1 00:00:00,100 --> 00:00:03,900 While the numbers are out Netflix, loses nine hundred, and 2 00:00:03,900 --> 00:00:06,500 seventy thousand subscribers compared to their forecasts of 3 00:00:06,500 --> 00:00:09,200 losing two million. So even though they still lost 4 00:00:09,200 --> 00:00:12,500 subscribers, this was considered a beat which is good news. 5 00:00:12,500 --> 00:00:15,800 Good news for investors and investors are responding as this 6 00:00:15,800 --> 00:00:18,500 being good news. It's not amazing, they're still 7 00:00:18,500 --> 00:00:21,600 losing subscribers so it wasn't like they swung this back into 8 00:00:21,600 --> 00:00:23,700 the positive and gained a million subscribers that would 9 00:00:23,700 --> 00:00:26,700 have been amazing, but they're not losing quite as many. 10 00:00:26,700 --> 00:00:29,300 And this wasn't disastrous to the point where they lost three 11 00:00:29,300 --> 00:00:31,600 to five million Ian, like some analysts are saying. 12 00:00:31,600 --> 00:00:36,300 So right now, the stock today was up, 5.6% after hours, it's 13 00:00:36,300 --> 00:00:40,000 currently up 7.7 percent as investors are trying to digest 14 00:00:40,000 --> 00:00:42,200 this news. So, having said that, I have the 15 00:00:42,200 --> 00:00:45,200 official earnings report, pulled up on my screen, and I want to 16 00:00:45,208 --> 00:00:48,700 go through this with you and give you my instant reaction and 17 00:00:48,700 --> 00:00:51,300 fresh take on this. So having said that let's go 18 00:00:51,300 --> 00:00:54,500 ahead and Jump Right In before we start just a quick shout out, 19 00:00:54,500 --> 00:00:57,800 this video is sponsored by FTX u.s. if you haven't already use 20 00:00:57,800 --> 00:01:01,500 the pin comment links and The brokerage account its free. 21 00:01:01,900 --> 00:01:05,200 You can you can open it up and use the code Carlson to get $10 22 00:01:05,200 --> 00:01:06,700 when you do a hundred dollar trade now. 23 00:01:06,800 --> 00:01:08,000 Let's go ahead and jump right into this. 24 00:01:08,400 --> 00:01:11,200 July 19, 20 22, that's today just an hour ago. 25 00:01:11,500 --> 00:01:14,600 Fellow shareholders Q2 is better than expected on membership 26 00:01:14,600 --> 00:01:18,000 growth. Used a term growth lightly there 27 00:01:18,000 --> 00:01:21,000 they lost subscribers but it's their membership growth and 28 00:01:21,000 --> 00:01:23,200 foreign exchange was worse than expected stronger. 29 00:01:23,200 --> 00:01:25,300 US dollar. This is something that every 30 00:01:25,300 --> 00:01:28,500 company including Microsoft has to deal with resulting in nine 31 00:01:28,500 --> 00:01:32,200 percent Revenue growth. %, constant currency, constant, 32 00:01:32,200 --> 00:01:35,800 currency for those, not aware means what the growth would have 33 00:01:35,800 --> 00:01:39,300 been had. You - doubt any foreign exchange 34 00:01:39,300 --> 00:01:41,700 issues. So if there wasn't the dollar 35 00:01:41,700 --> 00:01:46,200 going up and down in value, then the 13% constant currency means 36 00:01:46,200 --> 00:01:49,200 they would have had 13 percent Revenue growth, but since there 37 00:01:49,200 --> 00:01:54,200 was foreign exchange changes 9%, was what their growth netted out 38 00:01:54,200 --> 00:01:57,600 to our Challenge and opportunity is to accelerate, our Revenue 39 00:01:57,600 --> 00:01:59,800 membership growth by continuing to improve our product. 40 00:02:00,000 --> 00:02:03,200 Content and marketing, as we've done for the last 25 years. 41 00:02:03,200 --> 00:02:06,200 And to better monetize, our big audience, we're in a position of 42 00:02:06,200 --> 00:02:09,100 strength, given our 30 billion plus in Revenue. 43 00:02:09,400 --> 00:02:12,800 Six billion in operating profit last year, growing free, cash 44 00:02:12,800 --> 00:02:14,900 flow, and strong balance. Sheet are summary. 45 00:02:14,900 --> 00:02:19,300 Results are forecasted and forecasts are below, so they 46 00:02:19,300 --> 00:02:21,100 highlight that they have 30 billion in Revenue. 47 00:02:21,100 --> 00:02:24,000 Six billion in operating profit last year, growing free cash 48 00:02:24,000 --> 00:02:26,800 flow, strong balance sheet, which I agree with all of that. 49 00:02:26,800 --> 00:02:30,500 For the most part. Now we have a summary of 50 00:02:30,500 --> 00:02:32,500 everything right here. Let's go ahead and just take a 51 00:02:32,508 --> 00:02:35,800 look at this for a minute, Global screaming paid members, 52 00:02:36,700 --> 00:02:40,500 they have the forecast here, 220. 53 00:02:40,600 --> 00:02:46,400 So last quarter they ended with 220 million point 600 so 220 54 00:02:46,400 --> 00:02:49,800 million, six hundred and seventy thousand is what they ended this 55 00:02:49,800 --> 00:02:53,400 quarter with last quarter. Before that they had 221 million 56 00:02:53,700 --> 00:02:56,800 six, hundred forty thousand. So they lost the nine hundred 57 00:02:56,800 --> 00:03:00,100 and seventy thousand Ivers. That's right there. 58 00:03:00,100 --> 00:03:04,000 This minus nine point, nine seven and they're expecting to 59 00:03:04,000 --> 00:03:07,100 gain next quarter. It looks like a million 60 00:03:07,100 --> 00:03:11,100 subscribers so that's low. That is low. 61 00:03:11,100 --> 00:03:13,900 They are obviously struggling to grow. 62 00:03:14,400 --> 00:03:16,300 This is an amazing. They're not like, oh, now we're 63 00:03:16,300 --> 00:03:20,100 expected to grow four million, but I'm hoping that Netflix has 64 00:03:20,100 --> 00:03:23,000 learned their lesson and they're doing things the right way, 65 00:03:23,200 --> 00:03:26,300 where they did it like this quarter, they under promised 66 00:03:26,500 --> 00:03:28,600 they'd over-delivered. They said they're going to Lose 67 00:03:28,600 --> 00:03:31,500 two million and they lost less than 1 million. 68 00:03:31,800 --> 00:03:34,800 So if they say they're going to gain 1 million, I hope that 69 00:03:34,800 --> 00:03:37,500 that's a low estimate and they really gain 1.8 million. 70 00:03:37,500 --> 00:03:39,900 It's better than expected. That's what I would hope from 71 00:03:39,900 --> 00:03:42,000 Netflix. I really, really hope they learn 72 00:03:42,000 --> 00:03:45,400 their lesson and they're giving themselves a little bit of a 73 00:03:45,400 --> 00:03:47,900 margin of safety with these forecasts. 74 00:03:48,100 --> 00:03:51,100 But right now that is a 1 million subscriber gain 75 00:03:51,100 --> 00:03:54,300 forecast, which is just slow, this is slow going into next 76 00:03:54,300 --> 00:03:56,800 quarter. Hopefully it picks up the 77 00:03:56,800 --> 00:04:00,500 quarter afterwards, when we get To the the winter seasons when 78 00:04:00,500 --> 00:04:02,900 people are home with their family, people tend to do more 79 00:04:03,300 --> 00:04:06,000 subscriber. They do more streaming, those 80 00:04:06,000 --> 00:04:09,200 type of activities, watching movies, but this quarter, I 81 00:04:09,208 --> 00:04:11,400 believe typically is a bigger one for them. 82 00:04:11,400 --> 00:04:14,900 This upcoming 1, so 1 million is very soft guidance. 83 00:04:14,900 --> 00:04:18,899 But again, my suspicion is it's very similar to this quarter. 