Latest / Bloomberg Intelligence / Netflix, China, And Real Estate (Podcast)

Transcript

Netflix, China, And Real Estate (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. All right, we need
• 0:22
  Speaker 1: to get an update on China, and when we do that,
• 0:24
  Speaker 1: we go to one person and one person only. That's
• 0:26
  Speaker 1: Leland Mellon Miller, CEO of China Basebook International. Leland, thanks
• 0:31
  Speaker 1: so much for joining us here. You know, I guess
• 0:33
  Speaker 1: as we look to China here, we really have to
• 0:35
  Speaker 1: start with are they open? Are they closed? Our certain
• 0:39
  Speaker 1: regions open, are certain regions closed? Can you give us
• 0:42
  Speaker 1: an overview kind of where we are right now with
• 0:44
  Speaker 1: China and its economy. Yeah, I think that's the right
• 0:47
  Speaker 1: question to be asking, because you know, China just came
• 0:50
  Speaker 1: out with its first quarter results and and and they
• 0:53
  Speaker 1: surprise a lot of people, not us, because you know,
• 0:55
  Speaker 1: we had seen some some strength in January and February.
• 0:58
  Speaker 1: But the but the real dynamy I make that people
• 1:00
  Speaker 1: should be tracking is the fact that the economy is
• 1:02
  Speaker 1: just shutting down, and it's not because there's a COVID outbreak.
• 1:05
  Speaker 1: It's to prevent the COVID outbreaks. It's part of this
• 1:07
  Speaker 1: COVID zero policy. And you're seeing with what a lot
• 1:10
  Speaker 1: of people are saying is around g d P shutdown.
• 1:14
  Speaker 1: Almost all the major ports are either shut down or
• 1:18
  Speaker 1: massively backlog because there's a potential lockdown in progress. So
• 1:22
  Speaker 1: you've got you've got a real problem. The March data
• 1:25
  Speaker 1: showed a little bit of this, but April you know,
• 1:28
  Speaker 1: I've said this before, but Aprilo is going to be
• 1:31
  Speaker 1: the most important month for schids is January because the
• 1:34
  Speaker 1: extent of the lockdowns are to dictate just how gruesome
• 1:38
  Speaker 1: economic growth could potentially fall on the second quarter. So
• 1:41
  Speaker 1: how what kind of drop do you expect? I mean,
• 1:43
  Speaker 1: can you give us a range? Well, look, if if
• 1:47
  Speaker 1: we see some of these big city lockdowns, and we're
• 1:50
  Speaker 1: not talking about just Shanghai, but the two of the
• 1:52
  Speaker 1: biggest cities in in in you know, down south in
• 1:55
  Speaker 1: Guangdong Province are are are under either uh you know,
• 2:00
  Speaker 1: the beginnings of a lockdown or or or or a
• 2:03
  Speaker 1: lockdown already. Uh you know, we see this continue and
• 2:07
  Speaker 1: at last more than one or two weeks. I mean,
• 2:09
  Speaker 1: you could see a quarter with negative growth. Now that
• 2:11
  Speaker 1: doesn't mean they're gonna announce it, but it just means that,
• 2:13
  Speaker 1: you know, if you're shutting down most of the economy
• 2:16
  Speaker 1: for a huge chunk of the quarter, you know, you
• 2:18
  Speaker 1: could have some real problems with trying to get the
• 2:20
  Speaker 1: number out of the gutter? So Leland, is there any
• 2:25
  Speaker 1: pushback or pressure or from folks saying, hey, this is
• 2:28
  Speaker 1: not the right COVID strategy here, the zero tolerance. I mean,
• 2:31
  Speaker 1: maybe it worked in the beginning, but boy, with these
• 2:34
  Speaker 1: you know, increasingly contagious variants, Uh, maybe not so much.
• 2:39
  Speaker 1: Is there any push back on this policy? Well, I mean,
• 2:42
  Speaker 1: individuals across China don't like the policy at all. I mean,
• 2:45
  Speaker 1: I think anecdotally it's hard to find anyone who is
• 2:48
  Speaker 1: supportive of the of the draconian extent that this lockdown
• 2:52
  Speaker 1: has you know, has hit. But that's not the way
• 2:55
  Speaker 1: China works. That it's dictated from the top down. And
• 2:57
  Speaker 1: She Jin Ping wants to lockdowns, and he's doubled down
• 3:00
  Speaker 1: that recently on the radio, and senior policy makers in
• 3:03
  Speaker 1: the last few days have had tripled down on it.
