Bloomberg Audio Studios, podcasts, radio news. This is a breaking news update from Bloomberg instant reaction and analysis from our three thousand journalists and analysts around the world. Netflix reported second quarter results that exceeded investor expectations. It raised its forecast as well. I want to bring in Getha Ranganathan. She's Bloomberg Intelligence senior media analyst. She joins us from
New Jersey at Bloomberg Intelligence headquarters. What is the most important metric that you watch now that Netflix no longer reports subscribers or gives guidance on subscribers.
Yeah, the focus tim has obviously changed from the subscriber metrics and ARM or average revenue per member to broader financial metrics. So really the two most I think important numbers that everybody looks for right now is revenue growth and operating margin. And as you write pointed out the two Q numbers, Netflix surpassed expectations or they exceeded guidance on both those accounts.
So of course we see that they did beat on multiple metrics, even some of the loftiest of expectations, raising their forecast. But we're still seeing the street selling off on and do you think maybe this is some profit taking or was there anything in the report that you saw that was particularly concerning.
Absolutely not. I think the report was definitely solid, So I would characterize this as a solid report, but maybe not spectacular. So I think even in terms of the guidance RaSE, yes, we did have the revenue guidance raised from about thirteen percent to fifteen percent for the full year, which I think is really solid. Mid teen's revenue growth is really solid for a mature company like Netflix. But I think with the operating margin, and I think this
is where maybe investors are slightly disappointed. You know, they raised the guidance from twenty nine percent only a smidge to twenty nine point five. I think a lot of the investment community was looking at something and excess of thirty percent. But again, they're operating margin guidance for three Q seems really strong. I think they're taking a little
bit of a conservative approach. Of course, they do point out that they do have all of their big content releases coming out in the second half, which is obviously going to crimp that margin, but I think still it is a little bit conservative conservative, and I think eventually they can go above thirty percent for this year.
Expectations were so high going into this This is a I was shocked when I looked this morning that Netflix's market cap is up to five hundred and forty two billion dollars. It's up forty three percent this year. The value has pretty much doubled over the last year. It's pretty remarkable that even though expectations were so high, they were still able to beat and raise.
Oh absolutely, I mean, and remember Tim, you know, they have set not just expectations for this quarter or this year, they have expectations going out till twenty thirty. So their whole goal by the time of twenty thirty is to reach the trillion dollar market market cap club. And they have so many other different metrics. You know, they want to across the four hundred and ten million subscriber mark
right now they're somewhere right above three hundred million. They want to get an operating margin of somewhere around thirty eight to close to almost forty percent. They want to double revenue, and then most importantly, they want to get their advertising business really growing at nine billions. So you know, there are multiple metrics, there are multiple catalysts. Twenty twenty four obviously was the biggest year in terms of subscriber numbers.
They gained something like over forty million new subscribers. This year is all about price increases. We already saw them take those price increases, and then next year is all about building their advertising business. So they do have multiple catalysts, you know, through twenty twenty five through twenty twenty six. I think the street is going to those start to wonder what happens after that, and so we do need some strategic direction from them, you know, sooner rather than later.
Jitha, I remember back when Netflix used to be options to get DVDs? Do you remember that? To him? I used to go and actually go get a DVD. Then there weren't any commercials at the time.
Really did I did that?
Hey, you know I can hang with the big dogs, say okay, but we used to have DVDs. Then there was no commercials. Now we're seeing commercials. We're seeing a lot of these competitors coming out and doing the ad tier version as well. How is Netflix settling in this entire thing? Are they still the front runner here or do we see the likes of Peacock and Disney Plus and all these other streaming services coming in to compete.
So they are definitely not the front runner. Nora, So they might have won the streaming wars, the streaming subscription wars, but they're definitely a late entrant to the whole advertising party. I would say the front runner there in terms of streaming ad dollars is definitely Disney. They have an absolutely fantastic business. They have Hulu, they have Disney Plus, they have all of their ad infrastructure up and running from
their linear TV business. So Netflix definitely late to the game, but I think they can still make a dent here because we're seeing a whole huge shift, an industry wide shift away from linear TV, which used to be about a fifty five sixty billion dollar industry, to what is called connected TV digital advertising, and Netflix is kind of
putting everything in place. So they're making sure that they have the right type of content because this type of on demand content doesn't necessarily really play well to advertising. You really need to have more of a live event or a sports type of content where you have you know, a huge audience tuning and at the same time to really appeal to advertisers. And they're making you know, they're definitely making those investments. So we know that they went
after WWE, They're going after NFL. There's more and more live programming that they're adding every day. And then of course it is building on the tech side, right they need all of the ad inventory capability. They just recently partnered with Yahoo. They set up their own proprietary, proprietary ad tech platform, so they're you know, kind of getting all the infrastructure, all the plumbing in place for the ad business to take off in a pretty big way.
