What's Next For Netflix? Look Ahead To Earnings

that's usually a big event for the stock. Let's welcome uh keitha wrong Onah and she is the technology and media annalyst at Bloomberg Intelligence. She's been covering this company pretty much since its inception as a public company. Keithan, thanks so much for joining us here. What can we expect? What are investors really looking for when Netflix reports next week? Yeah, thank you so much Paul and Taylor for inviting me to this conversation. So, um, it's going to be a

pretty week quarter for Netflix. They have telegraphs that pretty well to investors, so they're expecting about one million editions. This will be the lowest ever for the company in at least ten years, and really it's a factor of many different things. So you had that massive pull forward of demand from last year because of COVID when they reported twenty six million subscribers in the first half of that's usually the number that they report for the whole year.

And then you also have, now, you know, the the additional factor of people going wanting to go more outdoors and demanding more out of home entertainment. And then the third thing that we're seeing is that there was obviously the effect of all those production shutdowns, so they had a pretty light content slate into Q, none of their big titles, So it's really the impact of all those three and so a pretty weak quarter is what we're

expecting in general. With that weak quarter that we're expecting, it seems like Netflix is trying to get ahead of that announcement and help engagement and help penetration by going into video games. What can we expect from net fille Alla video games? Yeah, I think that's you know, it's it's kind of been in the offering, I think for a little while now, and I think it's really a

very natural extension of their content strategy. I think what they're trying to do is to really be a comprehensive entertainment solution and really trying to build more and more engagement as you pointed out, and really more time spent with the platform. Remember a few years ago, when you know, read Hingston's was asked about who their biggest competitor competitor is. He didn't say an Amazon Prime or or even Hbo. He he pointed out Fortnite as being their biggest competitor

for time and attention. Um, so that's really kind of what they want. They want to you know, increase engagement, they want to increase time spent. And I think it's it really kind of makes sense that it makes it. It's a huge oportnity for Netflix to be able to differentiate its content offering, boost subscriber engagement, boost retention against all the other streaming players. Keithan talked to us about

the competitive environment again. Over the last year, you know, we saw a lot of new players on the streaming business, you know, Disney Plus and Peacock and you know all the others uh that are out there. Give us a sense of how it's shaking out in these early quarters. So, Um, as you pointed out, Paul, I mean, Disney Plus has been a runaway hit, so they have amassed more than hundred million subscribers in you know, just a very short about just about thirteen to fourteen months, so they it's

been a blockbuster success for them. Um and of course, as you pointed out, we've had a lot of new players kind of a burst down into the screen. But I think we're kind of seeing, uh, really this come emerged as as as a two horse race, if you will, between Netflix and Disney, but you're also seeing all the other players kind of trying to jockey for scale. So Amazon time very big deals just in the space of

you know, the past few weeks. They went out and acquired the NFL Thursday Night games for about eleven to twelve billion dollars and then the NBM studio for another eight and a house dollars. So again they really want to make Prime a talk to your service. Then you then you have HBO Max and the Discovery deal creating a new company, a hundred and fifty billion dollar company. Again HBO Max wanting to kind of break into that uh, top tier streaming offering. So we're definitely going to see

a shakeout. I think at the end of the day, we're probably going to see about three or four or five major services Nextlork, Mestics, and Disney and Amazon obviously the top one to three I think among those, and then it's going to be really interesting to see what happens with you know, speak of what happens with viacoms, Paramount plus. I think eventually consolidation is on the card, but we'll have to wait and watch. There seems to

be a push pull. We feel like there has to be consolidation because you have to be big to compete. And yeah, we're getting a lot of big anti trust, anti big tech rhetoric out of this administration, saying that they don't like big companies. They want to promote competition. Do you expect deals to get done and and do they get done or they can be tied up in courts for a while. Yeah, So even with the that's a great point. I think even with the Amazon deal, I mean we have the new you know, FTC chair

who kind of expressed some reservations about that. But I don't think they're necessarily if you kind of just look at the business that you know, any of these big tech players are in, I don't think they necessarily pose

any competitive challenges right Acquiring a studio acquiring a media company. Um. Again, I'm not really sure about how long it could be tied up in courts, but I think ultimately, um, you know, if tex players like an Apple or an Amazon wants to go on studio, I think they should be able to do so without too much hassle. Keith A real quick thirty seconds. Is Netflix still a subscriber growth story?

