This is a hard business content is not one. Could you spend more content has to be good. Netflix had a huge lead over everyone else, but eventually the media industry realized that they needed to compete and they have advantages, like they have Brands, they have sitcom
libraries, they have ad sales. So we look at the model and this is the first time I can ever say is, you know, our confidence in the forward model is so low on April 19th, the leading streaming service Netflix reported their earnings and to The astonishment of a lot of people including myself the company reported that they lost 200,000. Net subscribers at quarter and they forecasted an additional loss of 2 million subscribers next quarter.
Now, after this, Netflix news of the company, basically crumbling and the stock price going down 50%. Plus there's been endless analysis on what Netflix needs to do, what they need to change, how they need to compete with HBO Max and how they need to compete with Hulu and so on. And so, Earth. Lots of people doing specific analysis of how Netflix needs to change their business model.
It's gotten to the point where it's almost like an intervention, where all the online personalities have have come together and said, Netflix, you gotta change in my expert opinion and it pains me to do this. I'm going to have to diagnose Netflix with key content disease, but it doesn't mean it's terminal yet. Critical here, for example, diagnosis Netflix with shizzy content disease, he does believe that they have a chance to to
make it out of this though. Now critical here in the online community might be right, maybe Netflix is content isn't up to Snuff and the stock price. Certainly reflects that it's down a staggering 72 percent from its November heís. Just back in November, this stock traded above six hundred and eighty dollars a share. Now, don't get me wrong, there's a lot of reasons to uniquely criticize Netflix and their
business model. The companies clearly been lacking in their Direction, but there's one more unique thing about Netflix. That's very specific to the Company. It is the first major company to report ahead of the earning season they reported on April
19th. So this is before almost every other company reports their earnings and that means that Netflix is unique and being the first one to report and often times, you really don't know what to expect because there's no other company to gauge your earnings reports, based off of Netflix is just going in, without any context. Now that we've had a couple more companies report, their earnings, I've noticed a common theme.
Name something that I think is a bigger concern than just Netflix. I've noticed it. We're in a Content bubble. That is starting to explode. That's right. I believe are in a Content bubble and that bubble right now is being pop. Now, hear me out here. Let's consider the evidence. One of my biggest Holdings is Microsoft and they just reported earnings. Microsoft's earnings were
frankly, amazing. As usual as you would expect with this company, they reported earnings that beat both in the top line revenue, the bottom line earnings, and they're growing their Microsoft cloud business. Like, Crazy. Do you realize that Microsoft's Cloud business? Has a revenue run rate of ninety three point six billion dollars per year, just in their Cloud business, they're almost revenue and over 100 billion per year and to give that some perspective.
This ninety three point six billion is more in Revenue than Microsoft did in its entire business in 2016, just five years ago. So, Microsoft's Cloud business has grown to be this Juggernaut and the company is doing fantastic. Now, this was the headline news. This is what everyone looked at is Microsoft's office, suite doing well and their Cloud business doing well. But after listening to the earnings call of Microsoft, something caught my attention, Microsoft gives their forecasts
for next quarter. They say, in Windows commercial products and cloud services, customer demand for Microsoft 365 and our Advanced Security Solutions should drive growth in the low double digits that's consistent with their previous growth. They say in surface, Revenue growth in the low double digits. That's Stick with their history. They say in Search and news advertising, we expect Revenue growth of approximately 20 percent.
That's pretty decent growth, 20% growth, but here's where Microsoft gets to the content portion of their business. The gaming portion, remember that, Microsoft is a massive gaming company. In fact, they're literally going to be the second biggest gaming company in the world they say and in gaming we expect Revenue to decline. It's going to decline in the middle to high single digit.
Even by low engagement H year over year as well as constrained console Supply. So they blamed some of this on the fact that they're having problems making enough consoles, but they also highlight something very important there, lower engagement, that's the technical way of saying that less people are playing video games. Now, they say, we expect Xbox content and service Revenue to decline to mid-single digits. Now, it's going to be growing at
mid-single digits. So the growth in the Xbox and content category of Has basically dried up for the time being low single digits is very slow growth. So so far we know that Netflix is losing subscribers and they're forecasting 2 million loss in subscribers next quarter. But now we have Microsoft saying that they're going to have lower engagement than anticipated and the content and service revenue of the Xbox will decline to
mid-single digits. So this is where I'm starting to think that we might have a general issue with a Content bubble. Maybe these issues are broader than just Netflix alone. Now moving on, we can look at the next piece of evidence. Google reported earnings and their earnings were actually a Miss. They missed on the top line and the bottom line. Now overall this wasn't a big Miss and don't get me wrong.
