Modern Outlook

Earnings, But More Importantly, Netflix

April 21, 2022 Eddie Thomas
Modern Outlook
Earnings, But More Importantly, Netflix
Show Notes Transcript

It's once again earnings season as it is every couple of months. This will be an interesting season with the changing global landscape. One name has already stuck out for not the greatest reasons. That is Netflix. We talk a bunch about Netflix and about earnings in general. 

Eddie Thomas:

Hey, what's up, guys? Welcome to the life finance in between Podcast. I'm Eddie Thomas, you already knew that. So let's get into it. It's earning season again, as it is after every quarter. And I've spoken about in the past, I think there's a lot of overreactions that come from earnings seasons. If you don't know what earnings season is, it's quarter after quarter, where companies pretty much come on, and they say, if they beat their expectations for this past quarter, and they did well, or if they didn't, and the market reacts pretty strongly one way or the other. If they did well, and beat their expectations, or if they did not, if they did, well, stock goes up, if they did not stock goes down. And I've said it in the past podcasts that I think doing quarter after quarter, is sometimes unfair to companies. Because it's like imagine judging your life on three, three to four month increments. And if you didn't do as well as you want to in a three or four months, you're getting punished for it. But if you did, the flipside of that is if you did well, then you're not but the reason I don't believe it's super fair is because I don't think it's a good enough sample size to really judge companies as harshly as people do off of earnings, that you don't really let them have the ability to let them create and take chances and risks that they can in their business. And see if ideas really pan out before you're judging them on those kinds of decisions. And when you're dealing with hundreds of millions of dollars and 10s of millions of dollars and billions to trillions, it's takes a little bit of time for a company to make a move, excuse me, or decision and see it really pan out and judging them every three months isn't exactly let that happen. At I don't know, a rate I would prefer if I'm on these earnings calls. But a company that I've talked about in the past, actually specifically remember going through on a podcast talking about them after their last earnings call or one of the last earnings calls. And getting punished was Netflix. So last time, I think their stock fell off a cliff about 20% because of what they forecasted to be slowing growth in their user category, mean new users coming on wasn't going to be as quickly as it used to be not as many per quarter. And obviously every company comes to a point where the growth is pretty much maxed out. And Netflix has come to that point where they've kind of exhausted the users that they've had within different markets, especially domestically here in the US. And they just released earnings yesterday, I cannot clear my throat right now. Sorry. But they just released earnings yesterday that shows that their forecasts are showing growth might have been a little too generous for themselves. So they're down 30 to 35%. Today after they restart earnings and their earnings showed them losing 200,000 plus subscribers domestically here in the US, and forecasting of losing another 2 million going into the next quarter potentially. Not exactly what you want to see if you're Netflix or a shareholder. Again, last time I talked about them probably getting treated unfairly. I don't know if this is an unfair correction or not as far as Netflix is concerned, being down 30% roughly on a day, just because you lost some users. But it doesn't bode well for them does it it really does not end when they are asked pretty much why is that happening? It was noted by them that on the see here that they blamed competition, and then rampant password sharing for its shrinkage and users to things that take take me along on that, that route there. And my reaction to those competition has always been coming. Is net. But never once I think that Netflix sit down and say we're never gonna have any competition, especially when the likes of Disney gone to the the playground here and Apple and Amazon. Google has YouTube, the streaming services and I have a video that breaks this down. There's so many of them. There's so much content out there. Netflix had to see this coming. And I think they had they were trying to make some changes and have more original content come out, which is why we saw subscription prices rise, which might have been a reason some people got rid of the platform. And they they tried to spend a ton of money on content, like I said and they've tried to get into gaming it slowly. So the idea that competition is just an Now impacting them isn't true. It's just the first time they've seen themselves really get punished by competition. And I'm not sure where they're gonna go from here. As far as competition is concerned, because Netflix only has their streaming service to give them revenue, Disney has everything else that they have to give them revenue between the parks between the movies, a produced us studios, they've bought their partnerships with ESPN. Apple has all of our laptops, our phones, their watches, AirPods, the revenue that's brought in from those kind of products and their services, like Apple news and Apple Music to put into their streaming. When their streaming isn't making as much money, Amazon obviously has the entire world on two day delivery. And they can funnel that money into their streaming. Google as YouTube, like these other companies have so many streaming revenue sources to push into their streaming services to make them better, to produce better content, have bigger named actors, and in turn, win in the long run. And I think we're starting to see those dominoes fall. Right now. I'll even myself, I've watched Apple TV, and Hulu, which is a Disney product probably a bit more than I'm watching Netflix right now, like I can just I could, if I got rid of my Netflix charge and lost the fifth didn't spend the$15 a month for what Netflix gives me probably wouldn't be a big loss. Honestly, I could find the substitutes and the other streaming platforms. And I think a lot of people are finally realizing that. And I think Netflix is now seeing that with losing 200,000 subscribers and last quarter and forecasting losing another 2 million in the current quarter, quarter two. And the other reason they gave for losing these users is rampant password sharing. And I know I understand on there, and they want to crack down on that I don't understand how they do. And also, you have family sharing plans, of course, people are going to share accounts, there's just no way around that. And it's not just them that gets hit by that people share their password with every single streaming service. And I haven't listened to the other earnings calls yet to see if they noted the same thing, meaning like Apple and Disney and Amazon if they're noting the same issues with password sharing, but it's it's one of those things where it's gonna happen, you just have to be able to come around that in my opinion. And they I guess they estimated roughly 100 million non paying households use shared passwords. That's going