• 3:04
  Speaker 1: So they're not moving away from COVID zero anytime soon,
• 3:07
  Speaker 1: no matter what the worries about economic growth and and
• 3:10
  Speaker 1: other things are absolutely secondary to the general fears that
• 3:14
  Speaker 1: they could have a major outbreak in the rural populations
• 3:17
  Speaker 1: amongst the elderly and particularly underserved populations that don't have
• 3:21
  Speaker 1: hospital capacity. And that's what they're really fearing, like a
• 3:24
  Speaker 1: disaster during a politically sensitive year. So there's I mean,
• 3:27
  Speaker 1: because it matters how much support j and Ping has
• 3:31
  Speaker 1: amongst the population. But I guess his his play right
• 3:35
  Speaker 1: now is I'd rather have them um perturbed with me
• 3:39
  Speaker 1: over a lockdown than you know, ousting me over you know,
• 3:44
  Speaker 1: a pandemic that overflows hospitals nationwide. Right, I mean, what
• 3:49
  Speaker 1: he's trying to do, he's looking at the worst case
• 3:50
  Speaker 1: scenario and trying to take that off the table, and
• 3:53
  Speaker 1: then the next priority is to take the next level
• 3:55
  Speaker 1: of bad case scenario and trying to take that off
• 3:57
  Speaker 1: the table. What I don't think people understand right now,
• 3:59
  Speaker 1: because they're obsessing over the you know, the growth rate
• 4:02
  Speaker 1: and and and GDP targets and things like that, is
• 4:06
  Speaker 1: that that's just not high on the priority list right now.
• 4:08
  Speaker 1: You know that that's usually what the leadership in Beijing
• 4:12
  Speaker 1: is obsessed with. But during this year, during a time
• 4:14
  Speaker 1: where the the outbreak could spread out of control and
• 4:17
  Speaker 1: cause havoc in the run up to the Party Congress
• 4:20
  Speaker 1: is fall, that's not. Economic growth is not the priority.
• 4:22
  Speaker 1: Stability is, security is, safety is and getting COVID under control.
• 4:26
  Speaker 1: Do they feel like they can always bring back economic
• 4:28
  Speaker 1: growth with the right kind of stimulus and and have
• 4:31
  Speaker 1: they been enacting stimulus programs that that you would expect. Yeah,
• 4:37
  Speaker 1: that's what gets so interesting. So so they have not
• 4:39
  Speaker 1: been doing stimulus. You know, about a year ago we said, look,
• 4:42
  Speaker 1: the economic growth models changed, the stimulus playbooks changed. You
• 4:45
  Speaker 1: can see this in our data. There's just nothing percolating
• 4:48
  Speaker 1: underneath the surface in terms of them getting ready to
• 4:50
  Speaker 1: do a more active credit policy. And and a lot
• 4:53
  Speaker 1: of people fought back and said, no, no, no, we
• 4:55
  Speaker 1: understand the way China works. We understand this is a
• 4:57
  Speaker 1: party congress here. They always go big in a party
• 4:59
  Speaker 1: com this year and that was the wrong call that
• 5:02
  Speaker 1: this is a different regime, this is a different kind
• 5:04
  Speaker 1: of economic policy making. Now, the problem you have on
• 5:07
  Speaker 1: top of that right now is if if most of
• 5:09
  Speaker 1: the economy are a big chunk of the economy is
• 5:10
  Speaker 1: locked down, how do you stimulate it even if you
• 5:12
  Speaker 1: want to? So they have a question do they want
• 5:15
  Speaker 1: to stimulate? But even if they choose to, which they
• 5:17
  Speaker 1: have not yet chosen to, can they make it work? Leland?
• 5:20
  Speaker 1: Just thirty seconds left. Is there any risk to she
• 5:23
  Speaker 1: right now? I know you mentioned a uh political year. Yeah,
• 5:27
  Speaker 1: I don't think so. Look, you know, there's no evidence
• 5:29
  Speaker 1: that this is affecting she's standing. But you know, we're
• 5:32
  Speaker 1: on the cusp of a very very big things happening
• 5:35
  Speaker 1: right now. So he needs to get COVID under control
• 5:37
  Speaker 1: and they need to get you know, economic growth back
• 5:39
  Speaker 1: up the second half of the year. But no, I'm
• 5:41
  Speaker 1: not seeing any immediate short term threats to his his governance.
