Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is a breaking
Speaker 1: news update from Bloomberg.
Speaker 2: Instant reaction and analysis from our three thousand journalists and
Speaker 2: analysts around the.
Speaker 1: World focuses on Netflix, just out with its latest quarterly results.
Speaker 1: The company beating estimates though read hate stings. Of course,
Speaker 1: one of the co founders is stepping down from the
Speaker 1: board after twenty nine years to pursue philanthropy and personal interests.
Speaker 1: But again you should point out in terms of the company,
Speaker 1: we can talk about that in just a moment. Did
Speaker 1: report revenue that beat analyst estimates in the first quarter,
Speaker 1: buoyed by strong subscriber growth, engagement, keeping subscribers there and
Speaker 1: bringing them in. That's important.
Speaker 2: The guidance, though, is what has people concerned. Second quarter
Speaker 2: earnings for sheriff seventy eight cents is what Netflix is
Speaker 2: guiding for the estimates for eighty four cents. I want
Speaker 2: to bring in Githa Ranganathan, Bloomberg Intelligence Senior media analyst.
Speaker 2: She joins us from Bloomberg Intelligence quarters in Princeton. Keith,
Speaker 2: are there two elements that we want to talk about here.
Speaker 2: One is the light guide that disappointed analysts but also
Speaker 2: read Hastings moving away, which one is a bigger way
Speaker 2: on the stock in the after hours.
Speaker 3: Yeah, thanks so much, Tim, And it's definitely the lighter guidance.
Speaker 3: So I think not only were we looking at the
Speaker 3: second quarter guidance, which of course is lighter both on
Speaker 3: the revenue side as well as on the EPs front,
Speaker 3: but we were also anticipating some kind of take up
Speaker 3: for the full year revenue guidance. So remember the quarter
Speaker 3: before they had set twelve to fourteen percent for the
Speaker 3: full year, and they basically just came out this time
Speaker 3: and reaffirmed that same number. And I think the street
Speaker 3: was really looking for all the recently implemented price hikes
Speaker 3: to contribute to maybe at least one hundred basis points
Speaker 3: of improvement in revenue growth. The same goes for operating margin.
Speaker 3: I mean when the guidance first came out for operating
Speaker 3: margin at thirty one point five percent, that was considered
Speaker 3: to be pretty muted, and I think the street was
Speaker 3: disappointed last time around, and they haven't. They continue to
Speaker 3: be pretty I think they're still kind of taking conservative approach,
Speaker 3: but definitely the street is going to be pretty disappointed
Speaker 3: on this.
Speaker 1: So what do we want to do. Does everybody want
Speaker 1: to push them on the call with analysts to say, wait,
Speaker 1: give us a little bit more color around this. Are
Speaker 1: you being conservative? Is it as easy as that, KEITHA.
Speaker 3: So, I think there are a couple of different things
Speaker 3: here happening, Carol, especially with the second quarter. So the
Speaker 3: reason why their revenue guide fell a little short of
Speaker 3: analyst expectations was because they did implement a big price
Speaker 3: hike in the second quarter of last year, so they're
Speaker 3: obviously lapping those increases. So that's one thing to kind
Speaker 3: of keep in mind. And then the second thing is
Speaker 3: on the on the EPs front, and the reason why
Speaker 3: we're seeing a little bit of pressure in terms of
Speaker 3: guidance for EPs and operating profit is because they do
Speaker 3: expect very very heavy content amortization in the second quarter.
Speaker 3: So you know, they think that that would ease a
Speaker 3: little bit in the second half, but in the second
Speaker 3: quarter it's going to be pretty heavy, which might be
Speaker 3: part of the reason why they're still kind of take
Speaker 3: a little bit of a conservative stance. And you know,
Speaker 3: we've seen them kind of really invest in a lot
Speaker 3: of different pieces of content, most notably sports. Whether you
Speaker 3: know it was the MLB opening Day game or the
Speaker 3: World Baseball Classic, and you have a couple of boxing
Speaker 3: matches coming up, and so I think all of that,
Speaker 3: With all of that, they're kind of taking probably a
Speaker 3: slightly more measured, cautious stone.