84 00:04:19,100 --> 00:04:21,700 They are under promising over-delivering, that's what 85 00:04:21,700 --> 00:04:24,100 they're trying to do. Now, let's go ahead and look at 86 00:04:24,108 --> 00:04:27,200 their cute to results. What they say Revenue, gained 87 00:04:27,300 --> 00:04:32,000 nine percent 13%, excluding the 339 million foreign exchange, 88 00:04:32,700 --> 00:04:36,700 currency impact, driven, by six percent and 2 percent increases 89 00:04:36,700 --> 00:04:40,900 in paid membership and arm average revenue per member 90 00:04:41,400 --> 00:04:44,600 respectively, excluding the impact of Foreign Exchange arm 91 00:04:44,600 --> 00:04:47,500 rows 7% year-over-year. So on a per member basis, 92 00:04:47,500 --> 00:04:50,500 they're still making more money in the asia-pacific region 93 00:04:50,700 --> 00:04:55,100 region, they grew Revenue by Only 3%, that's fast Revenue 94 00:04:55,100 --> 00:04:58,500 growth, 23%, I think this is one of their best regions right now 95 00:04:58,600 --> 00:05:02,100 where they're still growing. Let's take a look here at over 96 00:05:02,100 --> 00:05:05,200 900 million of Revenue. Apex approaching the size of our 97 00:05:05,200 --> 00:05:09,100 Latin America business. We added 1.1 million members in 98 00:05:09,100 --> 00:05:12,300 the region, verse 1 million last Q2. 99 00:05:12,800 --> 00:05:15,400 So they added 1.1 million in Asia Pacific. 100 00:05:15,400 --> 00:05:17,600 This is likely kind of saving Netflix. 101 00:05:18,000 --> 00:05:23,000 This this area they say due to the impact from our price. 102 00:05:23,100 --> 00:05:26,800 In India last December, as well as a plan mix which was parked 103 00:05:26,800 --> 00:05:29,600 partially offset by higher arm and Korea and Australia. 104 00:05:30,000 --> 00:05:34,500 So they actually had Revenue go down because of their price. 105 00:05:34,500 --> 00:05:37,200 Decrease in India, they're lowering prices to be 106 00:05:37,200 --> 00:05:40,100 competitive in India, because in India, it's highly competitive. 107 00:05:40,100 --> 00:05:43,000 They're everyone's trying to get their streaming service in and 108 00:05:43,000 --> 00:05:44,700 usually they charge a couple bucks a month. 109 00:05:45,500 --> 00:05:47,900 So they lowered prices to be more competitive but they say 110 00:05:48,500 --> 00:05:52,500 excluding India, a pack arm grew four percent year-over-year on a 111 00:05:52,508 --> 00:05:59,100 constant current He bases. We have Europe revenue and arm 112 00:05:59,100 --> 00:06:02,000 increased 13% six percent year over year respectively while 113 00:06:02,000 --> 00:06:06,700 paid net ads. Ditions totaled - 800,000 verse 114 00:06:07,100 --> 00:06:12,200 plus two hundred thousand a year ago so they lost a lot in the 115 00:06:12,200 --> 00:06:15,000 European. I believe that's the American 116 00:06:15,000 --> 00:06:19,700 European market revenue and lot of Latin America grew 19 percent 117 00:06:19,700 --> 00:06:23,000 year-over-year excluding FX and surpassed 1 billion. 118 00:06:23,500 --> 00:06:27,300 It's interesting that the The average revenue per user is 119 00:06:27,300 --> 00:06:30,400 increasing while the paid net ads are going down. 120 00:06:30,900 --> 00:06:33,100 So it's just means they have turn. 121 00:06:33,400 --> 00:06:36,000 They have a lot of people paying more and they like the service 122 00:06:36,000 --> 00:06:39,300 they're continuing to watch it. Then they have some light users 123 00:06:39,300 --> 00:06:41,900 on the probably the smaller plans, just saying, you know, I 124 00:06:41,900 --> 00:06:44,000 don't need it for the next couple of months, I'll sign up 125 00:06:44,000 --> 00:06:46,100 later when they have some shows that interest me. 126 00:06:46,400 --> 00:06:49,200 So they have turned every one of these streaming services, every 127 00:06:49,200 --> 00:06:53,300 one of them deal with turn Apple deals with a lot of turn. 128 00:06:53,400 --> 00:06:54,800 They're turning users all the time with Apple. 129 00:06:55,000 --> 00:06:57,600 B plus all these companies are doing this. 130 00:06:57,600 --> 00:07:02,900 So moving on, they say that you can arm and revenue each 131 00:07:02,900 --> 00:07:05,000 increased ten percent year-over-year, excluding the 132 00:07:05,000 --> 00:07:09,900 impact of FX paid. Net ads were - 1.3 million verse 133 00:07:10,200 --> 00:07:14,100 point, four million. So they lost subscribers in both 134 00:07:14,100 --> 00:07:15,500 Europe. They lost subscribers in the 135 00:07:15,500 --> 00:07:18,500 u.s. a lot of subscribers in the u.s. they gain them in Asia 136 00:07:18,500 --> 00:07:20,400 Pacific. So this is probably their 137 00:07:20,400 --> 00:07:22,500 guidance saying we're going to lose about 2 million. 138 00:07:22,700 --> 00:07:24,900 It was these areas but they probably didn't realize. 139 00:07:24,900 --> 00:07:28,400 Why's that asia-pacific Korea. These areas would bail them out 140 00:07:28,400 --> 00:07:30,700 and gain. Gain a million subscribers. 141 00:07:31,300 --> 00:07:34,700 Retention improved over the course of the quarter, and while 142 00:07:34,700 --> 00:07:38,000 churn remains slightly elevated, it is now back to ne'er 143 00:07:38,200 --> 00:07:42,400 pre-priced change levels. So, on their earnings report, 144 00:07:42,400 --> 00:07:44,400 which I haven't listened to their earnings call. 145 00:07:45,000 --> 00:07:48,800 Last one, they said, typically, when we raise prices, it 146 00:07:48,800 --> 00:07:51,900 immediately has an effect of causing turn to go up as people 147 00:07:51,900 --> 00:07:54,800 are frustrated prices, go up, but then it goes back down to 148 00:07:55,000 --> 00:07:57,400 Normal levels of our time, over a quarter or two, it goes back 149 00:07:57,400 --> 00:08:02,100 down, and the price increases are very accretive overall to 150 00:08:02,100 --> 00:08:04,500 revenue. Meaning the amount of money they 151 00:08:04,500 --> 00:08:07,300 make from the people that stay in Netflix, compared to the 152 00:08:07,300 --> 00:08:10,100 amount of people they lose. Overall, they gained a lot of 153 00:08:10,100 --> 00:08:12,900 Revenue in the process. So even though it looks bad, 154 00:08:12,900 --> 00:08:15,400 because they lose some subscribers to price increases 155 00:08:15,600 --> 00:08:19,300 overall, the business pulls in more Revenue, We adjusted our 156 00:08:19,300 --> 00:08:22,100 cost structure for a current rate of Revenue growth. 157 00:08:22,300 --> 00:08:25,800 This results in approximately 70 million of severance costs and 158 00:08:25,800 --> 00:08:28,100 an 80 million non-cash impairment of certain. 159 00:08:28,400 --> 00:08:31,300 Real estate lease is primarily related to right-sizing or 160 00:08:31,300 --> 00:08:34,100 office footprint. No, surprise Netflix has been 161 00:08:34,500 --> 00:08:36,600 doing layoffs in and firing people. 162 00:08:36,700 --> 00:08:41,900 They have an incredibly generous compensation severance package. 163 00:08:41,900 --> 00:08:44,600 When, when you get laid off at Netflix, you get paid for a long 164 00:08:44,600 --> 00:08:48,700 time, full salary with benefits, they really try to Treat their 165 00:08:48,700 --> 00:08:50,400 employees. Well, so when they leave, they 166 00:08:50,400 --> 00:08:53,200 can leave any time and be happy and they can transition to a new 167 00:08:53,200 --> 00:08:56,100 job. But anyways, that's the 70 168 00:08:56,100 --> 00:08:58,200 million dollars. They're excluding these items 169 00:08:58,200 --> 00:09:01,200 totaling 150 million. The FX impact of the stronger 170 00:09:01,200 --> 00:09:04,600 dollar since the last April report operating profit and 171 00:09:04,600 --> 00:09:07,500 operating margins were slightly ahead of our guidance forecast 172 00:09:07,900 --> 00:09:10,600 earnings per share. Nobody ever pays attention to 173 00:09:10,600 --> 00:09:12,400 the earnings per share of debt Flex even though they've been 174 00:09:12,400 --> 00:09:16,000 steadily beating it every quarter every year they've been 175 00:09:16,000 --> 00:09:19,300 crushing their earnings per share, Projections growing their 176 00:09:19,300 --> 00:09:21,600 EPS, but investors don't really care about it. 177 00:09:21,600 --> 00:09:23,100 They care about the subscriber numbers. 