Yahoo Finance Live anchors discuss third-quarter earnings for Netflix.
Video Transcript
BRIAN SOZZI: All right, let's fly back on Netflix here. Netflix earnings, the company finally saw subscriber growth. CEO Reed Hastings commenting on forward-looking momentum in the earnings call.
REED HASTINGS: And then we got to pick up the momentum. Everything the company is focused on, whether that's on the content side, on marketing, lowering prices to the ad-supported, the page sharing, the thoughtful approach we're doing there, lines us up for a good next year. We still got FX. That's a huge hit, as we've explained. So that's not going to go away. But other than that, all the stars are lining up very well for us.
BRIAN SOZZI: Well, Reed may want to pick up his chair. He was looking a little low there in the shot. But nonetheless, we're seeing two upgrades here on Netflix after this report, one by JPMorgan, another by Deutsche Bank. And I'm going to lock in on Deutsche Bank because I think it captures perfectly the move we are seeing on the stock here post-earnings, which I would say were pretty surprising on numerous fronts.
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But Deutsche Bank upgrading to buy, taking their price target to $350, saying, quote, "We believe we have now have visibility into a subscriber growth inflection point next year, given that Netflix management has confirmed both the early 2023 introduction of its new measures designed to better monetize account sharing." So the Street coming out bullish on changes to account sharing over Netflix.
BRAD SMITH: This was a pure acknowledgment of the screen wars that Netflix is going through, and not just on the streaming side. It's also some of the other social media players, of course, who are competing for the eyeballs, for the impressions and the attention, and particularly, within that attention, the engagement.
Netflix pointing out in this quarter that they had higher engagement than any other streamer, at least, in that ballpark. UK Netflix accounts for 8.2% of video viewing. That's 2x Amazon and Disney+. And then in the US, accounting for 7.6% of TV time, also 2.6x what Amazon is seeing and 1.4 times what Disney is seeing, plus Hulu and Hulu Live right now.
JULIE HYMAN: And also, this quarter really represented a shift on the part of Reed Hastings, right? He-- the acknowledgment that it's not a growth company necessarily anymore, although he did express relief that they're back to growing subscribers, but entering a new, more mature phase for Netflix in which he really makes the demarcation between he and his competitors not based on growth because Netflix is not going to beat those other streamers in terms of growth because they're in a different phase of their life cycle, but on profitability.
And that's really a change in tone here that we're getting from Netflix with this switch to not forecasting subscriber growth anymore, right, to switching. And he sort of painted it as reflective of what they're hearing about a different shift to profitability. But they're also shaping that conversation now by getting rid of those subscriber growth forecasts.
BRIAN SOZZI: No, it's a great point, Julie. And that was put right at the top of that Netflix earnings release. And I was surprised. It was almost as if Hastings was saying, we're just going to wait out the rest of these players. Let them go bust. None of their content may pan out, and we're going to stay here and we're going to keep on doing what we're doing.
But I do want to mention JP Morgan. That's the other upgrade over here on Netflix this morning. They're saying they have visibility into revenue accelerating. And all I will say is this. Netflix better deliver in a big way on this ad platform. If there is any sense of it not launching well, any technical difficulties, this stock is going right down the drain.
BRAD SMITH: Well, the ad platform is only as strong as the content is at the end of the day, too, because you need to have those consistent viewers that are coming back that the advertisers then want to be able to get directly in front of. And so for the viewers, actually seeing that continued value in the Netflix content that they're going to have to continue to spend on.
And yes, to your point, Julie, it's really them kind of waiting out some of that competition, realizing how much they are spending as they put in this release, our competitors are investing heavily to drive subscribers and engagement by building large, successful streaming businesses.
But that's hard at the end of the day. They estimate that they're all losing money. Combined 2022 operating losses well over $10 billion versus Netflix's $5 to $6 billion in annual operating profit here. And so it's how much they can continue to take some of those profits, thrust that into the content to bring those advertisers continuously back to the platform.
BRIAN SOZZI: Yeah, good quick point here from our executive producer, noting that these upgrades on Netflix, at least they might be early. And I see it. I understand it. There's a lot of, I think, hope that this ad platform launches very well and launches in a big way. But look, you're still-- at the forecast, they came out with paid subscribers for the fourth quarter. That would still be the slowest fourth quarter they have had in years. So it's not like this is Netflix of old per se.
JULIE HYMAN: Right, and one more thing I wanted to mention. It's definitely not Netflix of old. One more thing I wanted to mention that shows Netflix is becoming more of a normal company, for lack of a better word, is that mention and that focus on currency, right, which we are hearing from virtually every company with international exposure. And of course, Netflix has been getting more and more international growth and international exposure.
The operating margin at the company, 19.3%. It was 23 and 1/2% a year earlier, and it's almost entirely because of the appreciation of the US dollar. And I know we heard that from P&G, which we're going to talk about. We're hearing it really-- this is just the refrain, one of the-- even more than inflation, I feel like the dollar appreciation is the theme of this earnings season. It's something we flagged ahead of time, and now we're seeing it.
BRIAN SOZZI: Well, we're here. That's what we do. We flag things ahead of time.