Speaker 2: We don't get actual subscriber numbers anymore, unfortunately, but the company,
Speaker 2: as you mentioned, boosted its standard plan with that ads
Speaker 2: by two dollars to twenty dollars a month. That was
Speaker 2: in March. Any indication based on these numbers or doing
Speaker 2: some quick back of the envelope math what that did
Speaker 2: in terms of churn or maybe pushing people to the
Speaker 2: advertising tiers that are less expensive.
Speaker 3: Yeah, So historically, Tim, what we've seen is, and we've
Speaker 3: seen this in multiple price increases that Netflix has done
Speaker 3: over the past four years or so, is that churn
Speaker 3: has been pretty low. It is actually for Netflix, it's
Speaker 3: actually the lowest across the board. It's about one point
Speaker 3: seven percent. You compare that to about six to eight
Speaker 3: to nine percent for some of the others services, So
Speaker 3: you know, they've historically seen very very low cancelation rates.
Speaker 3: Of course, there is the possibility, you know, with the
Speaker 3: price increase, that there could be a little bit of
Speaker 3: tearing down. As you just pointed, I'm not sure it
Speaker 3: necessarily had a huge impact at least for the quarter
Speaker 3: that is reported, but maybe they are factoring in some
Speaker 3: of that for the second quarter, which is why we're
Speaker 3: kind of seeing that lighter than expected guidance in terms
Speaker 3: of revenue growth.
Speaker 1: Huh okay, I mean listen, I feel like, you know,
Speaker 1: when we talked about Netflix right in the last how
Speaker 1: many months, of the story that gave and gave and
Speaker 1: gave over the past year was Warner Brothers Discovery. I mean,
Speaker 1: is there any rethink that that was a mistake or
Speaker 1: now that has nothing to do with what we're seeing here.
Speaker 3: So you bring up a really interesting point, Carol, And
Speaker 3: I think you know, when they announced the deal, people
Speaker 3: were kind of, you know, flummox and they were like,
Speaker 3: why are you doing the deal? Is it because you
Speaker 3: need it or is it just nice to have? Is
Speaker 3: it because this is you know, a once in a generation,
Speaker 3: once in a lifetime opportunity for you guys to get
Speaker 3: hands on an asset that will probably never come to
Speaker 3: the market. What is it? And I think you know,
Speaker 3: people were kind of looking at this first quarter report,
Speaker 3: as you know, providing some more answers to that, but
Speaker 3: I think we have more questions than answers at this
Speaker 3: point because you know, we're not necessarily seeing a great
Speaker 3: acceleration in the revenue numbers, in the operating margin numbers,
Speaker 3: which is exactly what they needed to show in order
Speaker 3: to you know, basically assuage investors that did not need
Speaker 3: Warner Brothers Discovery. So this kind of it's it's it
Speaker 3: kind of leaves investors, I think a little bit, you know,
Speaker 3: hanging a little bit.
Speaker 2: What about the ben Affleck acquisition.
Speaker 3: That is a great acquisition, so, you know, and I
Speaker 3: think we can we will continue to see more of
Speaker 3: this going forward. So that is you know, I think
Speaker 3: as we kind of ponder about whether AI is going
Speaker 3: to be a positive or a negative for some of
Speaker 3: these media companies, I think we're definitely going to see
Speaker 3: Netflix kind of flip the script and be more of
Speaker 3: an AI winner, and that you know, the ben Affleck
Speaker 3: company Interpositive acquisition, which was basically for six hundred million dollars,
Speaker 3: I think it's a really smart discipline move, which again
Speaker 3: helps them really kind of hone in on AI and
Speaker 3: make it, you know, make it a positive gap.