• 5:45
  Speaker 1: All right, Leland, good stuff, Thank you very much for
• 5:47
  Speaker 1: your time. Again when we want to get the latest
• 5:50
  Speaker 1: on what's going on in China politically economically. Returned to
• 5:55
  Speaker 1: Leland Miller. He's a CEO of the China beij Book International,
• 5:59
  Speaker 1: and boy, they have some of the best data sets
• 6:02
  Speaker 1: proprietary data sets, over a hundred thousand unique data sets
• 6:06
  Speaker 1: on all parts of the Chinese economy if you want
• 6:09
  Speaker 1: to know what's going on over there and maybe get
• 6:11
  Speaker 1: the real numbers as to economic growth in other areas.
• 6:14
  Speaker 1: The good folks at the China Beige Book are the
• 6:16
  Speaker 1: ones to go to Netflix today off year to date.
• 6:24
  Speaker 1: You know, Matt, When I was covering the stock as
• 6:26
  Speaker 1: an analyst, I said to folks, Netflix is a subscriber
• 6:29
  Speaker 1: growth story. As long as subscribers continue to grow and
• 6:32
  Speaker 1: hopefully at an increasing rate, stock works. Nothing's gonna stop it.
• 6:35
  Speaker 1: But when the growth rate slows, or god forbid, it
• 6:39
  Speaker 1: even goes negative, you don't want to be anywhere near this.
• 6:41
  Speaker 1: It's the exact same call I had on America Online
• 6:44
  Speaker 1: back in the early nineties and it pretty much worked. Uh,
• 6:47
  Speaker 1: but we got a pro on right now, Michael Nathanson,
• 6:50
  Speaker 1: I have an apology you do to make to Michael Nathanson. Michael,
• 6:55
  Speaker 1: I have to say I've been reading your research for
• 6:58
  Speaker 1: years and Craig's as well, and for some reason today
• 7:02
  Speaker 1: I quoted you as Nathan moffattson. Maybe that sounds pretty good, Michael,
• 7:10
  Speaker 1: what's your course? I corrected it right away. Michael Nathanson
• 7:14
  Speaker 1: and Craig Moffitt founded Moffatt Nathanson. Is that right, that's correct,
• 7:19
  Speaker 1: almost nine and a half years ago. Yeah, and before
• 7:22
  Speaker 1: that they were top analysts at Where's It Bernstein and
• 7:26
  Speaker 1: things like that. Just some smart dudes, and we always
• 7:28
  Speaker 1: appreciate getting a few minutes of their time. Michael thirty
• 7:32
  Speaker 1: foot view. I want your perspective. What are we seeing today?
• 7:34
  Speaker 1: How are you viewing this company, this stock and this space.
• 7:39
  Speaker 1: You know, Paul, you know you brought that reference to
• 7:41
  Speaker 1: a O L. This is not a L because there
• 7:44
  Speaker 1: was a lot of fraud and you well, we know,
• 7:46
  Speaker 1: but you remember the stock right that when people get
• 7:50
  Speaker 1: these transformational businesses, I don't know how to value them,
• 7:53
  Speaker 1: They don't know how to think about them, so they
• 7:55
  Speaker 1: get super amped up about the longterm growth opportunity to
• 7:58
  Speaker 1: listen to everything. Management says they trust their models more
• 8:02
  Speaker 1: than they trust their logic. Um, and so I'm thinking
• 8:05
  Speaker 1: about this is you know, this is natural. As you said,
• 8:08
  Speaker 1: you know, at some point companies can't raise pricing anymore,
• 8:12
  Speaker 1: they can't add more songs, and then they have to pivot. Um.
• 8:16
  Speaker 1: What surprising me is that just the lack of preparation
• 8:19
  Speaker 1: in the pivot right, And that's I think what keep
• 8:21
  Speaker 1: are reacting to when they read that investor letter and
• 8:24
  Speaker 1: watched the interview, Like, wow, these guys steam a surprised
• 8:27
  Speaker 1: at anyone about what's happening and why wouldn't they know
• 8:30
  Speaker 1: more about their business then even those you know, slow
• 8:33
  Speaker 1: south side analysts, you know, So what what did happen that? Um?
• 8:39
  Speaker 1: You know, it was such a sudden shock to everyone.