178 00:09:23,400 --> 00:09:29,100 EBS, have three $23.20 compared 22.97 a year ago, exceeded our 179 00:09:29,100 --> 00:09:32,600 guidance of three dollars due to a 305 million non-cash 180 00:09:32,700 --> 00:09:36,400 unrealized gain from FX remeasurement on our Euro 181 00:09:37,400 --> 00:09:40,700 denominated debt, which is recognized below the net income. 182 00:09:40,800 --> 00:09:45,400 All right, so they beat their own, internal earnings report. 183 00:09:45,400 --> 00:09:48,200 Now I think when I look at this and compare let's see. 184 00:09:50,000 --> 00:09:54,300 Let's see what the street hat on this compare this EPS forecast 185 00:09:54,800 --> 00:09:57,600 earnings per share, three dollars and twenty cents versus 186 00:09:57,600 --> 00:10:00,100 the streets, two dollars and Ninety Four Cents. 187 00:10:00,300 --> 00:10:05,200 So they they beat their EPS by a wide margin, their revenue. 188 00:10:05,200 --> 00:10:08,400 Seven point nine seven billion versus eight point three five 189 00:10:08,400 --> 00:10:11,300 billion which the analysts expected the reason they didn't 190 00:10:11,300 --> 00:10:14,400 beat that was the 300 million from foreign exchange impacts. 191 00:10:14,400 --> 00:10:17,800 That's the reason that I think Microsoft might have a tough 192 00:10:17,800 --> 00:10:20,100 time with their Next report that foreign exchange is going to 193 00:10:20,100 --> 00:10:23,200 crush them with the amount of globally, Diversified business 194 00:10:23,200 --> 00:10:24,800 day. Do and then, of course the 195 00:10:24,800 --> 00:10:27,600 global paid. Net ads 970,000 versus the 22 196 00:10:28,000 --> 00:10:31,800 million so across the board, their earnings report in terms 197 00:10:31,800 --> 00:10:33,500 of eps. So it's actually good. 198 00:10:33,900 --> 00:10:36,800 There are subscribers came in better than expected their 199 00:10:36,800 --> 00:10:38,600 forecasts. We read that they're going to be 200 00:10:38,600 --> 00:10:41,200 forecasting 1 million, but let's go ahead and let them explain 201 00:10:41,200 --> 00:10:43,000 this. As a reminder, the quarterly 202 00:10:43,000 --> 00:10:46,100 guidance, we provide is our actual internal forecast at the 203 00:10:46,100 --> 00:10:49,300 time we report. Sure that that's what they 204 00:10:49,300 --> 00:10:51,900 officially say. I'm hoping they give themselves 205 00:10:51,900 --> 00:10:55,100 a little wiggle room. I hope 1 million forecast is on 206 00:10:55,100 --> 00:10:57,500 the low side and it really comes out better. 207 00:10:58,100 --> 00:11:01,600 As always we strive for accuracy, although the current 208 00:11:01,600 --> 00:11:04,400 uncertain macroeconomic environment leads to less than 209 00:11:04,400 --> 00:11:07,500 normal visibility. The US dollar continues to 210 00:11:07,508 --> 00:11:10,800 strengthen meaningfully against most currencies at a historic 211 00:11:10,800 --> 00:11:12,900 Pace with the Euro recently falling below. 212 00:11:12,900 --> 00:11:16,000 The US dollar for the first time in two decades, a significant 213 00:11:16,000 --> 00:11:20,300 headwind for almost National us companies, we have high exposure 214 00:11:20,300 --> 00:11:23,300 to the unprecedented appreciation and USD because 215 00:11:23,300 --> 00:11:26,900 nearly 60 percent of our Revenue comes from outside of the US and 216 00:11:26,900 --> 00:11:31,000 Swings in FX have large flow through to our operating profit 217 00:11:31,000 --> 00:11:34,500 as most other expenses are in USD and don't benefit from the 218 00:11:34,500 --> 00:11:38,100 stronger USD. So they earn a lot of money 219 00:11:38,100 --> 00:11:40,900 outside of the US. They bring that money in and get 220 00:11:40,900 --> 00:11:43,200 hurt by the FX and all their expenses. 221 00:11:43,200 --> 00:11:45,900 All the things to run the business, all their content 222 00:11:45,900 --> 00:11:47,400 creation is mostly for the most part. 223 00:11:47,500 --> 00:11:50,500 Art done with in the US. That's a very unfavorable 224 00:11:50,500 --> 00:11:53,600 situation to be in for Netflix for any other company that has a 225 00:11:53,600 --> 00:11:57,100 lot of expenses in the US like Microsoft that has a lot of 226 00:11:57,100 --> 00:12:02,300 Revenue outside of the US. Our Q3 Revenue growth forecast 227 00:12:02,300 --> 00:12:05,200 of 5% translates into 12 percent year-over-year, Revenue growth 228 00:12:05,500 --> 00:12:09,000 on a constant currency basis, that's still decent Revenue. 229 00:12:09,000 --> 00:12:12,700 Growth 12%. They say, similarly, excluding 230 00:12:12,700 --> 00:12:17,500 the impact of currency operating profits should grow by growth. 231 00:12:17,500 --> 00:12:21,500 Should be minus 3%, a year versus our forecast decline of 232 00:12:21,500 --> 00:12:26,200 29% and operating, margin would be 20% versus our forecast of 16 233 00:12:26,200 --> 00:12:27,900 percent. As we have written in the past 234 00:12:27,900 --> 00:12:31,500 over the medium term, Intend to continue to adjust our business 235 00:12:31,500 --> 00:12:34,500 as appropriate, given the relative strength of USD to 236 00:12:34,500 --> 00:12:37,500 protect our operating margins and try to avoid immediate 237 00:12:37,500 --> 00:12:39,400 action. That would, that we believe 238 00:12:39,400 --> 00:12:41,500 would be detrimental to the business. 239 00:12:41,900 --> 00:12:45,700 So they need to rejigger and reposition the business because 240 00:12:45,700 --> 00:12:48,700 of the for an experiment, foreign exchange currency 241 00:12:48,700 --> 00:12:53,100 issues. We forecast paid net adds a Q3 242 00:12:53,200 --> 00:12:58,400 some next quarter of plus 1 million versus 4.4 million in 243 00:12:58,400 --> 00:13:02,400 the year according order ago. This is not great as a Netflix 244 00:13:02,400 --> 00:13:06,100 shareholder forecasting, 1 million gain verse 4 million 245 00:13:06,100 --> 00:13:08,600 last year. This is not the original thesis. 246 00:13:08,800 --> 00:13:11,000 When I originally invested in Netflix, I thought they would 247 00:13:11,000 --> 00:13:15,000 continue to grow at least 34 million a quarter, nothing 248 00:13:15,000 --> 00:13:16,900 crazy. I wasn't expecting covid like 249 00:13:16,900 --> 00:13:19,400 growth, but at least a couple million a quarter because 250 00:13:19,400 --> 00:13:21,800 there's hundreds of millions of families out there. 251 00:13:21,800 --> 00:13:25,700 They're forecasting 1 million subscriber gain next quarter. 252 00:13:25,800 --> 00:13:28,900 It's just slow. We continue to expect full year. 253 00:13:29,400 --> 00:13:31,900 To operating margin of 19, to 20 percent. 254 00:13:32,100 --> 00:13:35,300 Excluding the unanticipated, 150 million of restructuring costs, 255 00:13:35,300 --> 00:13:39,600 and Q2 noted above, and the material movement, and FX from 256 00:13:39,600 --> 00:13:43,400 January 2020 to, as our guidance, was set based on FX at 257 00:13:43,400 --> 00:13:46,600 the time. So they're basically using the 258 00:13:46,600 --> 00:13:48,900 foreign exchange as an excuse for not hitting some of their 259 00:13:48,900 --> 00:13:51,300 targets here, which I think is a valid excuse. 260 00:13:51,300 --> 00:13:53,600 We seen Microsoft lower their guidance for the very same 261 00:13:53,600 --> 00:13:56,500 reason. Lots of companies, this earnings 262 00:13:56,500 --> 00:13:59,200 season, I think are going to get hurt by that content, marketing 263 00:13:59,200 --> 00:14:02,100 product last quarter, we discussed are slowing Revenue 264 00:14:02,100 --> 00:14:05,000 growth, which we believe is result of the connected TV 265 00:14:05,000 --> 00:14:08,700 adoption account, sharing competition, and macro factors 266 00:14:08,700 --> 00:14:12,500 as sluggish economic growth and the impacts of the war in 267 00:14:12,500 --> 00:14:14,700 Ukraine. We've now had more time to 268 00:14:14,700 --> 00:14:18,500 understand these issues, as well as how to best address them. 269 00:14:18,500 --> 00:14:21,900 First, and foremost, we need to continue to improve all aspects 270 00:14:21,900 --> 00:14:23,500 of Netflix. This focus on improving. 