Speaker 2: But there's this balance and maybe the Ben Affleck element
Speaker 2: helps because he is a creator. He's a Hollywood creative
Speaker 2: more more so than an executive. But the scary thing is,
Speaker 2: I think for a lot of people in Hollywood is like,
Speaker 2: what does it mean for their own jobs? And is
Speaker 2: it existential if AI can do what they're doing?
Speaker 3: Yeah, and I think you know, Netflix has said this
Speaker 3: many times and just the fact that you know, Ben
Speaker 3: Affleck is obviously he represents Hollywood and the creative community.
Speaker 3: I think the company itself is really more about offering
Speaker 3: creators better tools for storytelling. So I don't think it's
Speaker 3: necessarily replacing them. And that's the same story that that
Speaker 3: Netflix obviously has been saying to This is just to
Speaker 3: help them do their jobs better. This is not necessarily
Speaker 3: to replace them. So we'll see how it all. You know,
Speaker 3: it's still early days to tim and we'll see how
Speaker 3: it plays out. But you know, so far, they're you know,
Speaker 3: saying the right things.
Speaker 1: I guess seconds the company's going to be okay with
Speaker 1: read Hastings off.
Speaker 3: The board, I think, so. I think he's kind of
Speaker 3: been in the background now for a while. It's really
Speaker 3: just been tet Sorrando's and Greg Peters running the show,
Speaker 3: and I think they will be fine.
Speaker 1: All right, cool, Steph.
Speaker 2: I want to bring in Eric Clark. He's Accuvest Global
Speaker 2: Advisor's CIO. He's also the portfolio manager of the logo ETF,
Speaker 2: which has Netflix as its second biggest holding. He joins
Speaker 2: us from inside for some reason, even though he's in
Speaker 2: beautiful San Diego, California. Eric, thanks for going into the
Speaker 2: office today to actually talk to us. Do appreciate that
Speaker 2: we want to just get your quick reaction on Netflix
Speaker 2: down nine percent right now? Carol mentioned some of the
Speaker 2: headlines The light guide certainly has investors a little concerned
Speaker 2: read Hastings stepping away a big deal, but maybe not
Speaker 2: as concerning to investors. What's your quick reaction?
Speaker 4: Well, Carol said it earlier, the stocks up forty percent.
Speaker 4: I mean, you know, it went down forty per from
Speaker 4: the highs in September, and then it went up forty
Speaker 4: percent or forty two percent since the lows. It's seventy
Speaker 4: five bucks. So you know, short term, any stock that
Speaker 4: runs forty percent into an earnings print better be an
Speaker 4: absolutely perfect print. And but we don't care that, you know,
Speaker 4: short term noise in a quarter has never bothered us.
Speaker 4: It's as long as the dominant theme of any company
Speaker 4: is still intact. You ride through some of the noise
Speaker 4: quarter to quarter and you take advantage of that. And
Speaker 4: we certainly the stock was down forty percent and we
Speaker 4: added to it a number of times to beef the
Speaker 4: position up pretty meaningfully because we do believe in this
Speaker 4: long term and we've been getting paid to do that.
Speaker 4: So sometimes you just have to be willing to look
Speaker 4: through short term noise, and we did come hot into
Speaker 4: the print.
Speaker 1: Yeah, listen, I think based on was it the end
Speaker 1: of last year, this looks like it's the number two
Speaker 1: holding in your ETF the logo ETF roughly five point
Speaker 1: eight percent. But you can correct me. You're going to
Speaker 1: add to that position or is you know, is this
Speaker 1: kind of near the top of how much you want
Speaker 1: in the portfolio?
Speaker 4: Well, we by flexibility, we can go higher. I don't
Speaker 4: know that, you know, on a small print, on a
Speaker 4: small pullback like this, I don't know that there's a
Speaker 4: reason to add to it. I think, you know, the
Speaker 4: goal is that there's been a lot of names that
Speaker 4: have come down. There's been a lot of turbulence under
Speaker 4: the surface, so We have a pretty full position in Netflix.
Speaker 4: Sometimes we trade around it. So you know, if I
Speaker 4: got the opportunity to do that, I could certainly do that.