• 8:43
  Speaker 1: And um, now of course we were talking about this earlier. UM,
• 8:48
  Speaker 1: they used to think people stealing accounts or passwords was
• 8:53
  Speaker 1: just the cost of doing business. Now they're like, oh, man,
• 8:55
  Speaker 1: there's a hundred million households they are paying. We need
• 8:58
  Speaker 1: to get like a portion of them. Yeah, Like it's
• 9:01
  Speaker 1: really interesting. So we we've asked over and over again
• 9:04
  Speaker 1: like what is what's going on within the US and
• 9:06
  Speaker 1: why do you why are you so bullish about you know,
• 9:09
  Speaker 1: how much more of the US can grow there at
• 9:10
  Speaker 1: seventy million or so? And they never acknowledge that there
• 9:13
  Speaker 1: was this much password sharing with it within the US. UM.
• 9:17
  Speaker 1: But if you add the pastor share in too the
• 9:18
  Speaker 1: U S base, you're like, wow, you're really are at
• 9:21
  Speaker 1: where the U S p TV market hit a wall,
• 9:23
  Speaker 1: which is a hundred million subs. So the challenge is
• 9:26
  Speaker 1: going to be you know, people like me who pay,
• 9:29
  Speaker 1: you know, not almost twenty bucks a month for four
• 9:30
  Speaker 1: Simultan streams. And I'm thinking, you know, maybe that's something
• 9:34
  Speaker 1: that's allowed for my you know, college age kids or
• 9:38
  Speaker 1: when I travel. The question is, you know, how are
• 9:40
  Speaker 1: they gonna get me to actually now pay for someone
• 9:42
  Speaker 1: who's out of my house, like a college student who's
• 9:45
  Speaker 1: using my account but he's a household member. Right. It's
• 9:48
  Speaker 1: like to me, there's a real question. This is why
• 9:50
  Speaker 1: they even so reluctant to do it, because it does
• 9:53
  Speaker 1: create some ill will, right, Like I've always paid more
• 9:55
  Speaker 1: for Netflix for the optionality used on the road or
• 9:58
  Speaker 1: have other family members, you was it out of the house,
• 10:01
  Speaker 1: But now what's the rule? And I just think they're
• 10:04
  Speaker 1: they're the devil's gonna in the details here and it
• 10:07
  Speaker 1: could create some ill will, and I think that's why
• 10:10
  Speaker 1: they haven't wanted to change. Well and is it is
• 10:13
  Speaker 1: it going to be difficult because I, um, you know,
• 10:16
  Speaker 1: have a Netflix account and I have four brothers who
• 10:20
  Speaker 1: live all in different parts of the world. I don't
• 10:23
  Speaker 1: know for sure, but I'm pretty sure when I see
• 10:27
  Speaker 1: like most watched or recent history. I'm like, I didn't,
• 10:30
  Speaker 1: I didn't watch that. You know, I'm pretty sure one
• 10:32
  Speaker 1: of my kid brothers is using it. And Netflix must know,
• 10:36
  Speaker 1: right when my password is being used simultaneously in Berlin,
• 10:40
  Speaker 1: Scarsdale and l A. Right, don't they get that? Yes,
• 10:45
  Speaker 1: they do get that, and it's one of it was
• 10:47
  Speaker 1: one of the value adds, right, like, hey, we don't
• 10:49
  Speaker 1: you know, let's look the other way. We're charging twenty bucks.
• 10:53
  Speaker 1: It's worth it, you guys a lot of the product.
• 10:56
  Speaker 1: But now they're running out of room. Right, So the
• 10:58
  Speaker 1: question is gonna be if if you're paying for the
• 11:02
  Speaker 1: four sound town of streams and only they're two in
• 11:05
  Speaker 1: your house, well, you're gonna spin down. And will your
• 11:09
  Speaker 1: family members actually want to pay for it? Like, we
• 11:12
  Speaker 1: don't know, they're happy to get it for free. Um,
• 11:15
  Speaker 1: but it's it's definitely it opens up a bunch of questions, right,
• 11:19
  Speaker 1: And look, if the stock was cheaper, and it's definitely
• 11:21
  Speaker 1: getting cheaper, I would have some optionality. I bet on
• 11:24
  Speaker 1: the optionality of that. But we're still working our way
• 11:27
  Speaker 1: through kind of what the right right pricing is the
• 11:30
  Speaker 1: model that we see in front of us, Right, it's
• 11:32
  Speaker 1: getting cheaper. So you think it's getting it's getting cheaper,
• 11:34
  Speaker 1: because a little bit later we're gonna talk to Laura Martin.
