Netflix Says Tax Dispute Hurt Solid Quarter

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2:55Back to Netflix, where shares down five and a half percent as we speak. The company forecast revenue for the full year. The guidance met the average analyst estimate. There were some questions, though, about profitability. The company out with a statement essentially saying that and this is the headline in the this is the way the letter begins, Carol. Operating margin of 28 percent was below our guidance of 31 and a half percent due to an expense related to an ongoing dispute with Brazilian tax authorities. that was not in our forecast. Absent this expense, we would have exceeded our Q325 operating margin forecast.

3:30We don't expect this matter to have a material impact on future results. All right, so let's get to it with our own Bloomberg Intelligence Senior Media Analyst, Geeta Ranganathan. She's at BI headquarters in Princeton, New Jersey. Take it away. So tell us what we need to know. And why is the stock really down? Is it because of that one-time charge? Absolutely, Carol. So operating margin is now the new metric by how investors kind of look at this company. We've seen just a tremendous increase in the way that they have kind of grown their profits, in the way that they've expanded their margins. It was up over 600 basis points last year.

4:05We were really expecting them to actually exceed their guidance for both this quarter, as well as to take up guidance for the full year. So this kind of really throws cold water on all of those expectations. And overall, it kind of looks really, really underwhelming. What's the biggest thing challenging the company right now? I mean, the biggest thing I think, Tim, over the past few months has really been the growth of AI and whether that's going to be a headwind or a tailwind for Netflix. I think we've all kind of finally come to the conclusion, at least in the near term, that it's going to be more of a tailwind.

4:40We've seen Netflix kind of really lean into AI, whether it's using a good user interface, whether it's improving that or using, you know, AI for, you know, even more and better content creation. So I think definitely in the near term, don't expect it to be much of a negative. But then, you know, I think over the longer term, that's going to definitely be one of the concerns out there. For right now, I think what investors are really looking to, and we need guidance, more guidance from Netflix management on this, there really wasn't much spoken about this in the newsletter, was anything related to advertising.

5:17They talk about doubling their advertising revenue. But again, there are no concrete metrics. There was no update in terms of monthly active users. The last time we got an update from them was in May. We really don't know what the number of subscribers are on the ad tier or even what the revenue is. And I think that will definitely give investors some cause for concern. Yeah, they talked about ads, I feel like, in the press release. But yeah, it sounds like we need a little bit more concrete. Hey, 30 seconds, Geeta. Warner Brothers Discovery, do you think Netflix should do something? And forgive me for just asking for you to be brief.

5:55Yeah, I know. This is a little bit of a head scratcher. So I really don't think this is a make or break for them, Carol. Yes, it would be nice to have. Do they absolutely need it? No, not at all. So again, there's a lot they can do with it, especially the studio lot and all of the IP. But again, I don't think it's do or die. As always, looking forward to reading your research that comes on the terminal a bit later today and into tomorrow. Kita Ranganathan, thank you so much. Bloomberg Intelligence Senior Media Analyst with a breakdown on what you need to know about Netflix stock, down about 5.6 % in the aftermarket.

6:27Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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9:50You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. President Trump's administration is involved in talks for a U.S. company to access one of the world's largest untapped deposits of tungsten. This is a metal used by the Pentagon to make ammunition, projectiles and other weaponry. This crossing the Bloomberg terminal just a little earlier today. Yeah, it's really interesting, right? We continue to see that rare earth's share space move as a result of these headlines coming out from the White House.

10:28Keep in mind, As Tim mentioned, the news yesterday, President Trump signing that landmark PAC with visiting Australian Prime Minister Anthony Albanese to boost America's access to rare earths and other critical minerals. It's an effort to counter China's tight grip on the supply chains of key metals. Now, the two governments will jointly invest in a swath of mines and processing projects in Australia to boost production of commodities used in advance technologies, everything from electric vehicles to semiconductors and fighter planes. It goes into a lot of stuff, Tim. In a story on the Bloomberg, our next guest says, quote, this is the most significant bilateral minerals cooperation we have seen between two major Western countries.

11:08Here to explain why is Gracelyn Baskarin. She's director of the Critical Minerals Security Program at the Center for Strategic and International Studies. She joins us from the Washington, D.C. Bureau of Bloomberg News. Gracelyn, welcome back to Bloomberg Business Week Daily. It's always great to have you on the program. I do want to start with the bilateral minerals cooperation that we are seeing between the United States and Australia. Why is all of this happening right now? It's so great to be back. This is a really big deal, and it's a big deal because this is minerals cooperation that's going not just from conversation, and we've been doing years of talking about minerals, to actually putting the resources in to develop really strategic projects.

11:49I mean, we've agreed to commit$1 billion each to be deployed within six months on strategic projects. And this could be Alcoa's landmark gallium refinery. Keep in mind, China has cut us off of gallium, a really crucial material for semiconductors. And this gallium refinery is going to produce 100 tons a year in Western Australia. That may not sound like a lot, but remember, the U.S. only uses about 20 tons of gallium a year. So it's actually really significant to Australia announcing equity in a rare earth project. there. But what we've also seen is the first time that these countries are making a concerted effort to counter China.