I see the stocks flat year to date. Um, so they have done a really good job, Paul, and kind of moving away a little bit from that over focus on subscribers. They're really now focusing more on free cash flows on margins, and they're showing some real, really good numbers on that front as well. All right, Keithan, thank you so much for joining us. As always, you are our guru for all things t MT. Keith Wrong and Nothing, technology and media analyst for Bloomberg Intelligence joining us on

the phone from New Jersey. Uh. I hired Githa back in the day. We worked together for ten days or ten years, and she has just developed into one of the top media and now technology analysts on Wall Street. And we're fortunate to have her and all the other good folks at a Bloomberg intelligence. Let's talk about retail sales. Got some numbers this morning. Came in better than expected. Retail sales came into zero point six percent gain versus a forecast of a zero point three decline. So pretty

strong there. Let's get some details on that and some of the other retail issues out there in the U S consumer. We do that with A. G. Solanki, national director for Retail in the US for Collier's International, joins us on the zone from phone from San Francisco and Chie, thanks so much for taking the time, love to get your kind of foot snapshot on the US consumer right here as we slowly come out on the other side of this pandemic. Yeah, thanks for having me. So let's

just just dive in. So what we're seeing right now is definitely we saw certain categories in retail I e. Clothing, uh, certain F and B categories, department store sales drop anywhere between, and of course conversely, we saw the e commerce jump in. Right now, we're starting to see a shift. People are definitely coming back strong as it relates to buying power in store, and with that, we're starting to see in

certain sectors a rebound. For example, in apparel increase. It's the largest increase we've seen thus far in any category. And also in addition to that, we're starting to see um store expansion. So this is led by the grocery, the home, beauty, and value oriented concepts. So new store openings right now or outpacing store closing, so we're pretty excited about that. How are consumers feeling about paying higher prices?

On one hand, you have retail sales that looked relatively strong today, but then you're seeing consumer sentiment fall because inflation expectations in the next year are expected to be the highest since two thousand and eight. Are they willing

to pay these higher prices? So there is definitely a concern around that, I think because there's this um you know, kind of the stimulus payment of starting to slowly fade away, so they haven't really put a percent of their mindset into Hey, we're looking at inflation of some sort and pricing, so there's still a spend, a strong spend, and what we're seeing from that strong spend occur is in what

I would say more the service oriented side. So going to the getting a massage, going for a pedigure, mannic here, getting your hair done, um, the hair salons, et cetera. So we're still seeing that momentum um. When we I think it will start to fade, maybe we'll probably see

those results closer to Q three Q four. So Andie, one of the things we saw from this from the retail perspective during this pandemic is what a lot of folks are saying is just you know, this accelerating growth of e commerce, and maybe it might have pulled maybe two or three years worth of market share gains in terms of e commerce in terms of relative to total re retail sales, maybe poured it, pulled it forward maybe by two or three years. Is that in fact the case?

And do you think some of those e commerce gains are here to stay? Um? I don't do not believe they are here to stay. I think they are a

part of our shopping journey for any UM consumer. However, what we're starting to see is a bit of a cutback as it relates to e commerce, and our Q two numbers that we're forecasting are roughly around thirteen point six percent compared to Q two so UM, granted, it was kind of an off quarter, but nonetheless we're starting to see a stay realization, and I think that people are still there's still you know, when we look at the square footage in terms of UM per person square

footage of retail, it's still pretty significant. People want to be out there. Are we finding enough workers to come back to work? Good question. Yeah, that's that's a great question. Honestly, it's been a big struggle some quick things that we've been hearing, especially with chain restaurants and fast casual. What we're seeing in that, you know, in that area is that it has been a struggle. So what are they doing? Well,

they've identified some interesting ways to get around it. First off, we're seeing a lot of the chain restaurants being quite creative with how they're approaching or how they're getting out there to identifying new employees. So we're not seeing too much of an overpaying or arise in wages, but we're seeing some interesting things of how they're kind of connecting with you know this you know, the employees um and

that's either through TikTok. So a lot of the brands are starting to use TikTok to um really get the brand awareness out there, to use that as a way of putting out you know, getting resumes in and out UM and trying to tap into kind of that younger set. So that's one. The other thing that we're I found very interesting is that they're actually offering signing bonuses. Some brands are offering signing bonuses UM to get people in. So it's it's we'll start to see some shifts there.