• 11:36
  Speaker 1: She's like the soul analyst on the street who's upgraded
• 11:39
  Speaker 1: in Yeah. Well yeah, to our credit, she was even
• 11:42
  Speaker 1: more negative than I was. She just selling stock. Yeah,
• 11:45
  Speaker 1: it's hard to I mean basically it's gonna it's gonna
• 11:48
  Speaker 1: get cheaper because as you know, you're going from this
• 11:51
  Speaker 1: growth stock to growth purgatory, right, and as it gets
• 11:56
  Speaker 1: to the value, we camp you need cash onw and
• 11:57
  Speaker 1: earnings to have people come in and buy it. You're
• 12:00
  Speaker 1: kind of in this nowhere land, right, and this is
• 12:02
  Speaker 1: our reference kind of where you know you you noted
• 12:04
  Speaker 1: it that you know twenty years ago we saw the
• 12:07
  Speaker 1: same thing and it just takes a while for investor
• 12:11
  Speaker 1: bass to turn over because there's a lot of evaluation
• 12:14
  Speaker 1: support on things like cash flow. It's going to just
• 12:16
  Speaker 1: take a while, right, New people show up, and so
• 12:21
  Speaker 1: it's it's you know, I think they need to have
• 12:23
  Speaker 1: better answers on how they're gonna roll out the passer
• 12:26
  Speaker 1: cheering and the ad model. Like it seems like again
• 12:29
  Speaker 1: like they were not prepared. Yeah, that's that's kind of
• 12:31
  Speaker 1: what it came across to me. So we'll see how
• 12:33
  Speaker 1: this plays out. Michael Nathanson, founding partner and senior Research
• 12:35
  Speaker 1: Channels MOFA. Nathan's all right, let's check in on the economy.
• 12:42
  Speaker 1: Here are we getting a recession this year and next year?
• 12:44
  Speaker 1: It's checking with Brad Dalmon, chief economists for Courtland. Um. Brad,
• 12:48
  Speaker 1: you know, one of the things when we think about
• 12:51
  Speaker 1: this economy, what has really struck me is how strong
• 12:54
  Speaker 1: the housing market has been really since day one of
• 12:56
  Speaker 1: this pandemic. And we got some new housing starts a
• 12:59
  Speaker 1: couple of days ago were that were very strong. What's
• 13:01
  Speaker 1: your view? Is this market peaked? Are we going to
• 13:03
  Speaker 1: roll over a little bit in terms of just real
• 13:06
  Speaker 1: estate in this country? You think you be a peak
• 13:09
  Speaker 1: of sorts? Right? You've seen the mortgage rates go up,
• 13:13
  Speaker 1: but you can already see indications that the housing market's
• 13:15
  Speaker 1: gonna cool a little bit, if it's slowing home price appreciation,
• 13:19
  Speaker 1: if it's more supply starting to pick up on the market.
• 13:23
  Speaker 1: Um So, in that sense, as certainly a peak, but
• 13:25
  Speaker 1: I don't think anybody's expecting home prices to come down structurally.
• 13:30
  Speaker 1: Is so we also saw a drop in existing home sales.
• 13:35
  Speaker 1: But that's just because there's not enough inventory, well not
• 13:37
  Speaker 1: just because it's also due to rising mortgage rates. What
• 13:41
  Speaker 1: kind of effect is that going to have? Especially if
• 13:44
  Speaker 1: what are we at right now four and a half
• 13:46
  Speaker 1: almost five percent, What if mortgage rades get to six
• 13:48
  Speaker 1: or seven, I think we'll see a demonsta will flow
• 13:51
  Speaker 1: down and activity. There's been a big narrative that a
• 13:54
  Speaker 1: lot of the upward pressure at home prices has been
• 13:57
  Speaker 1: because of low listed inventory. Now it's think we'll see
• 14:01
  Speaker 1: just how that theory is tested when mortgage rates do
• 14:04
  Speaker 1: go up. I think a lot of people will be
• 14:06
  Speaker 1: shocked to see just how quickly home price appreciation slows down.
• 14:10
  Speaker 1: I can't believe more inventory hasn't come out, by the way, Brad,
• 14:13
  Speaker 1: because I know multiple people who want to sell but
• 14:18
  Speaker 1: are on the fence about when to do it, and
• 14:22
  Speaker 1: now they're starting to rub their hands together, um about
• 14:27
  Speaker 1: these mortgage rates and worrying, worrying that they waited too long.
• 14:31
  Speaker 1: I would tend to agree with that. I think they
• 14:33
  Speaker 1: probably have if that's really the position they're in. Maybe
• 14:36
  Speaker 1: one exception to that will be you know, we all
• 14:37
  Speaker 1: know about the rate hikes that are expected to be coming.
