Netflix Tops Earnings Estimates, as Market Takes a Pause

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1:11So healthcare is connected, not complicated. What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person. How you need it. Optum is helping make healthcare work as one for everyone. Learn more at business.optum.com. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Netflix came out with their earnings. Are you a big Netflix watcher?

1:54What do you like? You know, I dabble in Netflix. Okay. I do. I have the cheapest version of Netflix. Of course. So you get the ads. Yeah, I get the ads, which I probably should just pay up because I think it's like a$2 a month difference, but like I'm a little chintzy on that. But I do watch the Dallas Cowboy Cheerleaders Netflix show. I think it's really well done. So I don't watch a ton of Netflix, but I do. I think I bought the Netflix subscription to specifically watch that. Well, that's what a lot of people, I mean, I don't know. I haven't gotten to the Squid Games. That's huge for them. Stranger Things, a little bit I dabbled in.

2:32But the thing is, overall, they had some impressive results, right? But the problem I'm having this morning is shares are low. We have Netflix down nearly 5%. What is going on here to explain it all for us is Geetha Ranganathan. She's Bloomberg Intelligence Analyst on U.S. Media. Geetha, thanks. Always a pleasure having you here because you break it down like nobody else does. So talk to us why those Netflix shares are lower this morning. Yeah, so what I would say, Lisa and Emily, is results were definitely solid. I mean, we had a solid second quarter print, whether it was second quarter results, whether it was, you know, third quarter guidance, everything came in above expectations.

3:11They even raised guidance for the full year, both for revenue growth as well as for operating margin. But I think what we're really seeing, you know, and kind of the muted reaction in the shares today is really because expectations going into the quarter were extremely elevated. And while I say that the quarter was solid, it probably was not exceptional. And I think that is what investors were really hoping for. And you really needed for the stock price to go even higher. So at this point, valuations really, really high for Netflix, trading at about 45 to 50 times forward earnings. So obviously you needed some huge catalysts, which they, you know, we have fundamentals that are really, really strong.

3:57But if you have that one big thing, well, Netflix didn't necessarily have that, this latest earnings report. What did we learn in the earnings just about what at least Netflix is thinking about for the next leg of growth? Are they planning more content? Is it more about focusing on live events? Yeah, it's a little bit of everything, actually. So just if you look for the near term in terms of the next leg of growth, so we're just looking at the next six months or so, they actually have a massive monster slate. And they characterize this as one of their best six-month periods ever. You know, you mentioned Stranger Things.

4:38You talked about Squid Game. You know, you have Wednesday. You have a whole bunch of other, you know, live events, including the NFL. You have some boxing matches. you know, so they really have it all coming up, not just the six month period, the upcoming six month period is, of course, going to be extraordinarily strong. But then even into 2026, I mean, management was talking about how they have really this excellent standout content lineup. So content is obviously going to be a very, very big thing for them. But as we kind of look out, you know, every year has its own special, you know, catalyst.

5:13So in 2024, for instance, it was subscriber growth. It was all about subscriber growth. And you had, you know, this password crackdown initiative, you had the new advertising tier that pulled in over 40 million new subscribers just in that one year. Then for this year, 2025, it's really all about price increases, right? So they already raised prices. We're talking about 16 to 20 % price increases across most markets. And they're going to continue to raise prices, a lot of it on the back of that content slate, that monster content slate. But then really, as we kind of look forward to 2021, the big catalyst and I think the big market mover for Netflix will be its advertising business.

5:51So we've kind of seen them dabble a little bit in advertising. They've been a little bit late to the game, I would say, in advertising. This was a pure subscription service. But they've gotten, I think, most of the pieces ready for that business to take off in a big way. They said that their upfront sales so far has been pretty encouraging. And you're absolutely right in terms of the live piece of the puzzle there, because they really need to have a very good live event strategy in order to attract all of those top global brands and top advertisers. And I think they're doing exactly that. And so next year, we're going to see advertising.

6:27I mean, so far, it's doing still pretty well. They've said that they're on track to double their advertising revenue for 2025. But I think it's going to take off in a really, really big way next year. And then by 2020, you know, in another few years time, I'm going to expect this to be about 10 to 15 percent of their total revenue. So it is going to become a big portion of their growth story going forward. Yeah, I love the live events like the boxing match, Amanda Serrano. I was all over that. It was a good one. So you mentioned these prices. So how much can Netflix continue to raise their prices for for subscribers?

