WEBVTT - Instant Reaction: Netflix Records Another Strong Quarter

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Let's bring it, Dan Morgan,

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<v Speaker 1>He's senior portfolio manager at Sonova's trust company. They've got

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<v Speaker 1>about nineteen billion dollars in assets under management. Dan, I

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<v Speaker 1>know you are looking closely at your Bloomberg terminal. In

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<v Speaker 1>terms of the news from Netflix just in the last

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<v Speaker 1>nine minutes. What sticks out to you.

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<v Speaker 2>Hi, Tim, I'm alli. Yeah, it looks like overall from

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<v Speaker 2>Ernie's per share and revenue number, it looks pretty strong.

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<v Speaker 2>I heard Scarlett mentioned earlier about the expectations coming into

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<v Speaker 2>this quarter being so high. In the stock trading way up.

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<v Speaker 2>I believe it's up over forty five percent year to date.

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<v Speaker 2>You know, Tim, I had a whisper number on new

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<v Speaker 2>subs for the third quarter anywhere from six to seven million.

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<v Speaker 2>I know they'd beat the consensus.

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<v Speaker 1>That's like the whisper number that Style was talking about.

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<v Speaker 2>Yeah, so they came in with five point zero seven.

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<v Speaker 2>You mentioned the stock is trading down a little bit.

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<v Speaker 2>I just think there wasn't a lot of room for error.

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<v Speaker 1>Well, now it's it started trading down. Now it's hired

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<v Speaker 1>by three point five percent.

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<v Speaker 2>Okay, there we go, but go ahead. Sorry, they came

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<v Speaker 2>up a little bit short on that whisper number and

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<v Speaker 2>turn to pay subs on the third court.

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<v Speaker 1>Hey, okay, Molly's a ton of questions. I know you do.

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<v Speaker 1>Can I just all.

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<v Speaker 3>About love is blind? But you can go first.

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<v Speaker 1>I just want to know what what are you going

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<v Speaker 1>to do? What's an investor going to do when they

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<v Speaker 1>stop with this sub number in twenty twenty five?

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<v Speaker 2>You know you're right, Tim, It's going to be a

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<v Speaker 2>tough sled because you know, we really value Netflix based

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<v Speaker 2>on these sub numbers. I hate to say this, but

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<v Speaker 2>I think what's going to happen and you already see

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<v Speaker 2>this with Apple. You know, Apple will give us no longer,

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<v Speaker 2>you know, different unit volumes on iPhones and iPads and

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<v Speaker 2>so forth, they'll get, you know, they we'll get estimates

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<v Speaker 2>based on revenue by segment, but then a lot of

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<v Speaker 2>analysts will back you know, through average selling prices and

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<v Speaker 2>come up with a unit projection. And I hate to

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<v Speaker 2>say it, guys, but I don't think this is going

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<v Speaker 2>to go a way. I think what you're going to

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<v Speaker 2>see is some estimates based on the revenue numbers in

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<v Speaker 2>terms of what that sub number is, because you know,

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<v Speaker 2>in the past, we've just always traded the stock based

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<v Speaker 2>on how many new members did you sign up for

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<v Speaker 2>the quarter and how many were you signed up next quarter? Right?

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<v Speaker 3>I mean, what's like the next natural key metric then

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<v Speaker 3>for you both to predict and then also to trade

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<v Speaker 3>off of.

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<v Speaker 2>You know, Molly, It's kind of funny because you know,

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<v Speaker 2>we think about like how we trade Microsoft and Amazon

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<v Speaker 2>and all these different stocks based on their ability to

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<v Speaker 2>generate AI revenue, right, And I think it's gonna be

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<v Speaker 2>the same thing here with Netflix. Instead of AI, we're

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<v Speaker 2>going to just be zeroing in on that advertising. You know,

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<v Speaker 2>if we think of what are the catalysts going forward

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<v Speaker 2>for this company. You guys mentioned earlier about a potential

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<v Speaker 2>price increase that's in the mix. They also have that

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<v Speaker 2>paid sharing which we've talked about before and migrating people

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<v Speaker 2>over that. But I think there's a lot of people

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<v Speaker 2>who are hopeful that this AD model will be a

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<v Speaker 2>big generator for them. We have to bear in mind

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<v Speaker 2>about forty five percent of their sign ups, their new

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<v Speaker 2>sign ups are going towards the AD tier model. It's

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<v Speaker 2>about six ninety nine a month.

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<v Speaker 1>Is that is that around the world.

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<v Speaker 2>Which is about fifteen ninety nine.

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<v Speaker 1>I'm sorry, is that around the world.

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<v Speaker 2>Or is that yeah?

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<v Speaker 1>No, is that just an ul like what markets? Is

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<v Speaker 1>that in Dan?

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<v Speaker 2>That would be across the board to him in terms

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<v Speaker 2>of any new subs that they're signing up. In terms

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<v Speaker 2>of across the board, like I said, about forty five percent.

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<v Speaker 2>And you know, as of the end of this year,

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<v Speaker 2>they're projecting now let's say they've got two hundred and

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<v Speaker 2>eighty two hundred eighty five million total subscribers, they should

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<v Speaker 2>have about thirty one million advertising subscribers. So it is

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<v Speaker 2>becoming a bigger piece of the pie for them. It's

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<v Speaker 2>not quite huge, but at least it's over ten percent.

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<v Speaker 1>Shares now hired by five percent in the after hours.

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<v Speaker 3>Just how do you think though about Like I just

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<v Speaker 3>I still find like this decision. I know that this

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<v Speaker 3>is and this isn't the new thing here, but the

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<v Speaker 3>decision to not publish the subscriber numbers so interesting, like.