• 14:40
  Speaker 1: Maybe that first double rate hike will shave fifty basis
• 14:42
  Speaker 1: points off the tenure treasure rate and kind of bring
• 14:45
  Speaker 1: mortgage rates back down for a little bit. All right,
• 14:48
  Speaker 1: So when we talk about, like I guess, new housing construction,
• 14:52
  Speaker 1: what I hear a lot is they're just not building
• 14:54
  Speaker 1: the entry level inventory. Builders are too focused on the
• 14:57
  Speaker 1: McMansions because obviously higher better margin. When we do look
• 15:01
  Speaker 1: at new housing production coming onto the market, are we
• 15:04
  Speaker 1: seeing any entry level It depends on really how you
• 15:07
  Speaker 1: wanted to define it. I mean, all this new construction
• 15:10
  Speaker 1: is going to happen on the margin. It's very difficult
• 15:12
  Speaker 1: to provide this entry level housing without some kind of
• 15:15
  Speaker 1: subsidy of any locations. But we can broaden the scope
• 15:18
  Speaker 1: of what housing really is and we can look to
• 15:20
  Speaker 1: rental housing in many ways as being entry level housing.
• 15:23
  Speaker 1: That to say, for that new household that's going to
• 15:25
  Speaker 1: go out and form. If we look at these healthy
• 15:27
  Speaker 1: starts that just came out, we did actually see an
• 15:29
  Speaker 1: uptick in in five bedroom plus multi family units housing starts.
• 15:34
  Speaker 1: So I think in that sense, we are building that
• 15:36
  Speaker 1: kind of product. And we looked at the ownership side
• 15:38
  Speaker 1: obviously it's a little bit of a different story, all right, Brad,
• 15:41
  Speaker 1: good stuff. Appreciate getting your thoughts here on the overall
• 15:44
  Speaker 1: real estate. We make some great points, by the way,
• 15:47
  Speaker 1: especially when it comes to a rate hike. I'll note
• 15:50
  Speaker 1: this morning Bank America um UH went bullish on US treasuries.
• 15:56
  Speaker 1: They say, now the tenure yield is going to come
• 15:58
  Speaker 1: down to two twenty five really, and right now we're
• 16:01
  Speaker 1: hovering around to nine. And that's the idea, the same
• 16:03
  Speaker 1: thing that Brad said, you know, you get, you get
• 16:05
  Speaker 1: a raid hike, and that attracts that investors to come
• 16:08
  Speaker 1: back in and they bring the yield, push the yields down. Interesting,
• 16:12
  Speaker 1: the ten year treasury two point We were here at
• 16:14
  Speaker 1: two to seven. Interesting, right, Brad Dalman, chief economists for Courtland.
• 16:23
  Speaker 1: You know, Matt. In my career, I've seen a lot
• 16:25
  Speaker 1: of sectors, a lot of stocks that have been subscriber
• 16:29
  Speaker 1: momentum stocks, cable stock, sellier, telephone stocks, America Online back
• 16:33
  Speaker 1: in the day, UH and now Netflix. And boy, when
• 16:37
  Speaker 1: that momentum slows or reverses, you don't want to be
• 16:40
  Speaker 1: anywhere near it. And that's what's happening today. Stocks down
• 16:43
  Speaker 1: thirty six percent off of their earnings print last night.
• 16:45
  Speaker 1: We have one of the smartest people on Wall Street
• 16:49
  Speaker 1: for this stuff, law Martin. She's managing director Senior Media
• 16:52
  Speaker 1: and Internet Analysts at need Hum. Laura Boy tough quarter
• 16:56
  Speaker 1: for the friends at Netflix, but and had find downgrades
• 17:00
  Speaker 1: on Wall Street. But then I see Laura Martin upgrades
• 17:03
  Speaker 1: a stock today. What's your call? Are right? So our
• 17:06
  Speaker 1: call was so we had to sell on it before
• 17:09
  Speaker 1: and now we really like the fact that they've done
• 17:11
  Speaker 1: the inevitable, which is announced in advertising tier. So one
• 17:15
  Speaker 1: of their big problems was that they were sitting in
• 17:17
  Speaker 1: an eighteen dollar price point when they had five competitors
• 17:20
  Speaker 1: at a five dollar price point. And Disney and HBO
• 17:24
  Speaker 1: Max have both announced they're going to have a lower
• 17:27
  Speaker 1: priced ad tier, so this is great. They're catching up.