Speaker 4: But you know, our goal is to find what are
Speaker 4: the next trillion dollar brands? Who else joins the trillion
Speaker 4: dollar club? Walmart joined not long ago, And you know
Speaker 4: Netflix only has to to do about thirteen percent revenue
Speaker 4: ongoing and generate good free cash flow. We even cap
Speaker 4: the margin assumption at thirty five percent. We cap the
Speaker 4: content spend at twenty billion, driving some more share ibas,
Speaker 4: and you get to a trillion in market cap in
Speaker 4: twenty thirty two. So big picture, there's a lot more
Speaker 4: upside to go. You just have to go through different,
Speaker 4: you know, noisy quarters in a market that can be volatile.
Speaker 2: That's a more than doubling of the market cap in
Speaker 2: the next six years. Do you think that happens? I
Speaker 2: do I do without without Warner Brothers Discovery? I don't know.
Speaker 4: I completely agree. I think it would have been great
Speaker 4: to have that big content library, But you know, again,
Speaker 4: at what costs they've They've just saddled paramount with a
Speaker 4: pretty significant debt load so that they can do lots
Speaker 4: of other things on the content spend. They're going to
Speaker 4: clearly do more on sports. You know, the gaming is
Speaker 4: probably more of a free call option. I think going forward,
Speaker 4: it's a little hard to know, excuse me, how that's
Speaker 4: going to go. But if they just do what they've
Speaker 4: continued to do, ratchet up margins a bit, use AI
Speaker 4: to enhance the business, draw viewership in, and you know,
Speaker 4: Netflix is still the benefit of It's the place we
Speaker 4: go first for content search, and then we go out
Speaker 4: from there. Well there's nothing new on Netflix, Okay, now
Speaker 4: I'll go to HBO and okay, now I'll go to
Speaker 4: Amazon or Apple. So there, you know, and at twenty
Speaker 4: seven bucks a month, it's still an incredible value to
Speaker 4: the average consumer for all the entertainment that you get.
Speaker 4: And obviously I do agree eight we have a ten
Speaker 4: We have an eight billion dollar revenue estimate from the
Speaker 4: AD tier in twenty thirty two, and I think your
Speaker 4: prior guest was talking about somebody having ten billions. So
Speaker 4: I think there's just a lot of things that you
Speaker 4: can a lot of levers to pull for Netflix on
Speaker 4: the free cash flow, on the margin, on the AI side,
Speaker 4: which is still a little bit of an unknown so
Speaker 4: I think Dipster are to be bought here.
Speaker 2: Yeah, go go.
Speaker 1: Ahead, go ahead.
Speaker 2: Well, Read Hastings, he has Powder Mountain in Utah. He's
Speaker 2: off skiing and creating this. David Weston got to go
Speaker 2: to Powder Mountain last year and talk to Read Hastings.
Speaker 2: I would like to do some skiing at Powder MOUNTA.
Speaker 2: I bet you would an issue at all for this
Speaker 2: company that Read actings. And look, he hasn't been CEO
Speaker 2: or co CEO for a time at this point. Not
Speaker 2: an issue to you. That he's exiting the board when
Speaker 2: his term is over.
Speaker 4: Not an issue at all. And he still has two
Speaker 4: billion dollars worth of stock. So he's pretty vested in
Speaker 4: keeping up with Netflix and being comfortable enough to walk
Speaker 4: away while still having you know, last I checked twenty
Speaker 4: one million shares. He's committed to Netflix success, similar to
Speaker 4: Balmer with Microsoft success. And look how it's worked out
Speaker 4: for Steve Balmer with all the things that he's done
Speaker 4: with with Microsoft stock.
Speaker 2: I should note I do believe Read Hastings is a
Speaker 2: board member of Bloomberg LP, the parent company he is
Speaker 2: of Bloomberg Radio and Bloomberg Television. So full disclosure there.
