All Eyes on Netflix Earnings, and The Ultimate Game of “So Bad, It’s Good” 4/18/23

0:01Thanks very much, John, for right now on FAST, a trifecta of earnings movers after the bell. As you can see there, we'll go inside the numbers for Netflix, United Airlines and regional bank, embattled regional bank, Western Alliance. Plus, new data showing a record level of pessimism about the economy, the future and investing. But could all of this bearishness actually help fuel a new bull market run for the markets here? And later on, rolling the dice on casino stocks. Another record breaking day for Mickey D's. And the next move, the chart master sees for Amazon dot com. I'm Dominic Chewin from Melissa Lee tonight.

0:34This is Fast Money, the big show live from the NASDAQ market site right here in Times Square. On the desk tonight, you got Tim Seymour, also Carter Worth and Dan Nathan, also Julie Bell over there as well. We'll start with an earnings alert on Netflix. Those shares well off, and I mean well off their after hours lows after the streaming giant reported mixed quarterly results. Netflix also saying that it's delaying the rollout of the password sharing crackdown here in the United States. CNBC's Julia Boorstin has the details. Julia, the stock is up three quarters of one percent. But you and I both know that just 10 minutes ago, I saw it down about eight, nine, 10 percent.

1:11Yeah, that's right. Netflix shares first plummeted. They were down more than 10 percent. Now they have bounced back into the green. And this comes after a really mixed quarter from the company. Now, earnings beat expectations by two cents, but revenue fell short of analyst expectations. And that's despite the fact that the company had better than expected subscriber growth in the first quarter. It added 1.75 million new subs rather than the less than 1.4 million that analysts had projected. So that means lower average revenue per user. Now, the company also guided to lower than expected second quarter revenue as well as earnings.

1:47But on the upside, Netflix co-CEOs Ted Sarandos and Greg Peters said that they're on track to meet their 2023 financial objectives and that two key initiatives are doing well. First, engagement with the ad-supported tier is above their initial expectations, and it's not cannibalizing their core ad-free business. They say, quote, we continue to be pleased with our progress across all key dimensions, member experience, value to advertisers, and incremental contribution to our business. And second, they are moving forward with their crackdown on password sharing. They announced plans to launch page sharing worldwide, including in the U.S., in the second quarter.

2:27They say that the fact that they delayed this launch from the first to the second quarter will result in a better outcome and that the revenue benefit will now fall in the third quarter rather than the second quarter. So that gives more optimism for the second half of the year. And, Dom, it pretty much explains why we've seen this bounce back in the stock. A huge one for sure. Julia Boorstin, thank you very much. I'm sure you'll continue to monitor what's happening there with Netflix. So let's go around the Horlans. Let's trade this up. Tim, I'll look to you here first on my right. Netflix, it was quite the bounce.

2:56Well, it was a bounce, and it's a complicated story because, again, the net ads, the subs that were – I saw plenty numbers on the street north of$2 million or around$2 million. But yet these numbers were better than expected. And I do think that the password sharing rollout is very important. We've been waiting for that. The fact that they waited this long means that the back half of the year is stacked. The things that, to me, are the most important, though, is the financial objectives that they said they're going to meet, including a free cash flow number. And they're going to be well north of the$3 billion they guided for on 23.

3:26And that, to me, in the streaming space is what it's all about. Their content spend plus or minus. And maybe they'll talk about reeling it in. That hasn't really been their case. But again, operating margin at 21 percent. This is a company one year ago today. It was the second of these blockbuster sell offs. And think about where we are. That's the most amazing part about it. It literally was a year ago. This stock was down 77 percent at its lows. And when you think about it also. So there was two things going on. There was valuation. We know that that was a reset there. We also know that this is a company that was dealing with the pull forward during the pandemic and the deceleration of a bunch of those trains.

4:00But they also made a bunch of real fundamental things. And, you know, if anything, we've learned about this company since covering it, at least on Fast Money over the last 15 years. They are not afraid to make big fundamental changes to their business model. And, you know, that was obviously part of the downdraft that we saw last year. But to your point, the stocks are 100 percent off of those lows. and to see the sort of knee-jerk reaction in a low-volume aftermarket sort of thing, it just tells you that investors want to continue to own this name for the fundamental reasons that they put in place last year, and they're going to continue to guide you.

4:31It doesn't make me feel like I want to go out and buy it right here because they do have a lot of volatility on that sub number. You know, we've seen that quarter to quarter. That's why I think it was like three quarters ago, they had a down 35 % gap because they missed it kind of hard. So sometimes they don't have great visibility on some of the metrics that investors really need them to, which causes a lot of volatility in the aftermarket after results. But this one seems OK right now. Which is so crazy because the subs number has been one that we've been talking about for years at this point now with regard to Netflix and everything else that happens.

5:03I mean, the chart, there's no doubt about it. It's doubled, in essence, from the low that we saw in November. It's the same circumstance as Meta. There's nothing worse than a high-flying growth stock that starts to stumble on the growth metrics. And you see that. And there's nothing more sort of sinister to the downside. the way a Netflix can collapse 70, meta, that kind of thing. And then you get so overpriced, mispriced, the downside, you get ricochets like this. But once you've had that sequence, an epic winner that has an epic collapse and now an equally epic bounce, you then start to go into a fallow period, more likely than not.