7:01I mean, before they start to tune out, before Emily Grafeo shuts it off. I actually think they have very good pricing power. And a lot of that, of course, is going to be based off of the content. And they're obviously continuously investing in the content, you know, in a disciplined way, but they're definitely broadening it, they're deepening it. And the content definitely has huge appeal. I mean, we've seen this, you know, time and time again, when they put out all of their engagement reports, you have every Netflix subscriber watching, you know, Netflix content for an average of about at least two hours a day.

7:33So that's definitely pretty strong. So they're going to continue to keep adding to that content in terms of live events, in terms of other things. And I think that is definitely going to be a big growth catalyst for them. Just very quickly in the last 30 seconds here, Geetha, talk about their competition right now, because there are a ton of streaming services, but obviously, I mean, Netflix is up about 90 % over the last year. Did this earnings result show us that they're still the clear leader in streaming? Yeah, they are the undisputed leader. I mean, there's absolutely no doubt about this.

8:12They won the streaming wars. The only one other name that kind of keeps coming up in terms of viewing time would be YouTube. But I think both of those platforms are very different. So Netflix really kind of specializes in premium content and scripted content and prestige dramas. YouTube is really more for kind of casual user generated content. But again, you know, the way that Netflix management has kind of framed this whole question about competition is that, you know, they still have, if you kind of just look at the whole viewing time, Netflix and YouTube combined only have about a 20 % share.

8:49So they're really 80 % is still up for grabs. And the way that, you know, Netflix is kind of characterizing that is there's still plenty of upside in terms of them kind of capturing more share. But you're absolutely right. They are way ahead of their competitors in terms of viewing share right now. All right. Thank you very much, Geetha. Always glad to have your insight. That's Geetha Ranganathan, Bloomberg Intelligence Analyst on the U.S. media, keeping us all on top of Netflix earnings. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App.

9:26Listen on Demand wherever you get your podcasts or watch us live on YouTube. All right. Welcome back to Bloomberg Intelligence Radio. I'm Emily Grafeo with Lisa Mateo. Paul Sweeney is out. We had a slew of earnings today and a good read on the consumer coming out of American Express. Shares were falling, but the credit card company's expenses were higher than expected. T.D. Cowan called the results neutral overall, noted that the earnings upside was driven by a lower than expected tax rate. We're going to have Paige Smith, Bloomberg Consumer Finance Reporter, break all of this down. Maybe we could start with how Amex is standing out from competitors right now.

10:07And what did the earnings overall show us? Because it does really feel like this is a crowded space here for like premium credit cards and premium consumer finance companies. Certainly. Thanks for having me. I think the one thing that I would note is that Steve Square, who's the CEO of Amex, got a lot of questions on this this morning on the analyst call. Just the idea that, you know, of course, the premium space, folks who really love rewards on their credit cards, travel, hospitality, airport lounges, all of those nice things. It's a very crowded space and it's getting more crowded, actually.

10:41Citi just announced earlier this week, for example, that they were actually reentering the space after sort of taking a bit of a hiatus there. So it's certainly an area to watch, but Amex really asserted itself during this batch of earnings to basically say, listen, we are sort of the original premium, premium card offer company here. And we're going to continue being the premium card offering for consumers in the US. Now they had record card member spending. So what does that say about the state of the consumer? They're continuing to swipe away. Yes, that was another question that Steve fielded a couple of times on the earnings call.

11:23It essentially does say that folks in the premium space are continuing to swipe, tap, and spend in every preferred way. And yes, it's sort of all's well for the Amex consumer at this moment in time, certainly. Did we learn anything about any specific updates to the platinum card? Because people get so obsessed with the perks. People love the updates. And again, yes, it was certainly asked. And no, we do not have any more updates for you just yet. We know, again, that the updates are coming in the fall. And we know the competitive landscape is tight. Are they going to raise the price? I think it's safe to say that they're going to raise the price.

