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Bloomberg's Sweeney on Netflix EPS: Slowdown in New Subs(Audio) · Bloomberg Intelligence

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  Speaker 1: Global business news twenty four hours a day at Bloomberg
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  Speaker 1: This is a Bloomberg Business Flash for all Bloomberg World headquarters.
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  Speaker 1: I'm Charlie Public. We are awaiting the latest numbers from Yahoo.
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  Speaker 1: We did here from Netflix it added one point six
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  Speaker 1: eight million subscribers in the second quarter, falling short of
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  Speaker 1: its own forecast. Netflix trading lower IBM second quarter operating
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  Speaker 1: EPs two ninety five. The gap estimate there was for
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  Speaker 1: two sixty one. And again we are awaiting those Yahoo numbers.
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  Speaker 1: Records today for the Dow and the SMP five hundred index,
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  Speaker 1: SMP up five to twenty one sixty six, up two
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  Speaker 1: tenths of one percent, Dow up sixteen points to eighteen thousand,
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  Speaker 1: five hundred thirty three, a record there, up point one percent,
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  Speaker 1: and has stack up five tenths of one percent. Gold
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  Speaker 1: up to forty the ounce the thirteen twenty nine of
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  Speaker 1: two tenths of one percent. Crude oil down sixty eight
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  Speaker 1: cents of arrel forty five twenty seven, a drop there
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  Speaker 1: of one and a half percent. I Charlie Pellet, and
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  Speaker 1: that's a Bloomberg Business flash. This is taking stock with
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  Speaker 1: pin Box and Kathleen Hayes on Bloomberg Radio shares of Netflix.
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  Speaker 1: They are sinking there, down about thirteen percent and after
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  Speaker 1: hours trading here to tell us more, Paul Sweeney, US
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  Speaker 1: Director of Research, Senior Media Internet analyst for Bloomberg Intelligence.
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  Speaker 1: can access this function at b I go all right,
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  Speaker 1: Paul Sweeney, you go go ahead, tell us what's going
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  Speaker 1: on with Netflix and why is the stock down thirteen percent? Yeah,
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  Speaker 1: you know, growth is really slowing here at Netflix, says
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  Speaker 1: you know, as I've said all along about this this company,
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  Speaker 1: in this stock, the stock is really a momentum stock.
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  Speaker 1: And it's not an earnings momentum stock. It's not even
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  Speaker 1: a revenue momentum stock. But it is primarily a stock
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  Speaker 1: that's driven by a momentum and subscriber growth. In what
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  Speaker 1: we're seeing is a pretty serious slowdown in new subscriber
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  Speaker 1: ads for the company. So the company added about one
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  Speaker 1: point seven million new subscribers globally this quarter um and
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  Speaker 1: that that missed, however, the company's own guidance of about
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  Speaker 1: two point five million news subscribers, so a big miss there.
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  Speaker 1: UM In a year ago period, the company added three
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  Speaker 1: point three million UH new customers, so UM. We the
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  Speaker 1: market knew that growth was slowing here, it's just much
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  Speaker 1: much more pronounced than the market was expecting, and hence
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  Speaker 1: the big sell off here. And this is the sell
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  Speaker 1: off connected with higher prices for Netflix subscriptions. I think
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  Speaker 1: that's partly to blame for it. They the company has,
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  Speaker 1: you know, has been raising prices and they typically grandfather
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  Speaker 1: some existing customers into the lower prices, and they were
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  Speaker 1: rolling off that grandfathering UM. And so we expected the
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  Speaker 1: turn to pick up in a quarter with which it did.
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  Speaker 1: But we're really seeing a pronounced slowdown both in UM
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  Speaker 1: the US market as well as their international markets. Both
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  Speaker 1: of those markets, UH missed their new subscriber ad UH forecast.