Speaker 1: Yeah, no, we like to do that. Having said that,
Speaker 1: all right, so let's talk about the folks that are
Speaker 1: behind the helm, and let's just remind everybody. First of all,
Speaker 1: we're talking to Eric Clark Akives Global Advisor CIO, so
Speaker 1: he's also a portfolio manager of the logo ETF. Netflix
Speaker 1: is the second largest position in that ETF. Right now,
Speaker 1: we're looking at Netflix shares continuing to trade near their
Speaker 1: lows in the aftermarket, down about nine percent. This is
Speaker 1: after the company's revenue did beat estimates. We did have
Speaker 1: that in the first quarter, but revenue did go up
Speaker 1: sixteen percent in the first three months of the year
Speaker 1: to twelve point three billion. That was a slight beat.
Speaker 1: Earnings per share about twenty three compared with estimates of
Speaker 1: seventy six cents in the current quarter, though the company
Speaker 1: forecasting earnings per share of seventy eight cents a share.
Speaker 1: That's less than the eighty four cents predicted by Wall
Speaker 1: Street analysts. So that is the backdrop for those earnings.
Speaker 1: We're headed off to the analyst and investor call in
Speaker 1: a little while, Eric, what do you want to listen
Speaker 1: out for? What would you want to be asking on
Speaker 1: that call? You are an investor in the name, what
Speaker 1: would you be asking of the co CEOs and their
Speaker 1: C suite team.
Speaker 4: Well, I think and they're I mean, they're obviously not
Speaker 4: going to give you a ton of clarity or granularity
Speaker 4: on sports because they don't want to tip their hand.
Speaker 4: But it's clear that sports has been a very big
Speaker 4: win for them. So I expect them to talk more
Speaker 4: about double downing on those kinds of differentiated opportunities and
Speaker 4: just you know, trying to be as mindful about their
Speaker 4: spend and the quality of the spend. Is really what
Speaker 4: I would ask is you know, let's face it, for
Speaker 4: a while there they were in fill the library up
Speaker 4: mode and people kind of critiqued some of the quality
Speaker 4: content that they created. Now they have the ability, they
Speaker 4: have a large library. Now they have the ability to
Speaker 4: really focus on quality content, which certainly drives a lot
Speaker 4: more viewership and engagement. So again, I at twenty seven
Speaker 4: bucks a month, there are very few other services that
Speaker 4: give people more delight and more entertainment, and so there's
Speaker 4: just and the business is so predictable and can system
Speaker 4: if you you know, in the last couple of months,
Speaker 4: every day the market was down with some of the
Speaker 4: Iran headlines. Netflix and Spotify were usually up on the
Speaker 4: day because of the stability of the business model. So
Speaker 4: it isn't just the growth that we are making it
Speaker 4: such a big waiting. It's the stability of the model
Speaker 4: that that is important too. You know, you're just going
Speaker 4: to have some of this volatility on the earnings.
Speaker 1: Yeah, But what's interesting is we're in an environment. When
Speaker 1: I think about the model. YouTube dominant global video program
Speaker 1: roughly two points seventy four billion monthly active users as
Speaker 1: of early twenty twenty six, leading US TV streaming with
Speaker 1: over twelve percent of TV viewing time, driven heavily by
Speaker 1: users over fifty dale. Viewership can include seventy billion shorts views,
Speaker 1: top creators. You know, we can get into that, but
Speaker 1: this is from Nielsen. But people are watching YouTube, and
Speaker 1: I realize it's an older or skewed older, but I
Speaker 1: just wonder, you know, do the streaming models do they
Speaker 1: have it right? And to be fair, they have a
Speaker 1: lot of people watching. I watch them, but I just wonder, like,
Speaker 1: what is the model of how people There's so much
Speaker 1: coming at individuals. They have a lot of choices out
Speaker 1: there or they could just you know, turn off their laptop,
Speaker 1: turn off their TV or whatever, and put down their phone.