Google's doing great, this company is in great shape right now and they just announced 70 billion dollars in share BuyBacks. So they're going to be pouring free cash flow into BuyBacks and I see this company as a very strong by right now. Now aside from all that, there was one interesting part about Google's earnings report. The weak part of the company. In fact, the weakest part of the company was YouTube. That's right.
YouTube had the slowest Revenue growth, YouTube missed, its numbers by the biggest margin, the earnings of Google was barely a miss, and this is mostly caused by investment, not by operating income. So, I wouldn't read into this EPS missed too much. The revenue was barely a Miss. Sixty eight point zero, 1 billion versus sixty eight point. One one, that's a hundred million dollars out of a 68 billion dollar Revenue. The cloud service is actually beat.
Google's cloud is growing like crazy. 5.82 billion versus 5.76. That's good news for cloud, but then we get to The YouTube portion of Google. Again, this is the content portion of the company. Six point eight, seven billion
versus 7.5. 1 billion, the almost missed by a billion dollars, that's a pretty substantial Miss. Not to give this some perspective, YouTube is still growing, but the growth rate was much slower than anticipated in q1 of 2022. This is just the most recent quarter, it grew by 14%, now the quarter before that YouTube grew by 25% the quarter before that it grew by 43% the quarter before that it grew by 83%. So we go from 83 to 43 225 to. Now 14 the deceleration and growth of YouTube has been
pretty substantial. So after reviewing all three of these earnings reports, I'm starting to see a common theme Here. The part of the business that struggling is content. That's the common theme. Now, unfortunately, for Netflix, their entire business is content, so their entire business is struggling for Microsoft. Only a small part of their companies content. Just Xbox in entertainment part.
So even though that part of the company gave really weak guidance and it's clearly slowing down overall Microsoft is doing just fine because that plays a small role and again with Google overall the company's growing at a Brisk Pace, 20% year-over-year clouds growing like crazy. The big part of the company that was a weakness was the content part of the company. Now after seeing the content part of these companies do poorly, I was very interested in
how Warner Bros Discovery did. This is a new big content Juggernaut that's going to be competing. Eating with Netflix and Hulu and they just reported earnings yesterday after hours. Well, wouldn't you know, the company's down 7.5% today and that's with the market currently in the green across the board. So, Warner Brothers Discovery is following that trend of content not doing too well. So I listened to Warner Brother discoveries earnings call.
And I was looking for anything in this earnings call where they talk about churn or engagement or issues, keeping people engaged to their content. That's what I was trying to find out and here's a clip from that. All from Gunner, one of the executives, talking about the struggles, they're facing with engagement and turn but we want to get it right. It's critical because, you know, you could have a record-breaking number of people watching Euphoria.
But we want to make sure that when they finish Euphoria, if we have the goods, if we have, all this great content on that, we were ability, we have an ability to recommend to people, you just finished Euphoria. Here's the other eight shows that you would love whether it's Chip and Jo whether it's Oprah whether it's 90-day fiance, or whether, or whether it's mink store or another great HBO Max series, but we have some work to do on the platform itself that will be significant, but we also
think that one of the big opportunities here is going to be churned reduction. He says that when you finish a show on HBO Max, they want to recommend all these great shows that are somewhat similar to the one, you just finish to keep you on the platform because obviously, Big opportunity a big issue. They're facing is churn meaning people. Leave the platform they unsubscribe. This is the same exact issue that Netflix is facing but Netflix is at a much bigger
scale. Turn is a serious issue for any subscription company, especially competitive media companies. Any highlights, how turn has been much higher recently than they've ever seen before. There's meaningful churn on HBO Max much higher than the churn that's on, that, that we have
seen. And so the ability for us to come together, Is part of one of the Theses here that managing churn, and we've seen this, because we've been added in Europe for eight years as you begin to manage churn in a meaningful way that provides a real real meaningful growth. Did you hear the key thing that he said they're the turn on HBO Max is much higher than the turn that we've seen before.
Now, it's interesting that HBO is also having turn issues after all, HBO is supposed to be the highbrow entertainment with the high quality, they don't have All the garbage shows on the service like Netflix does remember, Netflix is doing poorly because of its bad content. Netflix has been funding, basically anything made by someone with a pulse and even that seems to be spotty. It feels like they're funding scripts written by being AI.