271 00:14:23,500 --> 00:14:27,100 Our core service has served Well over the past 25 years and 272 00:14:27,100 --> 00:14:30,100 remains our North Star to drive, continuous growth. 273 00:14:30,300 --> 00:14:33,600 It's why we strive for an Ever better content marketing product 274 00:14:33,600 --> 00:14:37,400 experience. Also a pure play streaming 275 00:14:37,400 --> 00:14:41,300 business where unencumbered by Legacy revenue streams. 276 00:14:41,500 --> 00:14:44,700 This Freedom means that we can offer big movies, direct to 277 00:14:44,700 --> 00:14:48,700 Netflix without the need for extended or exclusive theatrical 278 00:14:48,700 --> 00:14:52,500 windows and let members binge watch TV if they want without 279 00:14:52,500 --> 00:14:54,900 having to wait for a new episode to drop each week. 280 00:14:55,000 --> 00:14:58,400 Eek I think this is a mistake. I think Netflix needs to ditch 281 00:14:58,400 --> 00:15:01,100 this one. They have key series key series. 282 00:15:01,100 --> 00:15:04,100 Like stranger things. It should be like the NBA 283 00:15:04,100 --> 00:15:06,700 Playoffs every week. You just have this massive 284 00:15:06,700 --> 00:15:09,100 two-hour episode to look forward to a stranger things. 285 00:15:09,500 --> 00:15:15,100 It gives time for YouTubers to make videos and fairies and read 286 00:15:15,100 --> 00:15:18,600 it to post about it and discuss episodes and for cooler, you 287 00:15:18,600 --> 00:15:21,700 know, the cooler talk, right? You don't have that one, you 288 00:15:21,700 --> 00:15:24,400 just release it on a day. I think it just, it makes it 289 00:15:24,400 --> 00:15:28,100 tough for Netflix to keep to keep people subscribed when they 290 00:15:28,100 --> 00:15:31,300 release all their key content in one go in one weekend. 291 00:15:31,800 --> 00:15:34,500 So this is something that I think strategically Netflix is 292 00:15:34,500 --> 00:15:37,000 making mistake on. I wish they dragged out as an 293 00:15:37,000 --> 00:15:41,900 investor their their key series longer than they do from a user 294 00:15:41,900 --> 00:15:43,400 experience. I do like that, they just 295 00:15:43,400 --> 00:15:46,600 release it all at once, but from an investment side, I think they 296 00:15:46,600 --> 00:15:49,000 should take the strategy of Disney, some of their key 297 00:15:49,000 --> 00:15:50,300 series. I think they should drag out 298 00:15:50,300 --> 00:15:54,400 longer this focus on choice and control for members influences. 299 00:15:54,400 --> 00:15:56,500 All Ex of our strategy creating what? 300 00:15:56,500 --> 00:15:59,400 We believe to be a significant long-term business Advantage. 301 00:15:59,600 --> 00:16:02,500 Our content offering is designed to satisfy a broad range of 302 00:16:02,500 --> 00:16:05,600 member taste and providing an unmatched variety on quality 303 00:16:05,600 --> 00:16:10,000 titles are Q2 slate is emblematic of this approach. 304 00:16:10,100 --> 00:16:12,900 Headlines by season, for stranger things, which returned 305 00:16:12,900 --> 00:16:16,100 to tremendous fan reception and was a smash hit by all measures 306 00:16:16,400 --> 00:16:20,500 including an outstanding drama Emmy, nomination along with 307 00:16:20,500 --> 00:16:23,900 Ozark and Squid game, yada yada. They're going to brag a little 308 00:16:23,900 --> 00:16:27,200 bit about their series. Stranger things season for 309 00:16:27,200 --> 00:16:31,100 generated 1.3 billion hours viewed making it our biggest 310 00:16:31,100 --> 00:16:34,100 season of English TV ever. They always have to say English 311 00:16:34,100 --> 00:16:36,100 TV. After squid game crushed every 312 00:16:36,100 --> 00:16:40,000 single record season, for also reignited interest in past 313 00:16:40,000 --> 00:16:43,100 episodes with season 1 through 3, experiencing a greater than 314 00:16:43,100 --> 00:16:45,000 fivefold. Increase in viewing in the 315 00:16:45,008 --> 00:16:46,700 months after the release of season four. 316 00:16:46,700 --> 00:16:49,800 So a lot of people are like, wow, this new season looks 317 00:16:49,800 --> 00:16:51,100 really good. I'm going to start it from the 318 00:16:51,100 --> 00:16:53,800 beginning or people want to watch it over from the beginning 319 00:16:53,800 --> 00:16:57,000 because it's been such a long Ang series season for stranger 320 00:16:57,000 --> 00:16:59,000 things. Also showcase the effectiveness 321 00:16:59,000 --> 00:17:01,400 of our marketing strategy and driving conversions around our 322 00:17:01,400 --> 00:17:04,200 titles. When we deliver shows and movies 323 00:17:04,200 --> 00:17:07,099 that members are talking about in large numbers, we can 324 00:17:07,099 --> 00:17:10,599 influence pop culture, build passion for Netflix and create 325 00:17:10,599 --> 00:17:13,400 an experience that is differentiated and difficult to 326 00:17:13,408 --> 00:17:15,400 replicate. For example, the show. 327 00:17:15,800 --> 00:17:20,099 Catapulted the 1985 song Running up that hill. 328 00:17:20,200 --> 00:17:24,200 I've heard that so many times on the radio everywhere to the top 329 00:17:24,200 --> 00:17:26,000 of the music charts. Metallica. 330 00:17:26,000 --> 00:17:29,500 Also enjoyed a returned to the charts in the US and UK with 331 00:17:29,500 --> 00:17:32,800 their 1986 song, Master of Puppets, after being featured on 332 00:17:32,800 --> 00:17:34,100 the new season of stranger things. 333 00:17:34,700 --> 00:17:38,000 The cumulative, Twitter volume for stranger things, continues 334 00:17:38,000 --> 00:17:41,300 to outpace, both, Obi-Wan Kenobi, and top gun Maverick. 335 00:17:41,500 --> 00:17:44,700 Highlights the big conversation around the titles and 336 00:17:44,700 --> 00:17:48,400 reinforcing that are binge versus one week at a time. 337 00:17:48,400 --> 00:17:50,400 Strategy drives. A lot of water cooler 338 00:17:50,400 --> 00:17:54,700 conversations, so they are directly is like they haven't 339 00:17:54,700 --> 00:17:55,400 read this. Events. 340 00:17:55,400 --> 00:17:57,800 It's like they directly knew that I was going to bring this 341 00:17:57,800 --> 00:17:59,100 up. I literally have not read this 342 00:17:59,100 --> 00:18:02,100 in advance. They have good argument here. 343 00:18:02,400 --> 00:18:07,100 I'm just saying Disney grew 70 like 60 million subscribers with 344 00:18:07,100 --> 00:18:11,200 one TV show with just just the Mandalorian and they did it by 345 00:18:11,200 --> 00:18:14,500 releasing it once a week. So people really paid for three 346 00:18:14,500 --> 00:18:16,800 months of content to watch one show. 347 00:18:17,800 --> 00:18:21,100 Netflix could do that. I think if they have some series 348 00:18:21,300 --> 00:18:23,700 having that Weekly release, I think is something some people 349 00:18:23,700 --> 00:18:27,000 actually prefer when Breaking Bad came out, those weekly 350 00:18:27,000 --> 00:18:29,500 releases on television that people waited for every week 351 00:18:29,800 --> 00:18:31,300 week. With something that I think a 352 00:18:31,308 --> 00:18:34,300 lot of people had fun doing but they are going a different way. 353 00:18:34,300 --> 00:18:37,000 They have their reasons, they have their data, they're saying 354 00:18:37,000 --> 00:18:41,100 that they can still generate the water cooler conversations with 355 00:18:41,100 --> 00:18:44,600 their binge, their binge release and this is something just on a 356 00:18:44,600 --> 00:18:47,500 side note, my wife completely disagrees with me. 357 00:18:48,100 --> 00:18:52,300 She loves binge-watching shows. So the fact that Netflix is one 358 00:18:52,300 --> 00:18:55,300 of the only places where they just drop an entire season, she 359 00:18:55,300 --> 00:18:58,200 much prefers that to just see what happens in a series. 