to happen when you have a service, that it's very hard to monitor who's using what password and when and where that's going to happen. And it's going to happen across the board. So by no means is Netflix the only one that's impacted by this, even though they're seemingly acting more potentially acting like they are and blaming that for loss and subscribers. Now, the biggest loss of subscribers to them, is the idea that other streaming platforms are coming in and just eating their lunch and taking their lunch money, because they have more money to put into it. They have more money put into it and Netflix tried to raise their subscription prices in the past year. And clearly it's didn't really bode well, maybe they have more capital to make more content just takes too much time to make content. It's too expensive. And people aren't going to wait that long when they have so many other options. So are they oversold today being down? 30 35%? Maybe? I don't know. That's all personal opinion. I'm really not sure I can make an argument for why they are oversold, I can make an argument why they're not oversold. But I do know they need to make some changes. Regardless, they need to make some changes, especially when they're expecting further losses, especially when more competition is coming into the space, not less. People are going to continue to share passwords. What are they going to do? What's your alternatives? They had mentioned that they might start a lower price tier with add support. So that would pretty much give them more money in the long run as companies pay to get in front of Netflix's audience, when Netflix has for the longest time, so they're not going to put ads on their platform, not there. They're adamantly against it. It's just not something they wanted to do. So now they're opening a door to a lower priced tier supported by ads. And I'll be honest, if that came out tomorrow, I'd be signed up tomorrow. I think that I don't know I'm okay with sitting through a couple ads. If I'm saving five $6 a month, the 32nd Three minutes watching that is worth the $5 that I'm going to pay per month. Maybe that changes with how many ads they have but I think that'd be a big gain for them. Depends where they price it though. Also their next moves they probably they could potentially look into potentially acquiring a company like like a paramount plus kind of deal. Whereas a smaller streaming service with I know it's paramount pluses on the CBS. But they pretty much in eating this meaning they need to acquire a smaller service or one without as many users to bring more into their umbrella of Netflix and get more content readily available. We just saw Amazon do this when they bought MGM for 8.5 billion. These companies know that making their own content is very, very difficult, very capital expensive, and also very long, long process and you'll lose eyeballs by the time your content is made. So if you can, in Disney this wonderfully, if you can, cast your net wide enough and have enough people making content under your umbrella and putting it on your platform, you're going to be just fine, which is why Disney has Disney plus, which is why they have Hulu, which is why they have ESPN and ESPN plus all under one umbrella. And then they make the movies and everything else. It's just content from a bunch of different sources a bunch of different ways. Netflix doesn't have that you have your Netflix originals, and you have the shows that they have contracts to put on their platform. But more often than not, you see those shows go back to their own platforms, like when the offense went back to peacock plus, and there's other shows as well, that you're just not gonna be able to hold forever for Netflix. So you need to make your own too expensive and too time consuming. Make your own. So you need to acquire. The other option is potentially they look into more the video game streaming space, like we see YouTube Gaming and Twitch, where Google who owns YouTube and Amazon owns Twitch, have millions of eyeballs per day watching other people play video games. And I know some of you may listening may be listening and think why would anybody ever do that? Well, a lot of people do that. And the streamers make a ton of money, a ton of money through those platforms. So Netflix potentially looks into that going forward. I don't know if that would be something they're open to. But it would definitely be consistent new fresh content that they can put on the platform and be the hub for that. It's a potential look into I know they're trying to get into gaming and they have some some games like Do you guys remember that trivia Quest game, I think it's called. It was like an app on the iPhone that was like big for like three and a half months. And you'd like answered questions back and forth against your friends and whoever got the most trophies. Whoever got the six trophies first won the game? Well, they now have that on Netflix, I saw I didn't play it. But if that's if that's your step into video games, I'm not very bullish on that step, looks boring and just not really innovative at all looks like something that somebody already did. And they already ran its course and you're trying to re package it, it's just not going to work. So they need to make a new step into that. And if that's video game streaming, it's a video game streaming. But I'll be curious to see what they do there. But overall, I mean, I know I talked a lot about Netflix, and I'll have a couple other videos come out as earnings come out as well. I'm just curious to see how moving into quarter two, three and four for companies like Netflix and apple and a bunch of other companies as well, to see how they manage and mitigate the pressures that inflation is putting on them as a business and us as consumers right now. I'm curious to see how they paint those in their earnings reports, what their forecast looks like. And if they're able to be able to kind of navigate these waters until we see inflation come down a bit. I don't think for right now, inflation has changed too, too much of how we're acting as consumers. But we are going to see as 2022 goes on if over time, it's going to start changing how we act as consumers. So we'll see. I'll be curious, I know Netflix might be hitting that wall right now. And we'll see what Netflix looks like going forward. I'll have a deep dive into streaming services at some point I'm definitely going to keep talking about the earnings calls coming out. But I just saw Netflix down 35% today and how to talk about it and how to get my little recap on it. So there won't be a YouTube side of this one today. Typically when I get the camera now it turned into more of a production and more of a lengthy editing process and I wanted this to be pretty quick so it'll just be an audio version podcast only. So thanks for listening today guys. I'll be back soon with some more content. As always stay happy, stay healthy, and I'll catch you on the next one. Securities offered through securities America Inc. Member FINRA slash SIPC. advisory services offered through securities America advisors Inc. Wealth Management Services and securities in America are separate entities. The opinions and forecasts expressed are those of the author and may not actually come to pass. 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