00:00John Belton, he is a portfolio manager and managing director for growth portfolios over
00:05Akabeli Funds. John and his firm own shares of Netflix. And you take a look at the reaction as
00:10we were just discussing with David Joyce. It seems like most investors taking this
00:14as a sell the news event. As you parse through these numbers, is that your knee jerk reaction
00:20as well? Yeah, thanks for having me. I mean, I think the top line numbers generally look pretty
00:26healthy. Good update on the subscriber number at over 325 million. That suggests that 2025 was
00:35another pretty solid year for member growth. I think the big disappointment in terms of the
00:40numbers is just on the margin guidance, 31.5%. I think that adjusts to about 32%, if my math was
00:47correct, if you back out that acquisition related cost number that they flagged. So I think that's
00:53probably OK, but a little bit short of expectations. So you probably have slight negative earnings
01:01estimate revisions would be my first cut at it. And John, what we've been talking about since the
01:06numbers came out is just the amount of spending that Netflix is going to have to do first when
01:10it comes to its content slate. Then you think about this potential Warner Brothers deal, which
01:15has, you know, taken a lot of twists and turns. And in their commentary, Netflix writes that they're
01:21going to pause share buybacks to accumulate cash to help fund that pending acquisition. Again, as an
01:27investor, you know, are you concerned about the potential spending that they need to commit to here?
01:34Well, you know, I think the pause in the buyback is really no surprise. But I think if we take a step
01:40back, Netflix is coming off a couple of years where they've really held content spending more or less
01:46flat over the last few years. And that's allowed for some pretty sharp margin expansion. I think
01:52that content investment cycles for this business are going to kind of ebb and flow in multi-year
01:57periods. And we are probably entering a period of slightly higher content investment. But I do think
02:03if this Warner Brothers deal closes, one of the benefits is going to be a much bigger content library,
02:10which could, in theory, mean slower, less need to invest so aggressively to grow that library over
02:17time. Yeah, it's kind of interesting, too, John. In the release, they talk a lot about how they see
02:21Warner Brothers as a complementary to Netflix. You would expect that. But in that context, they were
02:26also talking about all the competition out there. And actually, according to them, saying that they
02:30actually account for less than 10 percent of TV viewing time. And they're basically putting that up
02:34against not only the traditional TV companies, but also the YouTubes and the other streaming services of the
02:40world. I am curious as to whether you think they need to keep up with some of those other folks or
02:45whether they can sort of be in their own sort of lane or niche, if you will. Well, I think that is a
02:51sentiment that they've talked about consistently over many years. The fact that they don't just compete
02:58with, you know, the traditional media companies, the cable network companies. They also compete with
03:03any content platform that is that is driving customer consumer attention. So they've always
03:09competed with social media, with YouTube. And I don't think that's any different going forward. Do
03:15they need to continue to invest to to keep up with that? There's no nothing different. I think,
03:21of course, they do. But I do think they're carving out an interesting niche as, you know, something that
03:27stands alongside user generated content and its professional generated content. I think they'll always
03:33have that niche and that will always help differentiate them. I am curious that when you look at just the
03:38current valuation and we should point out this stock has been on a pretty long downtrend for the last
03:43few months, some of it related to some of the specifics that we talked about today. But I am
03:48curious as to what you think sort of arrests that decline. Is it just it gets cheap enough that people
03:52come back in or is it maybe what we hear on the conference call and, you know, about, you know, 15,
03:5720 minutes time? Yeah, Netflix, it's always been a stock where I think the stock has always followed
04:03the estimates. And you've had this multi-year, really positive estimate revision story driven by
04:10you've had a reacceleration in member growth. But more than that, you've had this advertising story
04:15and a paid sharing story. And so you've had this couple year period where earnings growth has really
04:19exploded. And you were always going to be entering this sort of more mature phase of the growth cycle.
04:26And then along with that comes this Warner Brothers announcement, which that's the stock has sort
04:32of been in the penalty box a little bit around that. So going forward, I think if they can just
04:37stabilize fundamentals and show that this advertising story still has legs, which I do think this
04:44guidance for doubling ad revenues again this year is another big positive in the release. I think
04:49that's how this stock gets going again, return to positive estimate revisions. Right. I mean,
04:54you mentioned the stock in the penalty box. You think about how it's performed since it last reported
04:58earnings in late October. We're talking about a decline of maybe 30 percent. It's certainly if these
05:04losses hold going to be greater at the open tomorrow. But when it comes to the Warner Brothers
05:09deal, I mean, is there a number that you have in mind where it just wouldn't make sense for Netflix
05:14to bump this up any higher? You know, I really want to stay away from talking about that deal
05:19for obvious reasons with our firm. But, you know, I the way I'm thinking about Netflix's stock from
05:25from a high level and going forward is, yes, the stock is derated quite a bit. It's getting to a
05:31really attractive valuation. That doesn't automatically mean it's going to be a good stock.
05:35But if you can get sort of a continuation and engagement growth, continuation and membership growth,
05:40ad revenues really starting to drive an accelerate, a reacceleration in total revenue growth.
05:45And on top of that, if they end up with this great Warner asset, I think it still strikes me as a
05:51pretty interesting multi-year story. But investors probably going to have to continue to be patient
05:55with this one.
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