360 00:18:58,200 --> 00:19:01,100 Watch it in a weekend, then dragging it on week, after week, 361 00:19:01,100 --> 00:19:02,500 she hates the week after week things. 362 00:19:02,500 --> 00:19:05,000 So we have discussions about this all the time. 363 00:19:05,900 --> 00:19:08,000 This is a different graph than what they normally bring up. 364 00:19:08,200 --> 00:19:10,900 What Netflix normally brings up is a graph showing their 365 00:19:10,900 --> 00:19:13,300 year-over-year subscriber growth and they ditch that one. 366 00:19:13,300 --> 00:19:15,900 It's no longer in their earnings reports for good reason. 367 00:19:15,900 --> 00:19:19,200 It doesn't look good. This in though, looks different. 368 00:19:19,200 --> 00:19:21,400 What do we have here? They're comparing it to the 369 00:19:21,400 --> 00:19:25,100 competition. Now now the competition isn't 370 00:19:25,100 --> 00:19:28,700 sleep, it's not Facebook. The competition is Obi-Wan 371 00:19:28,700 --> 00:19:32,700 Kenobi and top gun Maverick, cumulative, Twitter volume. 372 00:19:33,100 --> 00:19:37,200 This is like a buzz rating, communitive engagement and 373 00:19:37,200 --> 00:19:41,300 millions and days from Premier stranger things. 374 00:19:41,700 --> 00:19:44,500 Trending up by the metrics are using to measure this. 375 00:19:45,000 --> 00:19:47,400 The engagement metrics, stranger things as crushing. 376 00:19:47,700 --> 00:19:52,200 Obi-Wan, Kenobi and top gun Maverick, which I haven't seen 377 00:19:52,200 --> 00:19:54,300 all of Obi-Wan Kenobi. But top gun Maverick was 378 00:19:54,400 --> 00:19:57,600 fantastic in my opinion, so that's good to see that their 379 00:19:57,600 --> 00:20:01,800 series are our buzzworthy still. We also delivered a wide variety 380 00:20:01,800 --> 00:20:06,500 of other English language series and Q2 including season, 3 of 381 00:20:06,500 --> 00:20:10,100 Umbrella Academy Lincoln Lawyer, they have a lot of good shows. 382 00:20:10,100 --> 00:20:12,400 This is one point that I made, and I made this on Twitter, 383 00:20:13,300 --> 00:20:17,000 Netflix does have a lot of good shows if you watch The Haunting 384 00:20:17,000 --> 00:20:21,400 of Hill, House The Witcher stranger things, Ozark that, 385 00:20:21,400 --> 00:20:24,100 what's the chest one that came out with, I can't remember the 386 00:20:24,100 --> 00:20:26,100 name of it. They had a lot of really good 387 00:20:26,400 --> 00:20:29,900 seasons of shows, but I think that people just burn through 388 00:20:29,900 --> 00:20:32,200 them so fast. You watch them in one week and 389 00:20:32,200 --> 00:20:34,900 then you're on to the next show and Netflix does have a lot of 390 00:20:34,900 --> 00:20:37,700 low quality shows, the end up thinking that Netflix has more 391 00:20:37,700 --> 00:20:40,400 low quality shows than high quality, and that's an issue. 392 00:20:40,400 --> 00:20:42,800 I think they have. They say that they're building 393 00:20:42,800 --> 00:20:45,700 up their non-english programming something that they've been 394 00:20:45,700 --> 00:20:47,100 working on that. I think they're, well, ahead of 395 00:20:47,100 --> 00:20:49,300 competition. And we want Netflix be relevant 396 00:20:49,300 --> 00:20:52,700 to audiences all over the globe and our local language titles 397 00:20:52,700 --> 00:20:55,700 are differentiator for us. We focus first on telling 398 00:20:55,700 --> 00:20:59,100 authentic stories for local impact, but we see the great 399 00:20:59,100 --> 00:21:00,700 stories that can travel everywhere. 400 00:21:01,000 --> 00:21:04,500 Another example of this, in the market heart, I don't know these 401 00:21:04,500 --> 00:21:08,600 series because they're not, you know, non us ones while we have 402 00:21:08,600 --> 00:21:11,600 room to improve that's odd. They're taking a little bit of a 403 00:21:11,600 --> 00:21:14,800 humble approach. Their Netflix is usually like we 404 00:21:14,800 --> 00:21:18,100 got this when the stock price is high, they say We're very 405 00:21:18,100 --> 00:21:20,400 pleased with how far we've come and providing so much 406 00:21:20,400 --> 00:21:23,100 satisfaction and enjoyment to our members, for instance, in 407 00:21:23,100 --> 00:21:26,600 the US which is one of the most competitive markets in the 408 00:21:26,600 --> 00:21:29,200 world. We drew more TV viewing time 409 00:21:29,200 --> 00:21:34,000 than any other Outlet. During the 2021 2022 TV season. 410 00:21:34,500 --> 00:21:37,000 See chart below nearly matching the combined. 411 00:21:37,000 --> 00:21:41,300 Total of the two most watch broadcast networks and as Nelson 412 00:21:41,300 --> 00:21:43,600 will announced on Thursday. Our share of u.s. 413 00:21:43,600 --> 00:21:48,400 TV viewing reached, an all-time high of 7.7% And that's an 414 00:21:48,400 --> 00:21:50,200 all-time high, but they still have a long ways to go. 415 00:21:50,600 --> 00:21:53,800 Netflix needs to get to, like 30% demonstrating our ability, 416 00:21:53,800 --> 00:21:56,600 to grow our engagement share as we continue to improve our 417 00:21:56,600 --> 00:22:01,800 service, share of u.s. TV viewing Netflix on top, CBS 418 00:22:01,800 --> 00:22:06,200 NBC ABC Fox, then way down there, Disney plus Prime video 419 00:22:06,200 --> 00:22:09,100 and Hulu. I'm very bullish on Prime video. 420 00:22:09,100 --> 00:22:13,800 By the way, I look at the series are coming out with the boys, 421 00:22:13,800 --> 00:22:15,600 the terminal list. All these new series are coming 422 00:22:15,600 --> 00:22:19,200 out with that are very popular. Are there doing a lot of effort 423 00:22:19,200 --> 00:22:20,200 in it with their Lord of the Rings? 424 00:22:20,200 --> 00:22:23,100 When I think they'll do, they'll do really well, but Netflix is 425 00:22:23,100 --> 00:22:25,200 clearly. In terms of viewing, no one's 426 00:22:25,200 --> 00:22:28,200 even close people on average view Netflix for over two hours. 427 00:22:28,200 --> 00:22:32,000 A day, two hours a day, getting that much attention in one day. 428 00:22:32,000 --> 00:22:35,300 Every day for a service is incredible since our launch of a 429 00:22:35,308 --> 00:22:37,800 small selection of license mobile games last November. 430 00:22:38,300 --> 00:22:40,200 All right, so they're getting in the mobile games here. 431 00:22:40,200 --> 00:22:42,900 I don't care as much about this. Be honest with you. 432 00:22:42,900 --> 00:22:46,000 I don't care as much about the games on Netflix, I know there, 433 00:22:46,000 --> 00:22:47,400 but they're doing a big push in it. 434 00:22:47,600 --> 00:22:50,300 Don't see this as anything. It's not the story that I 435 00:22:50,300 --> 00:22:55,200 invested in for Netflix. It is their entertainment video 436 00:22:55,500 --> 00:22:59,600 television, documentary comedy entertainment service near term 437 00:22:59,600 --> 00:23:02,600 focus in the near-term. Our key priorities to 438 00:23:02,600 --> 00:23:06,100 re-accelerate revenue growth is to evolve and improve our 439 00:23:06,100 --> 00:23:08,600 monetization in the early days of streaming. 440 00:23:08,600 --> 00:23:12,600 We kept our pricing very simple with just one plane level 2014. 441 00:23:12,600 --> 00:23:14,800 We introduced three price tears to better segment. 442 00:23:14,800 --> 00:23:17,400 Demand going forward. We will focus on better. 443 00:23:17,500 --> 00:23:19,800 Ization. They're getting into ads are 444 00:23:19,800 --> 00:23:22,200 there they're laying the framework of it better. 445 00:23:22,200 --> 00:23:25,400 Monetization usage. Monetizing usage, through both 446 00:23:25,500 --> 00:23:29,300 continued optimization of our pricing and tear structures as 447 00:23:29,300 --> 00:23:32,900 well as the addition of new lower-priced ad-supported tears. 