• 17:30
  Speaker 1: Netflix is catching up, And I think the most important point,
• 17:34
  Speaker 1: Paul is that these Silicon Valley companies have a real
• 17:36
  Speaker 1: not invented here problem, and Netflix needs to look around
• 17:40
  Speaker 1: and see what his competitors are doing better than it
• 17:43
  Speaker 1: and adapt faster. Before everyone has an ad driven tier.
• 17:46
  Speaker 1: They need to get there two years earlier than they
• 17:48
  Speaker 1: did this time. And I'm hoping that this lesson makes
• 17:51
  Speaker 1: some innovative faster based on what other people are already
• 17:54
  Speaker 1: doing the market place. So first of all, um, you
• 17:57
  Speaker 1: got some big props earlier from Michael Nathanson who said
• 18:00
  Speaker 1: you've been right on this stock. Um. And secondly, UM,
• 18:06
  Speaker 1: I wonder what you think about the content. Um. You know,
• 18:09
  Speaker 1: obviously there have been some huge drivers for Netflix. I
• 18:12
  Speaker 1: feel like House of Cards may have been the biggest one.
• 18:14
  Speaker 1: It was one of those shows where everybody talked about it,
• 18:19
  Speaker 1: everybody had to see it, and it was just a
• 18:23
  Speaker 1: reason to go out and get Netflix. They've had a
• 18:25
  Speaker 1: few of a few of those shows, um, but it
• 18:28
  Speaker 1: doesn't seem like to have them right now. I mean,
• 18:30
  Speaker 1: nobody's tripping over themselves to get Netflix for Britain right correct.
• 18:35
  Speaker 1: And I think Squid Games was one of those shows.
• 18:38
  Speaker 1: But the problem is is, you know, you're a longtime
• 18:40
  Speaker 1: media analyst with me, and as you know, you know
• 18:43
  Speaker 1: when you drop eight hours of squid Games all at once,
• 18:46
  Speaker 1: somebody can pay for the month and then churn out
• 18:48
  Speaker 1: that's dumb. They should be dropping these once a week
• 18:51
  Speaker 1: and have to and do it mid months, So you
• 18:53
  Speaker 1: have to subscribe for three months to watch with Games
• 18:56
  Speaker 1: eight hours. Absolutely, we're talking about that earlier because I'm
• 19:00
  Speaker 1: noticed Apple TV is doing that right. You have to
• 19:02
  Speaker 1: wait until next Friday to see the following episode of
• 19:06
  Speaker 1: For All Mankind or Slow Horses? Is Netflix had they
• 19:10
  Speaker 1: said anything about going that way? They have not. They've
• 19:13
  Speaker 1: specifically said they're not going to go that way because
• 19:16
  Speaker 1: they think it's a better user experience. But I think
• 19:18
  Speaker 1: they need to start balancing shareholder constituencies. And by the way,
• 19:23
  Speaker 1: they're going to start losing employees because the stock is
• 19:25
  Speaker 1: now down to two eight levels, so everybody who's joined
• 19:29
  Speaker 1: the last four years is making no money on their
• 19:31
  Speaker 1: stock for the indefinite future. So they're going to start
• 19:33
  Speaker 1: losing employees unless they figure out how to make more
• 19:35
  Speaker 1: economics out of the content spend there they have on
• 19:38
  Speaker 1: their balance sheet. Matt, you want to know why. One
• 19:41
  Speaker 1: of the reasons why law Martin's had such a long
• 19:43
  Speaker 1: and successful career on Wall Streets many reasons, very smart research,
• 19:47
  Speaker 1: but not afraid to go against consensus. So what do
• 19:50
  Speaker 1: we see today nine down grades from all across Wall
• 19:53
  Speaker 1: Street and then we get this upgrade that is out
• 19:55
  Speaker 1: of consensus. That gets attention. Laura, is your upgrade saying,
• 20:00
  Speaker 1: you know, hey, I think they've got it. As it
• 20:02
  Speaker 1: relates to advertising video on demand, Is it based on valuation?