And even this year, you know, they expected to double from last year, and while they didn't give any numbers, we think that even this year it will approach about two and a half to three billion dollars in revenue, which is pretty significant considering that, you know, they just introduced advertising about two years ago.
What is international programming looking like?
Very strong? I mean, quarter after quarter we see you know, some of their biggest titles being non English titles. I mean, the greatest example, of course, is Squid Game, which is their biggest title ever in the history of Netflix. And they have multiple, you know, titles that they highlighted in their investor newsletter for the second quarter. I mean, whether it was X Territorial, which is a German movie. You know, so many there was a big animation series from Korea.
You know, multiple series across the globe playing really really well and scoring on par or even better with the English titles. So you know, this has been a really good strategy for them, you know, localizing a lot of the content, going after international content in all of the different territories, and that really health drive subscriber numbers as well. You know, seventy percent of Netflix a subscriber bases outside the United States.
Getha, Since it's your job to know what Netflix has? Can you just sit at work all day watch Netflix?
I wish I could, damn all.
Right, Well, it sounds like you know what you're doing, so you're doing something right, and we really appreciate you joining us on Netflix earnings Day. It's always great to have you on the program. Getha Ranganath and she's Bloomberg Intelligence senior media analyst joining us on Netflix. Check out her research. It's going to be updated soon if it's not already, it's on the Bloomberg terminal. We are seeing shares of Netflix actually move lower in the after hours
after an initial bounts hired. The company did report results that exceeded investor expectations in every major metric, revenue growing to eleven point one billion dollars, earnings jumping from seven, earn is jumping two rather seven dollars, and nineteen cents per share. The company also raised its forecast for full year sales and profit margins. It expects to generate up to forty five point two billion dollars in sales and have an operating margin of twenty nine point five percent.
Let's bring in Mark Douglass, the CEO of the publicly traded advertising and marketing company Mountain ticker MNTN. He joins us from Miami. Mark, always good to check in with you. I want to focus specifically with you on the ads supported element of this. I was telling Nora earlier. You know, I'm old enough to remember when Netflix said they would never do ads, they would never do live content, they
would never do news, they would never do sports. Now they do all of those things, And is the and more is the ads business working?
I think the ad business is off to a start. It can grow so much bigger, and you know it's obviously growing. I think they're they're saying that they expect a lot more growth, but it's also in a competitive space. They're competing with Disney, with Peacock, with Paramount, Warner Brothers, and you know those big spenders, those big brands, they don't really increase their budget, So if you want to come into that space, you have to take market share
from someone else. Netflix is what I would expect over time, is that whatever percentage of viewership they have is what percentage of the ad market they can get, So they have a lot of room to grow. It is working, but it's still relatively small compared to where it can be.
I find it really interesting. We were discussing how people are willing to pay for these subscriptions even if they do contain ads. I can literally remember when you would watch Netflix all the way through, no gaps at all. But it seems as though this is a really thriving part of their business here.
Yeah. Well, I mean why did they add the ads? Because their customers wanted a lower price point, and so it's a simple trade off. We'll give you the lower price point if you'll let advertisers pay for part of your subscription. That's effectively what's happening. And so the customer is getting what they want and Netflix is getting the revenue they need know in order to make that possible.
So it is a win win. I'm not sure sure everyone that gets ads thinks it's a win, but it's certainly a win that they don't have to pay as much to get the content.
So I'm looking at the different plans and pricing for Netflix here in the US. There's the standard with ads. There's standard, there's premium, so it starts with seven to ninety nine a month. You can go for premium up to twenty five dollars a month. Again, this is here in the US. There are different intricacies to this because you can pay for extra members and the like. Netflix has gotten really good at as my brother likes to remind our entire family understanding if you're sharing an account
and now everybody kind of needs their own accounts. Is there from the perspective of actual growth here in a saturated market in the US, is there a concern or is this by design that if Netflix raises the premium price then there will be a small portion of the folks who don't want to pay twenty five dollars a month or whatever, and instead they'll drop down to that ad supported model. Is that the strategy?