448 00:23:33,400 --> 00:23:36,800 So they're not going to make pop-up ads and video ads and 449 00:23:36,800 --> 00:23:39,700 you're paid for tear that you currently have. 450 00:23:39,900 --> 00:23:43,200 They're building a new lower-priced ad-supported tear. 451 00:23:44,400 --> 00:23:47,100 Advertising are lower-priced advertising. 452 00:23:47,100 --> 00:23:50,700 Support offering will complete will complement. 453 00:23:50,700 --> 00:23:54,400 Our existing plans which will remain ad-free they have to 454 00:23:54,400 --> 00:23:56,600 clarify that because there's lots of people that spread 455 00:23:56,700 --> 00:24:00,200 nonsense on Twitter and social media saying Netflix is going to 456 00:24:00,200 --> 00:24:03,300 add ads to all of their tears, their just causing people to 457 00:24:03,300 --> 00:24:05,900 hate Netflix for something. You're not even doing our 458 00:24:05,900 --> 00:24:07,900 Global. A RM has grown out of five 459 00:24:07,900 --> 00:24:11,400 percent compound annual rate from 2013 to 2020 one. 460 00:24:12,000 --> 00:24:14,500 So, it makes sense. Now to give consumers Is a 461 00:24:14,500 --> 00:24:17,500 choice for a lower price option with advertisements. 462 00:24:17,500 --> 00:24:21,100 If they desire, we recently announced Microsoft as our 463 00:24:21,100 --> 00:24:24,300 technology and sales partner, and we're targeting to launch 464 00:24:24,700 --> 00:24:27,200 this tear around the early part of 2023. 465 00:24:27,500 --> 00:24:30,300 That's right. Where I thought they would very 466 00:24:30,300 --> 00:24:32,400 happy to see them partner with Microsoft, I think a great 467 00:24:32,400 --> 00:24:35,800 partner, one of my massive investments in the passive 468 00:24:35,800 --> 00:24:38,900 income portfolio. They say they are investing 469 00:24:38,900 --> 00:24:41,700 heavily to expand their multi-billion and advertisement 470 00:24:41,700 --> 00:24:43,500 business in the premium television video. 471 00:24:44,000 --> 00:24:46,000 And we are thrilled to be working with such a strong 472 00:24:46,000 --> 00:24:48,300 Global partner. We're excited by the 473 00:24:48,300 --> 00:24:51,000 opportunity, given the combination of are very engaged 474 00:24:51,000 --> 00:24:53,500 audience and high quality content which we think will 475 00:24:53,500 --> 00:24:56,600 attract premium cpms for brand advertisements. 476 00:24:56,800 --> 00:24:59,000 It absolutely will. There's brands that don't just 477 00:24:59,000 --> 00:25:02,400 want to advertise anywhere. They want to advertise in a 478 00:25:02,400 --> 00:25:08,200 select type of Show on Netflix. For example, Nike Peloton, those 479 00:25:08,200 --> 00:25:10,800 type of Brands won't just want to advertise on any Show on 480 00:25:10,800 --> 00:25:14,900 Netflix, they're going to want to advertise on the Shows that 481 00:25:14,900 --> 00:25:18,600 they believe will be the type of people most likely to buy their 482 00:25:18,600 --> 00:25:22,100 product that will result in much higher cpms if they can get it 483 00:25:22,100 --> 00:25:23,600 right. If they have the right ad 484 00:25:23,600 --> 00:25:26,500 partner, Microsoft is the right ad partner. 485 00:25:26,500 --> 00:25:29,600 In my opinion, Microsoft has over 10 billion dollars in ads. 486 00:25:29,900 --> 00:25:34,200 They own LinkedIn. They know ads, they are very 487 00:25:34,200 --> 00:25:35,900 good at them and I think they'll be able to help Netflix 488 00:25:35,900 --> 00:25:39,400 accomplished icp-ms, that they will likely make more money 489 00:25:39,500 --> 00:25:42,500 based on their advertising viewers. 490 00:25:42,500 --> 00:25:45,500 That watch a couple hours a day. With ads, then they will with 491 00:25:45,500 --> 00:25:48,200 the premium tears that you pay for the advertising. 492 00:25:48,200 --> 00:25:50,200 Viewers will likely make Netflix more money. 493 00:25:51,300 --> 00:25:53,900 Will likely start in a handful of markets, where advertising 494 00:25:53,900 --> 00:25:56,600 spend is significant like most of our new initiative. 495 00:25:56,800 --> 00:26:00,000 Our intention is to roll it out, listen and learn and iterate 496 00:26:00,000 --> 00:26:03,800 quickly to improve the offering. So our advertising business in a 497 00:26:03,800 --> 00:26:07,000 few years will likely look quite different than what it looks 498 00:26:07,000 --> 00:26:12,200 like than one then, like one today over time, our hope is to 499 00:26:12,200 --> 00:26:15,300 create a better than linear TV. Advertisement model, that's more 500 00:26:15,300 --> 00:26:19,300 seamless and relevant for consumers and more effective for 501 00:26:19,300 --> 00:26:22,400 our advertising Partners while We'll take some time to grow Our 502 00:26:22,400 --> 00:26:26,100 member base for the ad tear and the associated ad revenues over 503 00:26:26,100 --> 00:26:28,800 the long run. We think advertising can enable 504 00:26:28,800 --> 00:26:31,500 substantial incremental, membership through lower prices 505 00:26:31,800 --> 00:26:34,400 and profit growth through ad revenues, one of the common 506 00:26:34,400 --> 00:26:38,700 concerns here is Joseph. What happens if it cannibalizes 507 00:26:38,800 --> 00:26:42,800 their normal subscribers, I might cancel my premium, I won't 508 00:26:42,800 --> 00:26:45,000 but some people might say I might cancel my premium 509 00:26:45,000 --> 00:26:47,700 membership and move to the free or lower priced. 510 00:26:47,700 --> 00:26:50,500 Add tear one. You will be paying Netflix more 511 00:26:50,500 --> 00:26:52,900 money. By virtue of you being on the ad 512 00:26:52,900 --> 00:26:56,000 Care by watching Those ads, Netflix probably will make more 513 00:26:56,000 --> 00:26:58,600 money than they would have. Had you just stayed on the paid 514 00:26:58,600 --> 00:27:01,700 tier page sharing? This is an update that I really 515 00:27:01,800 --> 00:27:04,300 am interested in. We're in the early stages of 516 00:27:04,300 --> 00:27:07,300 working to monetize the one hundred plus million households 517 00:27:07,300 --> 00:27:10,400 that are currently enjoying but not directly paying for Netflix. 518 00:27:10,700 --> 00:27:13,900 We know this will be a change for our members as such. 519 00:27:13,900 --> 00:27:16,200 We have launched two different approaches in Latin America to 520 00:27:16,200 --> 00:27:18,600 learn more. Our goal is to find an easy to 521 00:27:18,600 --> 00:27:20,900 use. Paid sharing offering that 522 00:27:21,100 --> 00:27:23,700 Believe works for our members and our business that we can 523 00:27:23,700 --> 00:27:26,500 roll out in 2023. We're encouraged by our early 524 00:27:26,500 --> 00:27:29,000 learnings and the ability to convert consumers to pay 525 00:27:29,000 --> 00:27:33,000 cheering in Latin America. People are throwing a fit about 526 00:27:33,000 --> 00:27:35,200 this. So this I think is a potential 527 00:27:35,200 --> 00:27:37,900 risk factor that could raise turn we'll see. 528 00:27:37,900 --> 00:27:41,500 But if Netflix really does continue to create content, like 529 00:27:41,500 --> 00:27:43,300 stranger things and other big franchises. 530 00:27:43,500 --> 00:27:46,700 The people want to see people will pay for it and Netflix does 531 00:27:46,700 --> 00:27:49,000 need to make money. Lots of people just share 532 00:27:49,000 --> 00:27:50,900 accounts and they're watching Netflix for free for a long. 533 00:27:51,000 --> 00:27:55,000 Longtime simplicity at, Netflix, Focus remains very important to 534 00:27:55,000 --> 00:27:58,100 us. These initiatives paid sharing 535 00:27:58,100 --> 00:28:01,200 and advertising do introduce some additional complexity. 