12:07That's me putting my spin on things. But if they didn't raise the price, it would be a pretty great deal. I'll put it that way. And I don't think the economics would really make sense for the card if they did not raise the price. But I'm thinking, so if more people are taking advantage of all these perks, right? Because I know I do. Like, I'm tracking my points like crazy. So does that kind of mean that, you know what, the consumer is kind of cautious at the same time because we want to go for those deals? I, you know, that's a really good question. I don't know if that's the case. I think that there are a lot of deals and rewards hounds out there like yourself who really just track it very closely.

12:47And there was a comment made on the call that it was something along the lines of, you know, consumers really like these rewards and they track them very closely and they pay for value. So it's, I wouldn't say it's maybe a warning sign. I would say it's more of a sign of like a savvy consumer per se. Okay. Stable coins are very hot right now on Wall Street. Is that a threat to Amex's business? Well, so it's certainly been the flavor of the week, if you will. Stable coin, the word stable coin has popped up in pretty much every earnings call I've tuned into over the last week, whether it's the big Wall Street banks or even Schwab mentioned earlier.

13:27Schwab reported earnings this morning as well. And, you know, when it comes to Amex, they basically said they're very closely watching the technology to see how they can either issue their own stable coin or partner on a stable coin offering of some kind. It's still they sort of hedged and said it's still early days relatively. But one thing was very clear, which is Steve Square came right out and said, is this a threat to existing payment rails? No, it is not. And that's kind of the same thing that we've been hearing kind of across the payments companies, whether it's from Visa or MasterCard, Amex, kind of the same tone there.

14:06So are people paying off their Amex bill? I mean, how is credit card debt? So an interesting stat actually that they highlighted in this round of earnings was that Gen Z, so Amex is making a pretty concerted push in the younger consumer space at the moment. And they highlighted that Gen Z and millennial spenders were paying, they were their delinquency rates or kind of being like 30 plus days past due past their bills were actually lower than industry for industry trends for older consumers. So you would think, you know, younger people are just getting used to paying off credit cards and sort of learning about how to handle their debt.

14:49And there was kind of some question about Amex targeting these younger consumers with this like premium credit card that comes with fees. But they've basically countered and said, hey, so far, so good. They're actually paying them off. You know, the delinquency rates are quite low compared with the industry, definitely lower compared with the industry in their peer group, but even lower among older consumers. So kind of an interesting metric, I thought, that they highlighted this morning. Well, that's some good news. You have to. Paige Smith, thank you so much for joining us here in the studio.

15:22She's Bloomberg consumer finance reporter talking about Amex and credit card debt and all of that.

15:53with Cibo Company products. Review the disclosures and disclaimers at cibo.com slash US underscore disclaimers. Some people treat ChatGPT like some kind of smart search engine and some use it to get work done. ChatGPT work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful.

16:30Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com by selecting Work Mode, available on Plus and Pro plans. This is Matt Rogers from Las Culture East. That's with Matt Rogers and Bowen Yang. This is Bowen Yang from Las Culture East. That's with Matt Rogers and Bowen Yang. You know when people try on new food and suddenly it's like, wait. That's the reaction a lot of people are having when they first try Kewpie mayo. It's the one with the red cap and the little baby on the bottle. You've probably seen it in the grocery store before. And if you've ever just walked past it, some people would say that's a huge mistake.

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17:41You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern On Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. I'm Lisa Mateo alongside Emily Grafeo. You're listening to Bloomberg Intelligence. Paul Sweeney does have the day off. Okay, so 25-year-old trading powerhouse Jane Street in the glare of a global spotlight. At least that's according to Catherine Doherty. She's Bloomberg Finance reporter. Her latest big take story. This one, a lot to dive into, but I want to start by setting the table.

18:17Like, who is Jane Street, and what sets them apart from other firms out there? So, Jane Street has become one of the largest trading firms in the U.S., and really across the globe. They started out, their founders are from Susquehanna. That's another trading firm that they compete with today. But over the years, they have really developed their technology and their people to generate billions of dollars in revenue. They've grown so large that their trading revenue has surpassed some of the biggest U.S. banks. They're now larger in scale, at least the money that they're making, than Bank of America and Citigroup.