But for the most part, specifically when it comes to labor and restaurants, UM, they are still challenged. We're seeing that with kind of reduced menu offerings, reduced operating hours, etcetera. Uh, and so they have to be creative today. I think some of the retailers are pretty creative during this pandemic. One of them was this curbside pickup. That's a pretty cool thing. I kind of enjoy that. Is that going

to state? Do you think? Oh? Most definitely. We're actually starting to see um, you know, letters of intent requesting or requiring curbside pick up. So when I was speaking with a variety of national retailers, I said, how is that you helped or not helped having curbside? Is it an added expense? They said, not at all. It's actually

a convenience to our customer. And it's another channel of how we can um provide another solution for that that customer where if they don't feel like they want to come into the store and they just want to pick it up curbside, they have that flexibility and so that's really important to them. They've seen a lift in sales

anywhere between twelve and FI. Yeah, that's pretty pretty interesting seeing retailers get pretty creative on j Slanki, national director Retail for in the US for Collier's International, giving us her thoughts on the retail landscape again generally pretty strong as consumer confidence continues to rebound. All right, So we are getting right into the meat of this earning season

and there's a lot of folks out there. It's a boy, these earnings are really better come through because when you look at valuations, you can make the argument that a lot of these uh parts of the market are overextended from evaluation perspective. Josh Wine, portfolio manager at Hennessey Funds, joins as Josh, I love to get your thoughts on kind of what you need to see, what you expect to see out of this earnings season here as it relates to you know, kind of maybe earnings and valuations

in this market. Yeah, it's good to be with you. I have a spell in my face hearing about karaoke and Dolly part and that's a great way to start this out. The world is a better place for my not doing karaoke as well. Um yeah, earning season, uh, you know, certainly want to see the consumer so as as companies roll out earnings. You know, it was very interesting to see bank earnings and I think it was expected,

you know, very strong earnings there. But you know, we have a retail sales number today that was well ahead of expectations, and things like clothing and electronics and restaurants were you know, above above average growth and and ahead of expectations. So you know, it is what it is, and it would be great to hear, you know, some guidance. You know, what are you know, companies thinking about, you know, the next quarter. You know, right now we have very

easy comparisons to a year ago. But you know, let's see, you know, what it's going to look like in Q four when the comparison is is meaningfully more difficult, and certainly Q one of next year it will be somewhat of a regular comparison to Q one of this year. Josh, how are you investing in this time when you get strong retail sales but then you see consumer sentiment coming really soft given one year inflation expectations are going back

the highest since two thousand and eight. How do you take to contradicting factors and invest Yeah, it's interesting because you know, I was looking, you know, the market, you know, twenty times forward earnings, so about a five percent earnings yield against the backdrop of a one three on the tenure. So you know, valuations on average are incredibly compelling. You know that they're basically that's spread the earnings yield versus

the ten years were we were before the pandemic started. Uh. That being said, you know, yeah, certainly size matters a lot in this market increasingly so. So you know, a Microsoft, great company, thirty four times forward earnings. When I see that, and they're growing quite nicely, but I think to myself that the market definitely places a premium on growth. I think more so in the case of a Microsoft, it's not only a great balance, but just the size and

the liquidity. So I think that there's definitely a size and liquidity story, and what gets blocked out by that by that sun is you know, kind of midcaps with a similar valuation story and you know, compelling growth, but certainly the multiples are not there, and I think that you know in that lies you know a great opportunity. Josh, where are you and your team at Hennessey Advisors in

Chapel Hill, North Carolina. I don't know why you didn't locate in Durham Superior University down there, but anyway, what are you and your team doing in terms of work right now? What are the areas you're focusing on? Sure? Yeah, so I would point you know, in our Hennessy Cornerstone mad Cap thirty fund, where we're looking at valuation, earnings,

growth and stock price momentum. And where that leads us is a lot of the consumer names that you know, don't get the attention of of you know, maybe like a Costco or a Starbucks. You know, these are MidCap names, UH companies like Mattel, Big Lots UH and Meritage Homes, so you know, strong free cash flow generating companies, you know, strong balance sheets. The multiples are interesting to me because I think these are for the most part well known names.