536 00:28:01,400 --> 00:28:04,300 But our approach has always been to keep our business model as 537 00:28:04,300 --> 00:28:07,200 simple as possible. Within the context of our growth 538 00:28:07,200 --> 00:28:10,000 objectives in this vein. These initiatives are similar to 539 00:28:10,000 --> 00:28:12,600 expanding and two Originals launching our service, across 540 00:28:12,600 --> 00:28:16,400 the world and building our own Studios, Each of which also 541 00:28:16,400 --> 00:28:19,400 increased complexity, but our natural extensions into the 542 00:28:19,400 --> 00:28:23,300 enhanced of intended to enhance our existing business. 543 00:28:24,100 --> 00:28:27,400 All right? That is, is I think that's 544 00:28:27,400 --> 00:28:30,900 basically it. So, let's go ahead and look at 545 00:28:30,900 --> 00:28:33,800 the financials here, but that's a bit of the, the business side 546 00:28:33,800 --> 00:28:38,200 of Netflix, my reaction to. This is as a shareholder right 547 00:28:38,200 --> 00:28:42,400 now, I was, I bought Netflix, three times as it traded down 548 00:28:42,400 --> 00:28:44,700 further and further. And it got to a point where I 549 00:28:44,708 --> 00:28:47,600 thought, you know what, I just want to see if they can turn 550 00:28:47,600 --> 00:28:50,100 this around if they can right the ship and start to grow 551 00:28:50,100 --> 00:28:52,100 overall. I don't need Netflix to grow 552 00:28:52,100 --> 00:28:54,900 every single quarter, I need them to grow on a year. 553 00:28:55,100 --> 00:28:57,200 Basis and show that their business model really, has 554 00:28:57,200 --> 00:29:00,200 opportunity to grow free cash flows, because when I'm looking 555 00:29:00,200 --> 00:29:03,600 at this, let me bring this up on Quantum insights here. 556 00:29:03,800 --> 00:29:07,300 This is website available to all patreon members. 557 00:29:07,700 --> 00:29:10,400 This shows the the actual free cash flow of the business. 558 00:29:10,800 --> 00:29:14,300 I can bring up this chart right here as you can see Netflix is 559 00:29:14,300 --> 00:29:17,700 free cash flow for years with always - this is a big pain 560 00:29:17,700 --> 00:29:20,400 point for the company they invested in content heavily 561 00:29:20,600 --> 00:29:22,100 because they knew competition was coming. 562 00:29:22,500 --> 00:29:25,200 Now it's time to actually become free cash, flow positive, If 563 00:29:25,400 --> 00:29:28,300 they've had a couple quarters of it but now they really need to 564 00:29:28,300 --> 00:29:32,200 make this free cash flow positive every quarter at least 565 00:29:32,200 --> 00:29:33,900 on a yearly basis. That's right. 566 00:29:33,900 --> 00:29:36,900 They're going to highlight hair. My prediction is they're going 567 00:29:36,900 --> 00:29:39,600 to struggle with this more than expected because of the FX 568 00:29:39,600 --> 00:29:42,900 problems. Free cash flow, which is a cash 569 00:29:42,900 --> 00:29:45,800 loan capital structure. Net cash generated by operating 570 00:29:45,800 --> 00:29:50,300 activities and Q2 was plus 103 million versus - 64 million in 571 00:29:50,300 --> 00:29:53,500 the prior year. Free cash flow in this quarter 572 00:29:53,500 --> 00:29:57,500 total. 13 million Not a lot that's a minuscule amount 573 00:29:57,600 --> 00:30:01,600 compared to minus 175 million in Q2 of 2021. 574 00:30:02,000 --> 00:30:05,800 But it did swing from heavily in the - at least to the positive. 575 00:30:05,800 --> 00:30:08,400 So I guess it's going in the right direction but this 576 00:30:08,400 --> 00:30:10,000 certainly isn't a lot of free cash flow. 577 00:30:10,600 --> 00:30:12,400 Again, we look at this on a full year basis. 578 00:30:12,400 --> 00:30:15,900 Not quarter to quarter cash declined, 190 million 579 00:30:15,900 --> 00:30:20,000 sequentially primarily due to our next games acquisition. 580 00:30:20,400 --> 00:30:24,500 So they bought next games for 70 million and the FX impact of 145 581 00:30:24,500 --> 00:30:27,600 million As we discussed previously, we are now self 582 00:30:27,600 --> 00:30:30,500 funding for the full year of 2022. 583 00:30:30,500 --> 00:30:35,000 We expect free cash flow to be approximately plus 1 billion. 584 00:30:35,400 --> 00:30:37,900 They're going to generate over a billion dollars in free cash 585 00:30:37,900 --> 00:30:42,400 flow in 2022. Despite FX issues plus or minus 586 00:30:42,400 --> 00:30:45,000 a few hundred million dollars, assuming no material further 587 00:30:45,000 --> 00:30:47,700 movements and FX. So based on FX right now is 588 00:30:47,700 --> 00:30:51,000 going to be plus 1 billion. We expect annual positive, free 589 00:30:51,000 --> 00:30:53,600 cash flow, going forward with substantial growth and free cash 590 00:30:53,600 --> 00:30:58,000 flow 2023. 20:22 due to our increasing Revenue solid 591 00:30:58,000 --> 00:31:01,300 profitability and the successful multi-year evolution of our 592 00:31:01,300 --> 00:31:04,800 content model. We're now more than a decade 593 00:31:04,800 --> 00:31:08,200 into Transforming Our service from a license second run 594 00:31:08,200 --> 00:31:10,600 content to mostly Netflix originals. 595 00:31:10,800 --> 00:31:13,700 Including more than five years into building our own internal 596 00:31:13,700 --> 00:31:18,400 Studio produce this, the majority of our original titles. 597 00:31:18,600 --> 00:31:21,100 So yeah, they're internal Studios, do produce the majority 598 00:31:21,100 --> 00:31:23,300 of their titles. Now sixteen percent of our net 599 00:31:23,300 --> 00:31:26,700 content assets on our Balance sheet are Netflix produce. 600 00:31:28,000 --> 00:31:30,500 We're now through the most cash intensive part of that 601 00:31:30,500 --> 00:31:33,400 transition. As a result, our cache content 602 00:31:33,500 --> 00:31:37,200 spend a Content amortization expense ratio peaked at 1.6, 603 00:31:37,600 --> 00:31:42,000 along with Peak - free cash flow of 3.3 billion in 2019. 604 00:31:42,300 --> 00:31:47,000 Anna's expected to be about 1.2 1.3 times 2022. 605 00:31:47,700 --> 00:31:49,900 It sounds very complicated. Let me explain this for you. 606 00:31:50,900 --> 00:31:53,100 This is like the biggest problem with Netflix. 607 00:31:53,100 --> 00:31:57,100 The biggest issue that people highlight, some people actually 608 00:31:57,100 --> 00:31:59,900 say, This is kind of shady of Netflix right? 609 00:31:59,900 --> 00:32:03,200 We look at the company here. We have this chart right here 610 00:32:03,500 --> 00:32:06,100 which is the easy bit of the company and it just looks 611 00:32:06,100 --> 00:32:08,600 amazing. Netflix has great Revenue that 612 00:32:08,600 --> 00:32:10,900 grows over time right? Then they have the ibadah that 613 00:32:10,900 --> 00:32:13,800 grows over time. This nice, gradual chart, but 614 00:32:13,800 --> 00:32:18,300 what they do is they capitalized their content costs and then the 615 00:32:18,300 --> 00:32:20,700 amateur eyes them. So the amortize, the expense of 616 00:32:20,700 --> 00:32:23,100 it, over the lifetime of the content. 617 00:32:23,200 --> 00:32:26,800 So even though they have this ibadah, your actual cash flow 618 00:32:26,800 --> 00:32:28,300 looks completely different, right? 619 00:32:28,300 --> 00:32:31,000 It's in the negative. That's why on quatrain I like 620 00:32:31,000 --> 00:32:32,000 it. So you can see all of this. 621 00:32:32,000 --> 00:32:35,300 So you can get a more full picture and the reason why is 622 00:32:35,300 --> 00:32:39,800 because they're spending more on content in expenses every single 623 00:32:39,800 --> 00:32:41,200 year. And that's what this graph shows 624 00:32:41,200 --> 00:32:45,200 here, cache contents pain to content amortization ratio. 