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  Speaker 1: So you know, in the US market, it's a more
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  Speaker 1: mature market. Netflix has been here a long time. It's
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  Speaker 1: a more mature market, more competition, so the market investors
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  Speaker 1: weren't really expecting a lot of growth coming out of
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  Speaker 1: the US market. UH. The investors, however, were really banking
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  Speaker 1: on continued growth and their international markets, and they've rolled
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  Speaker 1: out there pretty much every market in the world with
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  Speaker 1: the exception of China. Uh and the international markets had
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  Speaker 1: in fact been the big growth driver and new subscribers
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  Speaker 1: offsetting kind of the slow down in the US. But
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  Speaker 1: even the international markets markedly missed UM their outlook for
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  Speaker 1: new subscribers in the second quarter, and the company's guidance
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  Speaker 1: for third quarter in terms of subscriber ads is also
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  Speaker 1: well below investors forecast. So again, just more confirmation that
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  Speaker 1: the growth is slowing and slowing faster than the than
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  Speaker 1: people really thought. Well, Paul, you know they say that
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  Speaker 1: history doesn't repeat itself, but it rhymes. The last time
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  Speaker 1: I really heard about subscriber growth that had to do
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  Speaker 1: with those numbers from America Online. You'd watch to see
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  Speaker 1: whether there were more subscribers month over month and whether
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  Speaker 1: they reached the analyst estimate. Sales for Netflix were up
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  Speaker 1: twenty eight percent compared to a year ago. And to
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  Speaker 1: confirm your thoughts about the US market, there are forty
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  Speaker 1: seven million customers in the United States. So where does
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  Speaker 1: Netflix go next? Well, I think Netflix, Um. It's funny
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  Speaker 1: you mentioned America Online I was actually the third analyst
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  Speaker 1: to pick up coverage of that stock in I have
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  Speaker 1: to confess, I really do remember you. That's the analogy
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  Speaker 1: I make to a lot of investors that reminds me
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  Speaker 1: a lot of the early a world years. UM. But
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  Speaker 1: I think for obviously, the market place here for Netflix
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  Speaker 1: is just an extraordinary, really large market. UM. Netflix is
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  Speaker 1: the brand they preferred brand in the market. They also
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  Speaker 1: have first to market mover advantage in most of their markets,
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  Speaker 1: so they have a tremendous amount of resources and growth
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  Speaker 1: ahead of them. I think it's simply a question they're
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  Speaker 1: finding that in a lot of these international markets, UH,
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  Speaker 1: there's a lot more nuances to these markets, and therefore
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  Speaker 1: the growth rates aren't what they thought they would be.
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  Speaker 1: In some markets, UM, local programming plays a lot better
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  Speaker 1: than Western programming or or American programming, and a lot
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  Speaker 1: of markets there's more established UH competitors in the marketplace,
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  Speaker 1: like France and in Germany, for for example. UM So,
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  Speaker 1: I think they're coming into the market which a little
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  Speaker 1: a little bit more competitive, a little bit more mature,
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  Speaker 1: and they're not getting some of the growth that they
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  Speaker 1: were seeing in some of their earlier international forays. Just
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  Speaker 1: several years ago. So I think the the overall long
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  Speaker 1: term opportunity still very large for Netflix, But this was
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  Speaker 1: the stock that was really pricing in uh, you know,
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  Speaker 1: continued exceptional growth rates and subscribers and revenue, uh that
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  Speaker 1: it doesn't appear that the company can do. This is
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  Speaker 1: really the second quarter in a row we've had a
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  Speaker 1: real uh kind of uh disappointment in new subscriber ads. Uh, Paul,
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  Speaker 1: We're waiting for Yahoo to release its results. Will there
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  Speaker 1: be any surprises and what should we look for? Well,
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  Speaker 1: you know those two two things here. One is just
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  Speaker 1: the core operations of the butt, and I think the
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  Speaker 1: expectations remain very low there. I think, you know, street
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  Speaker 1: consensus is for another twenty percent decline in revenue, again
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  Speaker 1: in a business that's growing in terms of the industry growth. Uh.
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  Speaker 1: So the question here is, uh, where is the company
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  Speaker 1: in terms of selling this core business? And final bids
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  Speaker 1: were due today, so the market's clearly looking for some
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  Speaker 1: color there and some guidance there as to um, you know,
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  Speaker 1: do we have a final bid or what is the price?
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  Speaker 1: What is the future this operating company? Because it looks
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  Speaker 1: like clearly Merissa Meyer and her management team have been
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  Speaker 1: unable to turn this story around. UH. So investors are
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  Speaker 1: clearly not really focused on the core fundamentals, but more
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  Speaker 1: about who's gonna own this thing going forward and then sex. Secondarily,
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  Speaker 1: it's simply a question of the real value of this
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  Speaker 1: company continues to be the company's investment in Ali Baba
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  Speaker 1: and in Yahoo Japan. UM And the question there is okay,
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  Speaker 1: uh management team at Yahoo and board, what is your
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  Speaker 1: plan now for monetizing that value for shareholders? They have
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  Speaker 1: not been able to put a credible plan on the
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  Speaker 1: table yet. It's been well over a year. Uh. And
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  Speaker 1: I think people are simply, uh, you know, really looking
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  Speaker 1: for some clarity there. Want want once, once and for all.
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  Speaker 1: Just give you a five seconds. Is Mersa Meyers jobs secure? Uh?
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  Speaker 1: I would doubt it. I think any new buyer will
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  Speaker 1: probably want to put their own management team in place.
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  Speaker 1: Thanks very much. Paul Sweeney, US director of Research and
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  Speaker 1: senior media Internet analysts for Bloomberg Intelligence also form an
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  Speaker 1: analyst for on America Online. This is taking stock. I'm
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