But you know, Big Lots trading at nine times for earnings, Mattel at sixteen times, Meritage at about six times for earnings. So, uh, you know, I think that that you know, value can be its own catalyst. And and I don't think a lot of people agree with that, but I think that these names, they are strong names, and they will live to see another day and and at some point investors will inevitable a U turn their attention towards these overlooked

type names. What is the path forward for interest rates? It? Does it have to go higher from here? How are you thinking about that? Yeah? I think about it a lot. So I've covered equities in in some way, shape or form for about twenty five years, and I've never paid that much attention to the bondo market as much as

I do now. And first of all, you know, the bond market to me, you know, there might be some Obviously the FED is gets in the way of maybe true price discovery to a large degree, but the bond market is telling me that maybe we are borrowing some growth from future quarters now that we've reopened, and there's this delayed wealth effects, so people are out spending money, and uh, you know, you see that if you just walk down any and he needs, you know, any street

in this country probably, And uh so, I think that we've been saying for so many years now that rates have to go higher, and every year that becomes less and less true, and and so yeah, I don't think they have to go higher. I think rates, you know, versus overseas rates are are somewhat elevated in the United States. And when I look at overseas markets and economies they are in no, they are not nearly as good a shape as we are here in the United States for

the most part. So I think that we have a lot to contend with overseas and in emerging markets, and I don't know how sustainable things could ever be if we don't get those economies reopened and functioning properly. So you know, I'm not going to make any prediction on the tenure or bonds in general, but you know, I don't think rates have to go higher at all, and I think they could go a little bit lower. All right, Josh,

thank you so much. We appreciate that. As always Josh Way and he's a portfolio manager at Tennessee Funds giving us his thoughts on the market. Uh. Here it remains bullish here, but earnings coming in fast and furious will continue next week. We had the banks this week, as Josh mentioned, coming in pretty starn solid. But we're gonna have some tech. We're gonna have some consumer names next week that will continue the narrative on earnings and this market.

This is Bloomberg looking at Moderna here stock is up nine point eight percent all time high four dollars. Uh it's got sporting a market cap of a hundred and fourteen billion dollars included today in the SMP five hundred, of course, manufacturer of the Moderna vaccine, which has been so successful for so many patients for this COVID. Let's get a sense of what's going on at this company. That's now you probably started the you know, two years ago,

nobody really knew about it. Now it's a household name. John Murphy, he's a pharmaceutical analyst for Bloomberg Intelligence based in London. He joins us, John, tell us about this company. Give us a thirty thou foot overview of what this company really is. We know it, as you know, a manufacturer of a very effective vaccine. But give us a sense of what this company is about. Sure, yeah, nice to join you. Actually you summed it up very nice. That we hadn't really heard about this company, had we

a couple of years ago. Now it has been around since, but only came to the market in two thousand and eighteen, and it was a I guess a bit of a minnow then, although at the time it created a splash because it's i p O was seven and a half billion, so for a biotech that that was quite significant. So M R and A based a vaccine focused looking at

a number of different infectious diseases. You could argue they maybe got a little bit lucky or got a big leg up when COVID came along, because clearly there was a lot of cash that that came their way. But they have for for a number of years been looking at areas such as flu rs V, side of megalovirus, so really looking to to develop a broad pipeline of of vaccines in the anti infective space. And again, as I said, they clearly benefited from COVID here in terms

of getting an acceleration in development. And I guess the question now is after COVID, where do things go? That is the question. What is the future for this company. We had a great conversation earlier this week talking about using at m R and a technology for cancer for HIV. I mean, the hopes here are so high. Yeah, I

think you're exactly right now. And and you know what, sometimes I think, um, and it's kind of natural that when you see a new technology, expectations initially are high, they get they then they get a little bit disappointed, if you like, when when these high expectations aren't met. And now we're kind of going up to that to

that peak again. So I think if you look at the anti infective areas again, as I mentioned the lights of flu, rs V, sites of megalovirus, these are probably more realistic in the next three to five years to see them come out with a product. I'm pretty long in the tooth, and I can tell you twenty years ago we were talking about cancer vaccines. We've not seen them come through. I wouldn't be betting my money on on cancer delivering something there. HIV again looks like a