625 00:32:45,600 --> 00:32:49,100 So this is how much they're spending in new content compared 626 00:32:49,100 --> 00:32:53,500 to how much is previous content. Spend that their their expensing 627 00:32:53,500 --> 00:32:55,500 every year. So if they, if they paid for a 628 00:32:55,500 --> 00:32:59,100 new Series 3 years ago, they don't actually start to expense 629 00:32:59,100 --> 00:33:02,600 it until it's actually released on Netflix and people have 630 00:33:02,600 --> 00:33:04,700 criticized Netflix for this but it's the exact same thing that 631 00:33:04,700 --> 00:33:06,300 Amazon does with Amazon. Prime. 632 00:33:06,500 --> 00:33:10,000 They amateur eyes it based on the lifetime of the content they 633 00:33:10,000 --> 00:33:13,800 say right here between 2014 and 2019. 634 00:33:14,100 --> 00:33:16,400 The build-out of originals and self-produced. 635 00:33:16,400 --> 00:33:20,500 Content was when this ratio kept growing more and more making the 636 00:33:20,500 --> 00:33:24,200 discrepancy between ibadah and cash, flows, greater and 637 00:33:24,200 --> 00:33:27,100 greater, we can see that right? With these, Has two graphs, the 638 00:33:27,100 --> 00:33:33,400 ibadah discrepancy since 2014 to 2018 and then the free cash flow 639 00:33:33,600 --> 00:33:37,500 from 2014 to 2019. It's a huge discrepancy. 640 00:33:38,300 --> 00:33:42,300 They say that that was from 2014 to 2019 on this chart now it's 641 00:33:42,300 --> 00:33:44,600 starting to go go back the other way. 642 00:33:44,600 --> 00:33:47,800 It's starting to reverse. The covid-19, production 643 00:33:47,800 --> 00:33:51,900 slowdowns the shutdown's made this artificially go down, but 644 00:33:51,900 --> 00:33:53,500 you could see even without covid. 645 00:33:53,500 --> 00:33:57,800 This is naturally coming down over I'm as their amateur Rising 646 00:33:58,000 --> 00:34:01,600 less ratio of produce contents. So, this is a good thing. 647 00:34:01,700 --> 00:34:03,700 This just means they're moving in the right direction, their 648 00:34:03,700 --> 00:34:05,300 cash flow should improve over time. 649 00:34:06,400 --> 00:34:10,300 Gross debt at the quarter end amounted to a fourteen point 650 00:34:10,300 --> 00:34:12,900 three billion within our targeted range of 10 to 15 651 00:34:12,900 --> 00:34:15,199 billion with cash of 5.8 billion. 652 00:34:15,400 --> 00:34:17,500 Net debt totaled, eight point five billion. 653 00:34:17,900 --> 00:34:19,900 Not a lot of debt it's one point three times. 654 00:34:19,900 --> 00:34:24,100 Last 12 months ibadah that I like to invest in companies that 655 00:34:24,100 --> 00:34:27,100 are within a range of three times debt to ibadah. 656 00:34:27,199 --> 00:34:29,400 Not beyond that, typically not beyond that. 657 00:34:29,500 --> 00:34:32,000 Our capital structure policy remains unchanged. 658 00:34:32,000 --> 00:34:34,300 The first priority of our cash is to reinvest in our Core 659 00:34:34,300 --> 00:34:36,100 Business and to fund new growth opportunities. 660 00:34:36,699 --> 00:34:38,900 Like gaming, followed by selective Acquisitions. 661 00:34:39,199 --> 00:34:42,100 We target maintaining a minimum cash equivalent to roughly two 662 00:34:42,100 --> 00:34:45,800 months of Revenue example about 5.3 billion based on cue to 663 00:34:45,800 --> 00:34:47,800 revenue after meeting those needs. 664 00:34:47,900 --> 00:34:51,300 Our intent is to return excess cash to shareholders through 665 00:34:51,300 --> 00:34:53,500 share repurchases. So Netflix is actually going to, 666 00:34:53,600 --> 00:34:56,600 they're going to have extra cash, they're going to do share 667 00:34:56,600 --> 00:34:59,500 repurchases, which means that this graph right here, their 668 00:34:59,500 --> 00:35:02,400 shares outstanding. It'll actually not just flatten 669 00:35:02,400 --> 00:35:05,100 out, but you'll see this go down quarter over quarter, which 670 00:35:05,100 --> 00:35:06,600 makes it. So you have more Equity in the 671 00:35:06,607 --> 00:35:09,500 company for a long time. They've been doing, they've been 672 00:35:09,500 --> 00:35:13,300 doing share dilution, which is a - now they're going to be doing 673 00:35:13,800 --> 00:35:17,900 share Buybacks in summary. We accelerating our Revenue. 674 00:35:17,900 --> 00:35:20,400 Growth is a big challenge, but we've been through hard times 675 00:35:20,400 --> 00:35:22,300 before. We built this company to be 676 00:35:22,300 --> 00:35:25,400 flexible and adaptable, and this will be great test for us and 677 00:35:25,400 --> 00:35:28,800 our high performance culture. We're fortunate to be in a 678 00:35:28,808 --> 00:35:30,700 position of strength, as a leader in the streaming 679 00:35:30,700 --> 00:35:33,400 entertainment, by all metrics Revenue engagement subscribers, 680 00:35:33,400 --> 00:35:36,100 profit and free cash flow. We're confident and optimistic. 681 00:35:36,200 --> 00:35:39,400 Mistake about the future. That is a report that's me going 682 00:35:39,400 --> 00:35:41,400 through it for the first time. So I hope you enjoyed it. 683 00:35:41,600 --> 00:35:46,400 My takeaway from this I like it. I know that this wasn't like an 684 00:35:46,400 --> 00:35:48,400 amazing report. They didn't just Dazzle 685 00:35:48,400 --> 00:35:50,100 Everyone. By gaining two million 686 00:35:50,100 --> 00:35:52,300 subscribers when they're projected to lose 2 million, 687 00:35:52,600 --> 00:35:55,700 they still lost subscribers. And the US and in Europe, 688 00:35:55,700 --> 00:35:59,500 primarily primarily, but they gain subscribers in, Asia 689 00:35:59,500 --> 00:36:01,800 Pacific. They're coming out with better 690 00:36:01,800 --> 00:36:04,500 content, they're not going to be just relying on Stranger Things. 691 00:36:04,800 --> 00:36:07,200 They have a lot of different series that they're building out 692 00:36:07,500 --> 00:36:09,300 and I remain invested in the company. 693 00:36:09,300 --> 00:36:13,600 Look, I invested in Netflix at, with the intention of holding 694 00:36:13,600 --> 00:36:16,700 the Any for five to ten years and as long as they stay on 695 00:36:16,700 --> 00:36:20,100 track and they're able to grow over a long period of time, I 696 00:36:20,100 --> 00:36:22,600 still want to own a piece of the biggest streaming company in the 697 00:36:22,600 --> 00:36:25,600 world, that's currently Netflix. And no one else is even close to 698 00:36:25,600 --> 00:36:28,300 him. So I'm going to continue holding 699 00:36:28,300 --> 00:36:31,200 my Netflix position. The stock doesn't look like it's 700 00:36:31,200 --> 00:36:35,200 raised up like, like any insane amounts up, 12 percent 14 bucks. 701 00:36:35,700 --> 00:36:39,100 So, I might actually over the next couple of days. 702 00:36:39,100 --> 00:36:42,600 I may actually be adding more to my Netflix position and lowering 703 00:36:42,600 --> 00:36:45,300 my cost basis on the stock. Shocked, because I am bullish on 704 00:36:45,300 --> 00:36:48,300 it if they can grow a million next quarter, then a couple 705 00:36:48,300 --> 00:36:51,100 million to quarter after that during the winter months, this 706 00:36:51,100 --> 00:36:54,000 company could be on track and I do see their free cash flow 707 00:36:54,000 --> 00:36:58,400 profile improving over time. In the meantime, Netflix remains 708 00:36:59,100 --> 00:37:04,100 a very devaluation of it. It's at a 17 PE ratio, 16 709 00:37:04,100 --> 00:37:07,500 trailing P/E. It's at a price to sales of 2.7. 710 00:37:07,500 --> 00:37:11,200 So the, the valuation of the hype has been taken out of the 711 00:37:11,200 --> 00:37:13,500 stock. So it may be one that I actually 712 00:37:13,500 --> 00:37:16,100 might Add a little bit more to over the upcoming week, but 713 00:37:16,100 --> 00:37:18,000 that's my thoughts on it. I hope you enjoyed this little 714 00:37:18,200 --> 00:37:20,500 quick reaction video and I'll see you in the next one.