Everybody sees the HBO and Netflix are different companies and they have different products HBL makes high quality stuff, and Netflix, and many cases makes low-quality stuff. But the thing that they seem to have in common is a common problem, and that is churn. So we can try I to get into the nitty-gritty and see what everyone of these individual companies are doing wrong, but I think people doing that are actually looking to nuanced into specific and they're not looking
at the glaring problem abroad. It is a Content bubble problem. Netflix isn't struggling because it suddenly has low quality content, that was the issue, then. How do you explain HBO Max with their high quality content and even a higher level of churn? The Netflix, if this was simply a Content quality problem, then how do you explain Xbox having significant deceleration? This is a gaming platform.
Games have literally never been better than they are today, is it because Xbox suddenly doesn't have a good offering? Well, I don't think so. I don't think it has anything to do with that because we also have Google having YouTube being the biggest part of their company. That mrs. And YouTube has never had a year where it's produced more or higher quality content than last year. So personally, I don't think this is an issue having to do with low quality content or high
quality content. I don't think it has to do with the Xbox and particular verse 2, PlayStation, what exclusive games they have. I don't think this has anything specifically to do a tick. Talk either. I think, overall, we are in a Content bubble because of a significant lingering overhang from covid, Michael burry tweeted about this problem and how it plays a bigger role than what's going on specifically with these individual companies. He says, quote, this is the problem.
The last 18 months, the government has given out 850 billion dollars in direct stimulus, checks four hundred billion dollars in Cash out. Refinance has one plus trillion dollars and forgivable Loans 250 to 500. Two billion are fraudulent another four trillion dollars in indirect Etc. What recapitalize has the consumer now, higher wages, can't do that. I think dr. Burr is 100% accurate. With this tweet, people are given a free pass over the past 18 months. They were given endless amounts
of money. You look at these numbers in there in comprehensible. The government gave away trillions and trillions and trillions and trillions over the past 18 months. That's so much money to why's the consumer. That's a lot of money that makes it so people can stay home. Not worried about work, sit home and consume endless content through Xbox live through HBO.
Max through Netflix, through YouTube, through every other source, every other podcast, every other Avenue and that endless capitalization of the consumer, enabling them to stay home and consume content endlessly, I think has led to a lot of booming numbers and booming growth that simply can't be sustained. So what's clear to me now is
that we're still The effects. The overhang of the covid, lockdowns, the overhang of the mass of capitalization that happened to Consumers. We're still seeing those effects hit the companies and their earnings reports. And what I see right now is the content portion of that starting
to diffuse. So now when I'm looking at the different companies that I'm investing in, I'm trying to determine which ones are going to continue to have that overhang effect, which ones are going to get damaged as we return back to app, Rico Vdara, when I look at Apple and Microsoft, it's true that both both of them have their hands in content. Apple has their Apple TV plus they have apple music. But in reality, that is a pretty small portion of their business. Apple has so many different
businesses that they're growing. That I don't think this company is too exposed to content. Nothing to the extent of a Netflix or an HBO. We have Microsoft, but the big story with Microsoft is their cloud and their office tools, that is what's driving the major growth and the profitability of the company in consumer, I have one company that is heavily focused on content. Is of course Disney and wouldn't you know this is one of the companies that so far isn't
doing well. I'm currently down around 5,000 dollars on Disney, Disney has their earnings report, May 11th. So we have some time to wait for this one and I assume that their earnings report is actually going to be decent. I think they'll beat their EPS number because their Parks operation and I think they'll beat their revenue estimates because again their parks are completely packed. But the big story with Disney is there streaming services.
And in my opinion, I think there's a strong chance that Disney will fall into some of the same issues. As these other companies I think they're going to deal with a heightened level of churn Disney has an advantage over established dreamers like HBO and Netflix. They have less subscribers as their total base. So the fact that they have less subscribers is their total based means that they have more room for growth.
So Disney will probably continue to grow at a Brisk Pace right now but under the hood of Disney plus, if you're able to look at their subscriber growth and their churn numbers, I would make the strong assumption that they're facing a height level of churn like every other streaming company. So I'm Continue to hold Disney as of now because I think there are Diversified company and their Parks operation. I believe will put up very good numbers.
But having said that, I think that this year and this upcoming season might be difficult for their subscriber growth and outside of Disney, I don't hold any other companies that I believe have their hand and content. The core category doesn't restaurants don't. Real estate doesn't, and financials don't. So my big exposure to the content category is through big Tech and Disney. So if you're investing right now, I think that there's something important to keep in
mind the company. Annie's that have benefited from the 2020 lockdowns. And from massive capitalization of consumers are likely going to continue to get hurt over the next year, whether that's in content or different categories. I think the same theme will apply any company that benefited from the lockdowns. And from covid is likely going to see a precipitous deceleration and their growth. That's all for this episode. I hope you enjoyed other than that, I'll see you next time.