Speaker 4: Well, I think, you know, we have this short termism
Speaker 4: in a variety of our lives, this dopamine hit. And
Speaker 4: you know, YouTube does provide that short term you know,
Speaker 4: I just want a four minute clip, and so it
Speaker 4: wouldn't surprise me if if YouTube started or Netflix started
Speaker 4: to kind of experiment with some of those you know,
Speaker 4: short type of content as well.
Speaker 1: Yeah, isn't that fun?
Speaker 2: That's so wild?
Speaker 1: But you just think about, right, because you click on
Speaker 1: those short videos. I mean, listen, I have someone at
Speaker 1: home that's really into it. And yeah he's above fifty,
Speaker 1: but I mean, like the amount of stuff in velocity.
Speaker 2: He will go through, you know, like the Instagram YouTube
Speaker 2: TikTok Snap, those short forms are everywhere.
Speaker 1: Yeah, right, but what do you but he's not on that.
Speaker 1: But I just think about those short things and you
Speaker 1: can have ads if you want.
Speaker 2: Like the YouTube copied YouTube now is YouTube shorts and
Speaker 2: they copied the you know, I think Snap, it's fair
Speaker 2: to say, kind of pioneered this and then Instagram copied it.
Speaker 2: It's all over Facebook now LinkedIn has this all?
Speaker 1: I know, Yeah, it's everywhere. I know, I know, I
Speaker 1: just think about, you know, how much YouTube is on
Speaker 1: in our household. It's pretty remarkable, you know. So all right, yeah,
Speaker 1: you're not worried, but you're not necessarily buying more here.
Speaker 4: No, if we were at two or three percent weight,
Speaker 4: then I would absolutely be buying. But we have a
Speaker 4: full We have a full weight now, and if it
Speaker 4: pulled back a little bit further again, we love to
Speaker 4: trade around names. If we can get the opportunity, I'd
Speaker 4: certainly consider that as an opportunity. But I don't see
Speaker 4: us changing the core weight at five percent or so
Speaker 4: anytime soon, particularly with the assumptions that we feel pretty
Speaker 4: good about by twenty thirty two, with being you know,
Speaker 4: kind of joining the trillion dollar club, because that is
Speaker 4: a big part of what we're doing at Logo, trying
Speaker 4: to find the names who are the next firms to
Speaker 4: join the trillion dollar club, and that you know, there's
Speaker 4: a few on our list that look pretty attractive.
Speaker 2: I want to go back to the AI question. We
Speaker 2: touched on this with keitha a little bit as well.
Speaker 2: The ben Affleck Company are interpositive that Netflix announced it
Speaker 2: was buying back in March. Is Netflix doing the right thing?
Speaker 2: With AI, I.
Speaker 4: Think they are. I mean, you know, AI is still
Speaker 4: I think an unknown to most of the world, so
Speaker 4: you never I think there's a lot of experimentation that
Speaker 4: has to occur. And if you are one of the
Speaker 4: lucky kind of companies that have a bunch of free
Speaker 4: cash that you can experiment with different things to try
Speaker 4: to see what resonates and then do a lot more
Speaker 4: of it once you have some good data that that
Speaker 4: just kind of distances you your firm from all the peers.
Speaker 4: So I do think AI is going to continue to
Speaker 4: be a part of this to be a part of
Speaker 4: this industry. And you know, Netflix is in the cat
Speaker 4: bird seat to be able to use their balance sheet
Speaker 4: to be able to figure out how to do it.
Speaker 4: And you know, we do expect good share buyback activity
Speaker 4: with A They can do all the content they need
Speaker 4: with twenty billion or less a year, which means that
Speaker 4: the more they grow subs, the more they can buy
Speaker 4: back shares and reduce the float, and that helps earnings
Speaker 4: for share growth. And there's just a lot to like
Speaker 4: about the core business and a few things that could
Speaker 4: be you know, big optionality around the core.
Speaker 1: Eric really appreciated Eric Clark he's Acuves Global Advisor CIO
Speaker 1: Logo ETF Portfolio Manager, joining us once again from San Diego.
Speaker 1: As we've mentioned, Netflix his second biggest holding in that
Speaker 1: Logo ETF