• 20:06
  Speaker 1: How did you kind of come to that, because that's
• 20:08
  Speaker 1: a tough call to make, right. So I think it's
• 20:11
  Speaker 1: based mostly on the fact that I think adding an
• 20:14
  Speaker 1: ad driven TAM doubles their um ad driven t here
• 20:18
  Speaker 1: of doubles their total addressable market and increases their average
• 20:22
  Speaker 1: economics per user, because we are hearing from other firms
• 20:27
  Speaker 1: that adding advertising actually generates more revenue than just whatever
• 20:31
  Speaker 1: your subscription prices. So we actually think that they will
• 20:34
  Speaker 1: have higher value per sub than people than our our
• 20:38
  Speaker 1: competitors think. So, Lauren, you and I we grew up
• 20:42
  Speaker 1: in the media ecosystem where everybody made money the cable systems,
• 20:47
  Speaker 1: that cable networks, I mean, the content creators. The only
• 20:51
  Speaker 1: people that really paid were the consumers, and that was
• 20:52
  Speaker 1: a great economic model for the media ecosystem. Are people
• 20:57
  Speaker 1: questioning whether the streaming ecosystem can be a viable economic model, Yes,
• 21:06
  Speaker 1: they are today. There's three questions. One is how many
• 21:09
  Speaker 1: streamers are they're out there too, Is it a positive
• 21:13
  Speaker 1: return on content capital or is this just going to
• 21:15
  Speaker 1: be a money, losing sinkhole indefinitely UM. And then third,
• 21:20
  Speaker 1: you know what's going on with the unit economics UM
• 21:24
  Speaker 1: for the for individual specific stocks like Netflix is clearly
• 21:28
  Speaker 1: today seen as a loser in the streaming wars, having
• 21:31
  Speaker 1: nothing to do with the total addressable market size. But
• 21:34
  Speaker 1: all those three questions are being asked today, and you know,
• 21:36
  Speaker 1: again when the other stocks are down. Yeah, there are
• 21:39
  Speaker 1: a lot of the other media stocks as well that
• 21:40
  Speaker 1: have made the pivot toward towards streaming. I guess it
• 21:43
  Speaker 1: kind of begs a question of again, these networks, whether
• 21:46
  Speaker 1: you're a broadcast network or cable network and you had
• 21:48
  Speaker 1: a lot of original programming, your programming budgets were a
• 21:51
  Speaker 1: billion five two billion, three billion. Now these streaming services
• 21:55
  Speaker 1: and even the media companies who are supporting streaming services
• 21:59
  Speaker 1: ten billion, fifty billion, twenty billion dollars. Boy, with that
• 22:03
  Speaker 1: cost structure, that fixed cost structure, do we need to
• 22:05
  Speaker 1: see a shake out here in this marketplace? Laura, I
• 22:09
  Speaker 1: think you get consolidation. Netflix is getting cheaper by the day,
• 22:13
  Speaker 1: but you need to insolidation. So I mean, I think
• 22:15
  Speaker 1: clear winners to date are YouTube and a vaud and
• 22:18
  Speaker 1: advertising driven on a man in the spot which is subscribers.
• 22:22
  Speaker 1: I think the Disney bundle is really compelling. Hulu plus
• 22:25
  Speaker 1: Disney plus plus um SPM plus for ten bucks. Now
• 22:30
  Speaker 1: that's a compelling UM value proposition. And I think this
• 22:34
  Speaker 1: Discovery Warner bundle, when they put all those I think
• 22:38
  Speaker 1: that's really interesting. Um Netflix doesn't have anything interesting so far,
• 22:42
  Speaker 1: so it might get bought, or it might have to
• 22:44
  Speaker 1: buy Paramount or something which is a little too small. Now.
• 22:47
  Speaker 1: So I do think you get consolidation, Paul, because these
• 22:49
  Speaker 1: companies are all going to be under margin pressure, and
• 22:51
  Speaker 1: as you know, when you consolidate, you can cut off
• 22:54
  Speaker 1: which helps your earnings. At some point, we'll get to
• 22:56
  Speaker 1: a model where there's one company for each region that
• 23:00
  Speaker 1: puts a set top box in your house and they
• 23:02
  Speaker 1: have all the channels on that box. It sounds kind
• 23:06
  Speaker 1: of like a cable system. It could be called that.
• 23:08
  Speaker 1: You know, analysts like Laura Martin, she has a lot
• 23:11
  Speaker 1: of experience in the spation. She's been right a lot
• 23:13
  Speaker 1: more than she's been wrong. Fantastic career on Wall Street.
• 23:16
  Speaker 1: Laura Martin, Managing Director, Senior Meeting Internet Analysts for need Um.
• 23:21
  Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
• 23:24
  Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever
• 23:28
  Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
• 23:32
  Speaker 1: at Matt Miller three. Put on fall Sweeney I'm on
• 23:35
  Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always
• 23:38
  Speaker 1: catch us worldwide at Bloomberg Radio