Speaker 6: gets closer to two percent, if then can say, well,
Speaker 6: all right, we need to continue cutting rates to get
Speaker 6: back to whatever we think normal might be.
Speaker 2: Speaking with Mike McKee, international economics and policy correspondent for
Speaker 2: a Bloomberg News and I wanted to pick your brain
Speaker 2: on that just a little bit, Mike, because it feeds
Speaker 2: into the debate about out whether FED policy is as
Speaker 2: restrictive as the FED has said it feels like it
Speaker 2: is when we continue to see these signs of economic strength.
Speaker 2: Is there a debate going on within the Fed, not
Speaker 2: just in the markets, but within the FED about whether
Speaker 2: policy is restrictive, whether we have to think about a
Speaker 2: new neutral rate.
Speaker 6: Well, we do have to think about a new neutral rate,
Speaker 6: because we never know exactly what the neutral rate is.
Speaker 6: You can only observe it in the past tense. But
Speaker 6: it does seem that the economy is stronger right now.
Speaker 6: So for the short term, I think you get a
Speaker 6: lot of agreement with members of the FED that we
Speaker 6: do need higher rates right now. Maybe not. They may
Speaker 6: disagree about whether we need to be at four and
Speaker 6: a quarter to four and a half percent could be
Speaker 6: a little lower, but they're not going down to three
Speaker 6: percent that quickly until they see signs that the economy
Speaker 6: may have cooled off. So on a short run basis, yes,
Speaker 6: we get a higher neutral rate, but on a longer
Speaker 6: term basis, that's going to depend on the way productivity develops.
Speaker 6: We do know that the number of people who are
Speaker 6: entering the labor force has been strong because of immigration,
Speaker 6: illegal or not, and if that goes down, then productivity
Speaker 6: is the way you get stronger growth, and productivity could
Speaker 6: go up because of AI things like that. So there's
Speaker 6: a lot of uncertainty about that at this point, but
Speaker 6: I think most people think on the FED there within
Speaker 6: striking distance of neutral for right now. A year from
Speaker 6: now that may be different.
Speaker 2: Still quite a bit of a ways of striking distance
Speaker 2: from the fed's two percent inflation target. And there's an
Speaker 2: ongoing debate in the market as well about whether the
Speaker 2: FED can reach that anytime soon. Is a two percent
Speaker 2: inflation target realistic, particularly when I bring back the idea
Speaker 2: of Trump policy uncertainty.
Speaker 6: Well, unfortunately, whether it's realistic or not, it's what you got.
Speaker 6: The FED is looking at its framework for Monetary policy,
Speaker 6: reviewing it this year, but jay Pole has already said
Speaker 6: we're not going to change the two percent target. The
Speaker 6: thing the FED worries about is that if you move
Speaker 6: the goalposts, then the markets will always expect you to
Speaker 6: move the goalposts. And if we have another bout of inflation,
Speaker 6: the FED might say, well, we'll do three percent target,
Speaker 6: and then inflation doesn't come down as much and people
Speaker 6: lose confidence in the FED. So they're saying they're going
Speaker 6: to leave it at two percent at this point.
Speaker 2: And in terms of the data we've gotten most recently
Speaker 2: obviously producer consumer prices, how does it all feed into
Speaker 2: the Fed's preferred measure of inflation? What are the expectations there?
Speaker 6: Well, that's a good question because the PPI has more
Speaker 6: categories that feed into the PCE, and it suggested that
Speaker 6: we would see a higher PCE than people anticipated. CPI
Speaker 6: also has a few things that feed into it that
Speaker 6: were lower than anticipated. So the general feeling now is
Speaker 6: that PCEE will come in maybe about where people thought
Speaker 6: it was, which is little changed on the month. But
Speaker 6: there's a risk either way because we're in this world
Speaker 6: now where we go out to three descperate places to
Speaker 6: measure inflation, and then it becomes a rounding issue.
Speaker 2: In the time we have left. Now that we are
Speaker 2: getting a new administration, we've got to think about how
Speaker 2: the Federal Reserve is preparing for that. We heard during
Speaker 2: the campaign President Trump talking about how presidents should have
Speaker 2: a say when it comes to monetary policy. Are you
Speaker 2: going to be watching for challenges to FED independence as
Speaker 2: we embark on this second Trump administration.
Speaker 6: We'll be watching for it, But there is a kind
Speaker 6: of growing feeling that maybe for the time being they
Speaker 6: won't do anything because we saw Michael Barr, the Vice
Speaker 6: chair for Supervision, resigned that post on the FED. But
Speaker 6: the regulatory clash that we might have expected could be avoided.
Speaker 6: And then when you think about it, Jay Powell is
Speaker 6: going to be gone in May as chair in May
Speaker 6: of next year. Is it worth it to the new
Speaker 6: Trump administration to start a fight now and end up
Speaker 6: in court and all the things that you end up
Speaker 6: having to do to fight that out if he's going
Speaker 6: to leave right away, and so they may hold off
Speaker 6: for a little bit on that.
Speaker 2: So do you think this idea that President Trump could
Speaker 2: challenge the Fed's independence? Is it something that's kind of
Speaker 2: been a little overblown by critics or is it something
Speaker 2: really worth watching?
Speaker 6: Probably a little overblown, but it depends on what you
Speaker 6: mean by challenge. Does he really try to fire J Powell?
Speaker 6: I don't think so. Does he go on social media
Speaker 6: and say bad things about him?
Speaker 3: Oh?
Speaker 6: Of course he does that about everybody, and so I
Speaker 6: would expect, especially with the FED on hold instead of
Speaker 6: cutting rates, I would expect some nasty comments.
Speaker 2: Appreciate this, Mike, always good speaking with you. That's Bloomberg
Speaker 2: International Economics and Policy correspondent Michael McKee with us on
Speaker 2: this special edition of Bloomberg Daybreak. Thanks as well to
Speaker 2: a Bloomberg intelligence analyst, get the Ranganathan and Stephen Flynn,
Speaker 2: along with Brown University political scientist Wendy Schuller. And we'd
Speaker 2: like to thank you, of course as well for listening.
Speaker 1: Ie.
Speaker 2: You enjoy this MLK and Inauguration Day. I'm Nathan Hager,
Speaker 2: and this is Bloomberg