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<v Speaker 1>Every quarter, even though they announced it a few quarters ago, right,

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<v Speaker 1>just like a harp on it.

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<v Speaker 3>I mean, it just sounds to me like you're almost

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<v Speaker 3>like acknowledging like that the company is moving into like

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<v Speaker 3>a new phase, like maybe like you know that you

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<v Speaker 3>were like maybe a growing company, now you're a more developed,

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<v Speaker 3>mature company.

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<v Speaker 1>I think that is absolutely the correct take.

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<v Speaker 3>Yeah, I mean, but you obviously, like from an investor perspective, like,

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<v Speaker 3>I don't know, Dan, like, do you accept that or

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<v Speaker 3>do you I mean, it just kind of to me

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<v Speaker 3>sounds like I'm almost a little sad in a way,

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<v Speaker 3>like I kind of I always look forward to that

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<v Speaker 3>number is kind of like new and exciting, And I mean,

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<v Speaker 3>how do you view it? Do you think this is

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<v Speaker 3>just a natural maturation of the company.

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<v Speaker 2>I think so, Mollie. And nothing to remember too is

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<v Speaker 2>that the you know, the average revenue they get per

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<v Speaker 2>subscriber in terms of advertising subscriber versus let's say a

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<v Speaker 2>standard subscriber is less. So that could be another reason

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<v Speaker 2>they felt they wanted to migrate to kind of a

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<v Speaker 2>revenue volume based you know, matrix opposed to subs, because

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<v Speaker 2>the subs didn't have as much value that they might

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<v Speaker 2>if it was purely a standard. But you know, Tim

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<v Speaker 2>and Molly, I would agree with you that. I think

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<v Speaker 2>at this point we have to look at Netflix much

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<v Speaker 2>differently than we did two or three years ago. They

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<v Speaker 2>have become a more mature company. You mentioned the cash

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<v Speaker 2>flow numbers that they gave for the physical year being

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<v Speaker 2>above expectations. I think with six to six point five billion.

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<v Speaker 2>They also beat for the quarter. So they they're just

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<v Speaker 2>kind of a different animal than they were let's say

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<v Speaker 2>two or three years ago. Was kind of just add

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<v Speaker 2>as much content as you can, try to get as

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<v Speaker 2>many subs as you can, and don't worry about it.

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<v Speaker 2>And now they've become more kind of a cash flow

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<v Speaker 2>you know story, more of a story of slower top

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<v Speaker 2>line growth. I know Romain mentioned top line growth slowing

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<v Speaker 2>down in subsequent years going forward, and I think the

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<v Speaker 2>streets kind of accepted that. And you know, you look

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<v Speaker 2>at the current multiple, you're looking like thirty five, you know,

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<v Speaker 2>to forty times earning. This stock used to trade, you know,

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<v Speaker 2>close to over one hundred times earning. So the multiple

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<v Speaker 2>has come down in line with the expectations in terms

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<v Speaker 2>of growth.

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<v Speaker 3>Well let's stick on that multiple for a second, because

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<v Speaker 3>we had a great story on the terminal earlier about

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<v Speaker 3>this today about just how expensive Netflix trades right now

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<v Speaker 3>relative to earnings. I mean, if you're like somebody who's

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<v Speaker 3>looking to get in on this stock, right now that's

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<v Speaker 3>up like three hundred and fifty percent in the last

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<v Speaker 3>two years. Like, I don't know, is there a good

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<v Speaker 3>entry point or did you miss it?

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<v Speaker 2>Yeah, So right now you're trading about thirty seven times

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<v Speaker 2>twenty four estimates and you're about thirty times physical year

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<v Speaker 2>twenty twenty five. So that's kind of where your multiples

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<v Speaker 2>are right now based on earnings. You mentioned that the

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<v Speaker 2>current multiple has moved up dramatically from where it was. Again,

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<v Speaker 2>the stock is up forty five to fifty percent for

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<v Speaker 2>the year, and again we're expecting growth to kind of

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<v Speaker 2>slow down a little bit, right and going into twenty

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<v Speaker 2>five at least top line growth. So, you know, Molly

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<v Speaker 2>and Tim, the stock is definitely a little stretched here

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<v Speaker 2>in terms of, you know, the recent run that it's had,

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<v Speaker 2>and obviously the stock is, you know, trading a bit

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<v Speaker 2>of a premium to what the expectations are going forward

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<v Speaker 2>terms of earnings growth and the remainder of twenty four

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<v Speaker 2>and twenty five.

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<v Speaker 1>I own Githa ragnathin earlier today, Dan telling us that

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<v Speaker 1>it's been a while since we've seen a price increase

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<v Speaker 1>here in the US. I would imagine investors want to

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<v Speaker 1>see prices go up, customers might not want to how

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<v Speaker 1>much pricing power does Netflix have just in the last

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<v Speaker 1>forty seconds we have with you, because there is this

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<v Speaker 1>balance between making sure to raise prices not so much

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<v Speaker 1>that people quit.

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<v Speaker 2>You're right, Tim, you know we mentioned the ad tier

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<v Speaker 2>six ninety nine, standard fifteen ninety nine. They drop the basic.

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<v Speaker 2>But you know what's kind of interesting Tim and Molly

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<v Speaker 2>is if you look at where Netflix stands right now

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<v Speaker 2>in terms of pricing versus their competitors like you know,

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<v Speaker 2>Disney plus Paramot all these other major you know streamers,

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<v Speaker 2>they're right in that pack. And you might make a

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<v Speaker 2>case to And that people are willing to pay a

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<v Speaker 2>premium for Netflix because of the content