I think yeah. I think worldwide Netflix maybe last quarter, the quarter before Essential, the last time they were reporting subscriber numbers, they said the number one, you know, kind of tier that people were buying was the ad supported tier. I think it was as much as half of all new subscribers. And so people want it. They want that price point. I think what's really interesting is the way to think of it is Netflix is building a backlog of future revenue. So, in other words, they bring on
the subscribers that they are essentially under moonetizing. They're charging them seven ninety nine, and they're getting relatively few ads. And as Netflix increases the ad load and essentially makes more money, that is just like pure like that's going to flow directly a bottom line. I would expect Netflix's earnings to outstrip their revenue growth literally for years to come.
It's somewhat similar to the password backlog, where they knew all these people were sharing the password, and at any time they can just kind of kind of get more serious about that and all of a sudden it produced all this additional revenue. That's what's going to happen with Netflix is advertising and I think I have never seen a company this large that I would say should be treated as a high growth stock. That's the potential in the at business right Mark.
One thing that was interesting to me as we're parsing through this earnings was the fact that Netflix boosted its full year revenue primarily due to US dollar depreciation. What's your takeaway from.
That, Well, I mean their global business. I mean, I think that's for financial analysts to really look at. I mean, obviously they don't want to be fluctuating their price points based on the way financial markets are valuing the dollar
and other things. But I think the I think most investors are going to look at the growth in revenue, growth in earnings, continue expansion in national and I think the most important value for Netflix, which is not really explicitly measured in numbers, is they, through surveys, they are the first place people go when they turn on their TV.
Is they turn on Netflix. And the amount of power that gives this company is it's almost hard to state that that's how they can turn you know, like fights into like numbers that rival some of the biggest sporting events, or turn wwee into you know, a big show on Netflix where one has been as big as another channel. And if I'm gonna invest, I'm going to be as long as Netflix is the first place people go, It's going to be the first stock I want to invest
in that. I think that's the biggest correlation.
Hey, hey, Mark, since you are focused on the ads business, in your view, what's a more profitable subscriber for Netflix? Is it the one who's paying seven to ninety nine a month for the ad supported version, or is it the premium subscriber at twenty five or the standard subscriber at eighteen bucks.
I think the premium is probably the most profitable, but I think then the ad supported has the potential to become the second most profitable. I don't think it's there yet because they simply are not monetizing all those entertainment
consumers at the level they could be. But when they are, they're doing seven ninety nine on that price point, who knows, it might be eight ninety nine next year something like that, and they can make probably equal to that in terms of AD dollars per user, and maybe even a bit more than equal to that in AD dollars per user.
And you see that's what Amazon did were Prime where they just flipped the entire customer base and the AD supported, So that ad supported in terms of volume because most of the subscribers I think will be AD supported over time. Is the most profitable in terms of just share dollars right now, it's probably the premium at twenty five dollars mark.
I mean, when you think about Netflix historically, they were initially felt like the leader, but you're seeing a lot of these other companies any here trying to additionally monopolize the space. But that being said, we did see some news earlier that Comcast is raising the price of his Peacock streaming service by three dollars a month. Very fitting today when we have Netflix earnings. How are you thinking about Netflix as a potential leader right now in this space?
Yeah, I mean that losing that leadership position is going to be hard for them because they just have to keep investing in content, and they're profitable and very profitable, so they can afford to keep doing that. But I think what you're seeing happening is the other networks are fighting back. Peacock with Love Island just massive show over the last month from what I know, did incredibly well advertise in terms of revenue generation. I think it's the
number one reality show in the world. Plus they have Bravo and others. You have Disney with all the children's content, Star Wars content, ESPN now going into live sports. I think all the networks have gotten way more serious about competing and they're bringing out their own hit content. But as long as Netflix is number one, I think it's hard for them to lose that spot. Probably the only company that can really truly challenge them is Disney.
Absolutely. It's interesting. We were just talking about Love Island.
I am.
I'm a watcher of Love Island, so I see how they were able to skyrocket.
Here somebody who I'm co anchoring with today went to like a Love Island premiere, a watch party, watch party, or.
That you hosted a watch party of my own two days later.
Meanwhile, I've never even seen an episode of whatever you guys are talking about. Mark Douglas, always good to see you fly on up here to New York next time so we can hang out in the studio. Mark Douglas is CEO of the publicly traded advertising and marketing company Mountain