18:55So we're talking a lot of money. And they are really behind the scenes. So I like to think about them as they are responsible for the plumbing of the market and making sure that all of the trading is actually just moving through the system. They're handling orders from customers, not directly. Some of it is indirectly. If you have a retail broker, they're the ones that are receiving the order from their clients. that order gets sent to a firm like Jane Street. And Jane Street handles the actual execution to make sure that they're matching the buyer and the seller. They might take the order and then eventually they sell it off.

19:36But the middleman player, that's Jane Street. They're the reason that trading can continue. Them and their peers play a very important role in the market structure overall. There is some regulatory scrutiny right now in India when it comes to Jane Street, which we're gonna get to in a second. But you write in this big take that you wrote along with Bernard Goiter that they're famously secretive. Why are they so secretive on Wall Street? Well, number one, they don't really have to say a lot. This is a private company. What they do doesn't require public interface at all. They're providing a service and they don't have to answer to shareholders.

20:18so many times they would like to operate in the dark in many ways. It doesn't necessarily mean what's going on behind the scenes and what's happening in the dark is nefarious at all. There's just not really a reason to say anything. But what they do is so, and who works for Jane Street is a very particular type of person. They have quants, they have mathematicians, And this is not unique to Jane Street. Other peers like Citadel Securities and Hudson River Trading, they also attract those types of people that go to these firms. But those are not the type of people that are in the business to speak out.

21:03And they're just doing their job because they're providing a service. And that service doesn't necessarily need words. It's a lot of really intricate, again, it's the analysis of just how the markets are moving. And they're trying to just be faster and better than their peers. It's all about competition. And they say all of the market makers, like a Jane Street and a Citadel Securities, would say that competition is a good thing. because if you are trying to be faster, that's going to be a good thing for their customers because orders are going to be priced tighter. You're not going to lose as much money.

21:46And really the reason that the market has evolved in the age of electronic trading in the way that it has is because of these firms. Now, Catherine, you're a pro. So is there anything that surprised you when you were doing this research for this story? I would not say I'm a pro at all. Actually, I mean, the reason I enjoy the reason I enjoy reporting on firms like this is I'm learning so much. And the people that work in the markets covering market structure here at Bloomberg, I am fascinated by just how niche and how nerdy it goes. So, I mean, I would say what surprised me in this reporting, what surprised everyone on Wall Street was when the numbers were starting to come out of how much money firms like Jane.

22:32Street were making, it was to surpass the big U.S. banks in terms of trading revenue. That was incredibly surprising and something that even competitors to Jane would look and say, how are they doing what they do on the scale that they do? And the answer to that in my reporting and a lot of what this story is about is the amount of risk that this firm is taking. Now, Now, the reason that they can take so much risk, that's another element to it. It's not as if they're just throwing caution to the wind. They're doing this and they know exactly how much risk they're able to take. The reason they can stomach the risk is because of the capital that they're working with.

23:16That capital, the money that they are putting out there and they're, for lack of a better word, playing with, it's so large and it's all theirs. So if you are a hedge fund, as comparison, that money, you have to answer to shareholders. So if you're taking big risks and it doesn't work out, well, that's, it's not just, Oh, it sucks for us that it's really bad for your clients and your customers. Jane street, that's their capital. So they might take bigger risks because they think there's going to be a bigger reward on the other side. And if it doesn't work out, it's not as if they have to go explain that or their, their, their profit and loss is all their own money.

23:56So it's much different than the approaches that the banks and hedge funds take on potentially the other side. We have about a minute left, and this is definitely a story that I know we're going to be hearing more reporting on from you. But regulators are watching Jane Street, specifically in India. Just give us the high level what the Securities and Exchange Board of India, SEBI, is looking at. So they're looking at Jane Street's trading behavior, specifically in the options market. The regulator came out over July 4th weekend with an 105 page order outlining what they are alleging is market manipulation.

24:37And to not go too far into the weeds, but they're pointing out a few things. The size of the trades that this firm is putting on and because of the size, the impact to the overall market. And they're claiming that Jane Street's behavior is ultimately harmful to the end investor. So this is playing out. The firm has denied that it is doing anything that is nefarious or would be considered market manipulation. So we'll see what happens next. All right. Catherine Doherty, thank you for joining us right here in the studio this morning. She is Bloomberg finance reporter. You got to check out that article on the terminal.

25:14This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.