12:25So you may have seen that both countries have committed to preventing Chinese acquisitions of new projects, both within their own countries, but also using diplomatic instruments in other countries. We've seen a commitment to using price support. So really, when you take the summation of all of these different efforts, we're really seeing rubber hit the road with a country that has enormous geological potential. We're talking about 40 minerals that the U.S. identified as critical, incredible financial markets and deep technical expertise. Is this all bottom line about putting kind of a hold on China?

12:59This is about countering China from a supply and a demand perspective. You know, let's be totally honest. This year was a wake up call for the whole world. Until now, a lot of the export restrictions on critical minerals were really targeted at us here in the United States. But the multiple rounds of restrictions this year actually hit companies around the world, like these recent rare earth export restrictions. Australia is still on the other end of them. So what we're really doing is we're uniting with our allies. And again, Australia being the one country that has fought beside us in every war since 1918, right, to say, OK, if we work together, we can actually start to counter China in a meaningful way.

13:36Very then significant again, because it feels like we have gone through a bunch of months where the U.S. is like, we don't need you. We're going to do it alone. We're going to build up stuff, supply chain, so on and so forth. At least this is coming from the administration to do stuff here in the United States. This feels like it's very significant. The U.S. saying, wait, we actually need to have global partners on this. And this is kind of a big message. Again, I'm going to point out to China and really the world at large. And this is a really important message because I want you to understand the historical relationship of Australian mining.

14:08Historically, Australian minerals have flown, have gone to China for processing. So it's a highly vertically integrated industry between these two countries. So this was a pretty big disruption. You know, if we roll out restrictions on China, no one really bats an eye. But for Australia, where those minerals go to China, this is a really important realignment with us in breaking from what has been their historical trade relationship as it relates to the mining industry. So I guess the question that we have is about the U.S. companies that are a part of this. And we've spoken to quite a few of these.

14:43We spoke to U.S. Antimony yesterday. Gary Evans over there, a critical mineral, not a rare earth per se, but in the same space and with the idea that they're getting a government contract, not investment from the government, but a government contract to actually buy antimony for Defense Department purposes. But I'm curious about U.S. companies' role and if there is such an opportunity for many different U.S. companies right now to take advantage of this. And look, we have an investing audience. They want to know which are the companies that are best positioned right now to be in a place where they can be the ones that benefit from this increased need for critical minerals.

15:24So one of the big parts of this new framework agreement is that we will strategically together identify priority projects and companies. One of the early leaders here is Alcoa. Again, Alcoa is a Philadelphia-based company who is now building this gallium refinery through support from the Department of War. And it was announced by the U.S. and Australian governments yesterday. Again, I want to take you back to the fact that gallium is a no-brainer of a priority for both sides because it was a commodity that China cut us off from earlier this year. So really, when we start to look at what are the winners going to be?

15:59I mean, rare earths, obviously, we're going to see lioness being really important. But broadly speaking, for some of these minor metals, which antimony is one of them, we've seen tungsten emerge in the news quite recently. These minor metals are going to be the ones where we're highly vulnerable and where we do not always have the geology to make it work and where Australia often does. We both have questions, but Carol, you go first. Well, I want to go back. Forgive me for bouncing around because it's just sometimes, you know, the brain is a little slow and things settle in. But Grace, what I want to ask you is going back to, as you said, a big deal for Australia to do this because they have been so intertwined with China when it comes to Australia exporting large quantities of raw minerals and then China processing.

16:48I mean, this has been a very important trading relationship. And so we know U.S. and China has been antagonistic for a while. But to have them do that, that's really significant. It's extremely significant, but you've been seeing that growing tension for probably the last seven years. Remember that Australia was the first country to ban Huawei back in about 2018. They also passed legislation to prevent foreign interference in their higher education sector. More recently, there was a$1.25 billion Australian loan that was given to build the Iluka refinery for rare earths. One of the T's and C's of that was that offtake had to go to allied countries.

17:29But now what this really does now, I mean, is it starts to potentially re-architecture supply chains in a meaningful way. Australia, for example, is the biggest lithium producer in the world. They produce about close to 60 percent of the world's lithium. Over 90 percent of that actually goes to China for refining. If that didn't happen, China would lose its grip on lithium ion batteries. So what this deal really stands to do is re-architecture supply chains, not just from mines, but down to the manufactured good. So if we think about this in the context of the leverage that China could still have, even after the U.S.

18:07makes deals such as this and deals with allies, where is that leverage? The leverage is still there in the short term with rare earths, for sure, no doubt, right? Although Australia's Linus was the first company to separate heavy rare earths earlier this year outside of China. But it's going to go beyond that. There was a line in this framework agreement that actually said that the U.S. and Australia will work with other international partners on price support mechanisms. So this conversation is likely to extend beyond these two countries to the G7 later this year to think about how do we scale these partnerships up even more.