pretty difficult area. But although maybe not not as not a sexy, not as attractive rs V side of megalovirus, these are five to ten billion dollar markets, so it's a very very large from that perspective. All right, I'd love to talk about the economics of the vaccine. I'm looking at the f A function on the Bloomberg terminal, which gives the income statement balance you all the good stuff you would need for financial analysis on m r

n A, which is the MODERNA symbol. Eight hundred million dollars in revenue in analysts estimate eighteen point six billion. Is all of that the vaccine. Talked to us about the economics for MODERNA of this vaccine. They're not given it away, are they? It is all the vaccine. Yeah, that that is essentially that is essentially a pent You're absolutely that is the vaccine. And I think the big question as well, because as you said in your introduction,

you've got you've got to stop. Here is a hundred and fourteen hundred and fifteen billion dollar market cat what is the sustainability of that income? So can we factor into our numbers what it's going to do. Is it're gonna do twenty billion again next year for example, give or take the company says it can do, and then what happens in a couple of years after that in terms of in the to the actual the actual economics. They don't release or tell you exactly what they're charging,

but you can estimate it's a shop here. Um. And of course they're going to have some associated costs marketing costs, they've got the R and D costs. But it's going to be relatively profitable for them in the high income markets, certainly, But like a lot of a lot of their competitors, this is being provided at cost to the low income markets.

And Kovacs for example. You know, John, I'm smart enough to know that I should not be going toe to toe with Mr Paul Sweeney on level two income statement analysis for the c f A. What I can ask you, though, is take us away a little bit from fundamentals, and you have a stock that's now included in the S and P five hundred. What are you hearing from We know their portfolios that track the S and P that now have to buy the stock. How much of that is also included in a move that's now up ten

on the day. Yeah, Now, I think I think you're exactly right, and I think that's exactly what it should be linked to today's move. I think we've seen it before, because you get the fact that there's a number of index passive funds. You've also got mutual funds, for example, that index themselves against the SMP. And you guys have no better than me. But I understand there's in excess of ten trillion dollars that is index or benchmark to the SMP. Now, not all of those have to go

out and buy the stock today. But again we've seen it before. You get a spike for the first couple of days, and then it normally settles down. Maybe with Maderna because we've had this phenomenal run, maybe it doesn't settle down as quickly, but that's what you that's certainly what you do. Tend tend to see m r N a technology that's now entered the lexicon for a lot of people as we've kind of dealt through this pandemic.

Give us a sense of who the players are here besides moderna And you know, is this is this something that we need to pay attention to going forward, this technology? Yes, I think that's a really important question, a great point to bring up, and and the reason for that is the was a lot of talk about this. There's a lot of buzzwords go around in pharmaceuticals, in science, and they talk about new technologies and what they're going to deliver, and a lot of times there's a lot of a

lot of talk, but they don't tend to deliver. Now, now this is absolutely not the case here. But we've really got two leaders here. We've got Maderna on one side, and we've got by on Tech, the German company with whom Fiser is partnered. They're the two leaders. They're a long way out, and it's interesting. There's a lot of others and making moves or saying we want to get involved. Fiser themselves that said they might start up their own

their own area. Glaxo had mentioned that, Santa Fe had mentioned it, but it takes a number of years to really get get to understand the technology and make the appropriate investments. So at the moment these guys are out on their own, how much of a lead, maybe four to five years of the lead something like that. But but clearly it's an area that is going to be super important going forward for vaccines. Finally, just quickly here,

I'm thinking, what does this means? Are other sort of biotech companies that are also racing along with Maderna and and you sort of have these big pharmaceutical companies that are making big bats on some of these unprofitable companies at the time. But all they need is is one big grand slam. Yeah, I'm a guess, and you know, the drug companies, the investors, all of us, right, if we're looking at things like that, if you can, if

you can pick out, pick out that grand slam. Absolutely, and that's why a lot of companies are paying huge amounts and some some cases people would say over paying for the new technologies. It's not easy to be able to pick out unfortunately. So I think this is great for the sector going in today. It gets people to focus on a sector that maybe they've not looked at before. Hey, John, thanks so much for joining us. Really appreciate your insight

and expertise. John Murphy's a pharmaceutical analysts for Bloomberg Intelligence based in London, giving us the latest on moderna. This is Bloomberg. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three and I fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio