00:00I think the stock is reacting to where expectations lie ahead of the quarter and where they ultimately delivered.
00:07So they came in in line with our numbers.
00:10You mentioned the Brazil tax loss there.
00:13That creates a lot of noise.
00:15But if you strip that out, the performance and the underlying performance on the profitability of this company continues to be very impressive.
00:23And really, the question from here becomes, can the growth be sustained not just for fourth quarter, which they gave guidance on, but thinking about next year and the years to come?
00:33And we have some pretty high confidence that the company will continue to operate at these very elevated levels.
00:40Well, I guess there was this question, considering they have such huge hits like K-pop Demon Hunters, like a live boxing match that they aired, that maybe they should have done better.
00:49Is in line not enough for Netflix, considering the monster hits that they had on their hands?
00:56Yeah, again, this is a very high growth company, high growth stock.
01:00So I think that comes with high expectations, right?
01:04So basically, when you put that all together, yes, they clearly had a very strong slate.
01:10They have another strong slate coming in the fourth quarter.
01:13And you heard Ted talk about all the good shows and movies and different events coming in 26.
01:20So again, that leads us to have some pretty high confidence that the high growth will continue.
01:25And ultimately, it comes down to driving cash flow and driving profitability.
01:29And we have pretty high hopes and expectations that that should continue into next year, not just next year, but really when you look out over the next few years, we think that the advertising opportunity here is going to be a significant driver to this higher level growth.
01:47Well, they talked about this quarter being their best ad sales quarter ever.
01:50What scale does that need to get to, Robert, in order to change their growth trajectory and valuations?
01:56So, yeah, they're in the very early innings and talked about more than doubling their total advertising revenue, but to your point, at a much lower base.
02:08So the higher that that base grows, that has a more meaningful impact on the overall company's growth.
02:17And we're still in the early stages.
02:19So we forecast that advertising is going to come in under $3 billion.
02:23So, again, more than doubling versus the year before.
02:27But when you look forward, we expect that to more than triple to over $9 billion by 2030.
02:33So clearly, the growth there is going to be meaningful, substantial.
02:37And what that does is has an impact on the traditional television ecosystem and the different competitors because they're taking a larger share of that TV pie.
02:50And the advertising dollars are shifting towards connected TV.
02:54Historically, Netflix has talked and been very vocal about being builders and not buyers when asked questions about large scale M&A.
03:03So, Robert, what do you make of Netflix's name being floated out there as a potential buyer for Warner Brothers Discovery?
03:11That's a great question.
03:13I think there's a lot of different press reports right now going on in terms of how this is all playing out.
03:19Clearly, from a Warner Brothers Discovery standpoint, which we also recommend, there's a lot of interest, and that's a good thing.
03:29Clearly, the more interest, the higher the price will likely end up for that company.
03:35Ultimately, we think this is Paramount Skydance's company to bid on and to eventually win.
03:44But yes, I think that the idea that now Warner Brothers Discovery is in a full strategic review will present other opportunities.
03:55And companies like Netflix owe it to themselves and to their shareholders to take a look, depending on what the price is.
04:02That doesn't necessarily mean that there's going to be a full bid.
04:05But at the very least, just to get a chance to look at what these companies are and the assets within them and we'll see how this all plays out.
04:15But we think that the highest probability right now is for Paramount Skydance to end up with Warner Brothers Discovery.
04:22Robert, just to that point, CNBC reporting now that Warner Brothers Discovery rejected three Paramount Skydance offers.
04:29The last offer was just for under $24 a share for Warner Brothers Discovery.
04:36So to the point you're making, if I'm understanding it, Robert, is just this bid to have other people come in and make an offer for Warner Brothers Discovery,
04:44just the company saying, hey, Paramount Skydance, you need to do better.
04:49That's where we think this will eventually end up.
04:52But again, clearly, more interest is going to drive that price higher.
04:57And seemingly, that's the place that we're at right now, where there's essentially an open process that the board has to clearly take very seriously.
05:07Management takes very seriously.
05:09And ultimately, they have to do what's best for the shareholders.
05:12And so eventually, if there is just a bid, a very significant premium bid for just the streaming and studio assets, they very much have to consider that.
05:24But we think that Paramount Skydance has the most to gain from a potential combination with Warner Brothers Discovery.
05:31And seemingly, it looks like it was the plan all along when Skydance bought Paramount that eventually they very much also have interest in the Warner Brothers Discovery assets to put that all together.
Be the first to comment