18:44So really what we're starting to see is an economy of scale that we're creating for the minerals and the processing capabilities. I mentioned that Alcoa deal earlier. That Alcoa deal is also getting Japanese financing. It's actually a tripartite effort. So an example of how this bilateral is going to set the stage for what's probably going to be a much bigger play of countries to counter China. How do we figure out, especially as we see investors pushing up shares on all of these stories about the relationships, the investments by the U.S. government and various critical mineral companies, how do we figure out which is investor speculation kind of chasing a trade?

19:26Do you think it's misplaced or is it a bit irrationally exuberant? Or you think these investments, these relationships, this is the build out. It's happening. And with good reason, because the demand is going to be there. The broader build out of the sector when it comes to mining being much more strategic is absolutely here to stay. And it's here to stay for a couple of reasons. One of them is we are diversifying away from China. Right. Right. But the second thing we have to remember is that certain of these commodities, I need a lot more in objective terms. I need a lot more copper to electrify, to build data centers, to build defense technologies.

20:03So it's also the growing demand. So I say the larger macro trend in prioritization is here to stay. And again, remember that the U.S.-Australia relationship, it's a continuation. It was being built under the Biden administration as well. But what you know, the other thing, though, is, you know, there are going to be fads that come and go when it comes to specific minerals. There's no doubt. Right. Some things are going to hit media attention. Certain deals are going to hit media attention and they're going to fall away. Not everything that this government is looking at is going to succeed. But what we are hoping is that the right number of them succeed to create a more resilient supply chain.

20:40But there are a lot of coming and going. Yeah. Certainly the relationship with Australia is on our radar right now, given the visit of the prime minister. But I'm wondering what other countries the U.S. could ally with that would be able to offer some sort of countermeasure to China and its capabilities. So countries that I'm looking at with interest, Japan and South Korea, particularly because of their midstream and downstream capabilities. I'm looking at the U.K. There have been, you know, there's been some interesting acquisitions there, least common metals by USA Rare Earths. That's an interesting one.

21:16The EU, again, it's an interesting jurisdiction. There are some minerals, I mean, things like Solvay for their permanent magnets in France, an interesting one, again, with some conversations happening with the U.S. as well. So there's certain pockets of interesting transactions happening from a global north. Obviously, from the global south, Brazil is still a very interesting jurisdiction to us because they have the heavy rare earths that can come back and be separated here in the United States. Everything we need to know. Thank you. Thank you, Dr. Gracelyn Baskarin, Director of the Critical Mineral Security Program at the Center for Strategic and International Studies.

21:49Stay with us. More from Bloomberg Businessweek Daily coming up after this.

21:58This is the Bloomberg Businessweek Daily podcast. Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg 1130. We wanted to talk about what is going on between the U.S. and Argentina. We did mention that Argentina's peso weakened to a fresh record and bonds gave back most of their gains as U.S. Treasury Secretary Scott Besson's latest boost to the nation-proof short. lived. The U.S. Treasury signed an economic stabilization agreement with the Central Bank of Argentina, again, coming from the Treasury Secretary, Scott Bess, and he put that post out on X, Tim.

22:42The secretary characterized the Treasury's$20 billion swap line with the crisis-prone nation's central bank as a, quote, economic stabilization deal. He said the agreement is, quote, a bridge to a better economic future for Argentina, not a bailout. We have a lot of questions, Carol. And there's one voice we wanted to get on the program today. He has no idea, but we were like, no, we're going to talk to Eric. We need to talk to Eric. Eric Schatzker is who we are talking about. He's Bloomberg New Economy Editorial Director. He's covered numerous global financial and market cycles and crises. He's interviewed various Latin American leaders, including Venezuelan President Maduro, former Argentinian President Mauricio Macri.

23:18Hopefully I'm saying it correctly. I probably am not. He also had the September cover story on Secretary Besant for Bloomberg Businessweek. You are the voice we wanted to talk to. Thank you. Flour me. No, I speak the truth. We speak the truth. Why is this happening now? And why Argentina? Why does the U.S. want to do this? Well, so there's I think we can unpack this in three ways. One is why is the U.S. doing this? The second is what exactly have we got here? And the third would be how might it all end perhaps in tears i'll i'll take on the why and this actually goes back to that story you mentioned that i did about scott bess and the treasury secretary for bloomberg business week in september i spoke to the treasury secretary back in late july and at the time he told me that one of his overarching goals in office as the secretary of the treasury was to quote-unquote lock-in dollar supremacy.

24:14And I asked him, well, how do you do that? And he said, and I didn't appreciate the significance of it at the time, was by facilitating swaps through the Treasury Department, as opposed to the way that swaps have traditionally been facilitated, which is by the Fed, from central bank to central bank. Now, there is precedent for this. The Treasury Department did that for Mexico back in the mid-90s during the peso crisis. and it helped and maybe it'll help Argentina. But it appears that under the Trump administration, the government's focus is on, again, cuts to the why. It's not just about locking in dollar supremacy.