Bloomberg's Sweeney on Netflix EPS: Slowdown in New Subs(Audio)

two sixty one. And again we are awaiting those Yahoo numbers. Records today for the Dow and the SMP five hundred index, SMP up five to twenty one sixty six, up two tenths of one percent, Dow up sixteen points to eighteen thousand, five hundred thirty three, a record there, up point one percent, and has stack up five tenths of one percent. Gold up to forty the ounce the thirteen twenty nine of

two tenths of one percent. Crude oil down sixty eight cents of arrel forty five twenty seven, a drop there of one and a half percent. I Charlie Pellet, and that's a Bloomberg Business flash. This is taking stock with pin Box and Kathleen Hayes on Bloomberg Radio shares of Netflix. They are sinking there, down about thirteen percent and after hours trading here to tell us more, Paul Sweeney, US Director of Research, Senior Media Internet analyst for Bloomberg Intelligence.

Of course, Bloomberg Intelligence providing unique real time research and context on a variety of industries as well as markets and all government factors that affect business. Our terminal custers can access this function at b I go all right, Paul Sweeney, you go go ahead, tell us what's going

on with Netflix and why is the stock down thirteen percent? Yeah, you know, growth is really slowing here at Netflix, says you know, as I've said all along about this this company, in this stock, the stock is really a momentum stock. And it's not an earnings momentum stock. It's not even a revenue momentum stock. But it is primarily a stock that's driven by a momentum and subscriber growth. In what we're seeing is a pretty serious slowdown in new subscriber

ads for the company. So the company added about one point seven million new subscribers globally this quarter um and that that missed, however, the company's own guidance of about two point five million news subscribers, so a big miss there. UM In a year ago period, the company added three point three million UH new customers, so UM. We the market knew that growth was slowing here, it's just much much more pronounced than the market was expecting, and hence

the big sell off here. And this is the sell off connected with higher prices for Netflix subscriptions. I think that's partly to blame for it. They the company has, you know, has been raising prices and they typically grandfather some existing customers into the lower prices, and they were rolling off that grandfathering UM. And so we expected the turn to pick up in a quarter with which it did. But we're really seeing a pronounced slowdown both in UM

the US market as well as their international markets. Both of those markets, UH missed their new subscriber ad UH forecast. So you know, in the US market, it's a more mature market. Netflix has been here a long time. It's a more mature market, more competition, so the market investors weren't really expecting a lot of growth coming out of

the US market. UH. The investors, however, were really banking on continued growth and their international markets, and they've rolled out there pretty much every market in the world with the exception of China. Uh and the international markets had in fact been the big growth driver and new subscribers

offsetting kind of the slow down in the US. But even the international markets markedly missed UM their outlook for new subscribers in the second quarter, and the company's guidance for third quarter in terms of subscriber ads is also well below investors forecast. So again, just more confirmation that the growth is slowing and slowing faster than the than people really thought. Well, Paul, you know they say that

history doesn't repeat itself, but it rhymes. The last time I really heard about subscriber growth that had to do with those numbers from America Online. You'd watch to see whether there were more subscribers month over month and whether they reached the analyst estimate. Sales for Netflix were up twenty eight percent compared to a year ago. And to confirm your thoughts about the US market, there are forty seven million customers in the United States. So where does

Netflix go next? Well, I think Netflix, Um. It's funny you mentioned America Online I was actually the third analyst to pick up coverage of that stock in I have to confess, I really do remember you. That's the analogy I make to a lot of investors that reminds me a lot of the early a world years. UM. But I think for obviously, the market place here for Netflix is just an extraordinary, really large market. UM. Netflix is

the brand they preferred brand in the market. They also have first to market mover advantage in most of their markets, so they have a tremendous amount of resources and growth ahead of them. I think it's simply a question they're finding that in a lot of these international markets, UH, there's a lot more nuances to these markets, and therefore the growth rates aren't what they thought they would be.

In some markets, UM, local programming plays a lot better than Western programming or or American programming, and a lot of markets there's more established UH competitors in the marketplace, like France and in Germany, for for example. UM So, I think they're coming into the market which a little a little bit more competitive, a little bit more mature, and they're not getting some of the growth that they were seeing in some of their earlier international forays. Just

several years ago. So I think the the overall long term opportunity still very large for Netflix, But this was the stock that was really pricing in uh, you know, continued exceptional growth rates and subscribers and revenue, uh that it doesn't appear that the company can do. This is really the second quarter in a row we've had a real uh kind of uh disappointment in new subscriber ads. Uh, Paul, We're waiting for Yahoo to release its results. Will there

be any surprises and what should we look for? Well, you know those two two things here. One is just the core operations of the butt, and I think the expectations remain very low there. I think, you know, street consensus is for another twenty percent decline in revenue, again in a business that's growing in terms of the industry growth. Uh. So the question here is, uh, where is the company

in terms of selling this core business? And final bids were due today, so the market's clearly looking for some color there and some guidance there as to um, you know, do we have a final bid or what is the price? What is the future this operating company? Because it looks like clearly Merissa Meyer and her management team have been unable to turn this story around. UH. So investors are clearly not really focused on the core fundamentals, but more

about who's gonna own this thing going forward and then sex. Secondarily, it's simply a question of the real value of this company continues to be the company's investment in Ali Baba and in Yahoo Japan. UM And the question there is okay, uh management team at Yahoo and board, what is your plan now for monetizing that value for shareholders? They have not been able to put a credible plan on the table yet. It's been well over a year. Uh. And I think people are simply, uh, you know, really looking

for some clarity there. Want want once, once and for all. Just give you a five seconds. Is Mersa Meyers jobs secure? Uh? I would doubt it. I think any new buyer will probably want to put their own management team in place. Thanks very much. Paul Sweeney, US director of Research and senior media Internet analysts for Bloomberg Intelligence also form an analyst for on America Online. This is taking stock. I'm pim Fox, and this is Bloomberg coming up. Bloomberg Laws

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