5:32And that's what's happening. Notice even here, intra-market, post-market, we're down, we're up, but it's unch. Netflix belongs here. Okay, so if Netflix belongs there, Julie, I wonder, is there a reason why you would want to use this particular earnings report as a catalyst for any kind of a buy or sell transaction? Or is it better just to wait on the sidelines and wait and see what else happens after this earnings report happens? I think I want to hear from the rest of the streamers. It's interesting to note, you know, the free cash flow guidance is interesting because they are spending less on content, but they've held their content guidance for, I think it's 14 billion next year, which just, I mean, just think of that number.

6:10It's enormous. And so I think what's interesting about them is how are they able to compete against, you know, the HBOs and Disney's and seeing how everyone is working through streaming and the economics. I just don't think the economics are quite as good as everyone had hoped. And I think we're starting to see that coming through. But, you know, from an operating margin standpoint, very still very strong. It's just hard to own it once it's moved so much. So, so, Julie, to that point, as you look, as you look from your kind of investing standpoint about whether or not you want to be in certain streamers versus others.

6:43Netflix has kind of now set the bar, the benchmark. What then would you be looking for context, commentary or otherwise from the other streamers out there, whether they be pure play or not? Yeah, I think it's I would like to know how aggressive they're going to be in terms of chasing after the streaming content. How much are they going to spend? You know, we have a writer's strike that's happening now ish. And I want to know how that's kind of playing out. What's fascinating to me, too, is that you're seeing the kind of traditional broadcasters saying we actually want to come back into movies.

7:17And even Amazon is playing into that. So I think understanding how content is moving a little bit more traditional over time has been pretty fascinating. OK, so, Tim, we've been showing a lot of different other charts up there. Comcast, the parent company of this network, Paramount, Warner Brothers Discovery. They've just relaunched and rebranded that Max product. Is Netflix the place you want to be in terms of streaming content or is it somewhere else? I'm in Netflix. I'm in Disney. And there's a couple I wouldn't go near as well. And I think Netflix is so far ahead of making this a profitable business.

7:53And, again, we know how painful it was for Netflix for a long time. And I was on the other side of this trade for a long time. But, you know, to me, it's a case where the multiple, it's nothing to get excited about. It's hardly cheap. But, I mean, this is a company that at least has a multiple when you look at the streaming business. And a lot of the others do not. I want to see the password sharing roll out. I think it's all accretive on some level. If you think about it, this to me is the gravy. I don't worry about ARPU at all. The fact that the ARPU fell and maybe they're defending that in terms of what the ad-supported model works, I like it.

8:24And just back to the chart, Carter's right. I mean, if anything, we filled in the gap from that Q4 number that was released in Q1, right? So you're back to this kind of 350 area, which was the first, what do you take, the elevator down after taking the escalator up? And I think you have to consolidate a bit around here. I don't think it's going to get away from you on the upside, but I feel very comfortable owning it. You know, it's interesting that so here we are, they're giving Q2 guidance. They're telling you that they're on track. Now, again, you know, a lot can change in, you know, we have nine months until the end of the year.

8:53But when you think about the out year as far as consensus estimates for 2024, you're looking at, you know, 25 percent plus EPS expected growth on 12 percent sales growth trading at 23 times. And I think this is something that, you know, people have not been able to get comfortable with the valuation for a whole heck of a lot of, you know, many years of late here. And when you think about the operating margin that you just gave, I mean, I think that gives you increased confidence, at least from the earnings perspective. So, again, I think it's defensible. I think to Carter's point, and you just said it, it filled in that gap.

9:24It's up 100 percent. It's still down a lot from the all-time highs. And it's probably going to actually need to demonstrate this ad-supported model and the password sharing and what that really means for them. Before we let you go, I mean, I asked him the same question. Is there a better chart out there right now than Netflix? I mean, these streamers have, by the way, all kind of bounced off the lowest significantly. I suppose I'd go with Disney as an early stage bearish to bullish reversal. All right. There we go. All right. So for more on Netflix's results, let's bring in Rich Greenfield of Lightshed Partners, a man who scrutinizes the media business for a living.

9:53So, Rich, I don't know what to tell you other than that that stock move is pretty dramatic. What exactly stood out to you and what exactly in your mind drove the steep reversal that we've seen? Well, two things stood out, Dominic. One, the Canada commentary. So if you read the release, there was a tremendous amount of investors who were very worried. They were looking at early data, both subscription data as well as sort of Twitter commentary of people really pissed off in Canada. They were seeing consumers upset about the password sharing changes. And there was a fear that cancellations were piling up and that effectively I was hearing from investors just a couple of months ago.

10:32Netflix is likely canceling its rollout of password sharing. They can't move forward. Canada is such a disaster. They can't do this. The release today comes out and says Canada is actually going great. It took some time, but they actually have more members in Canada today than when they first rolled out password sharing. And so it is a net positive, not just to subscribers, but clearly to revenue growth. And that's what investors want to hear. That's why I think the stock is ripping back is because the fear factor, which was password sharing, is too hard to accomplish this crackdown. It is obviously not true.

11:05They're rolling out the U.S. in Q2, and it sets the stage for a big growth in both subscribers and revenue in the second half of the year. The other thing that I think is really important in driving the stock is advertising. There's been a lot of noise. I'm sure you've heard it on and talked about it on CNBC over the last couple of months that advertising was off to a slow start. They revealed today that the total ARPU, meaning the amount of money they make per sub per month from the advertising subscribers, they only charge$6.99 a month. But they are saying that that advertising subscriber is actually more valuable in terms of revenue per month than their standard plan.

11:41That standard plan is$15.49. So that means the advertising ARPU on top of the sub ARPU for those subs is over$8.50 a month. That's like Hulu territory five months after launch. That's literally mind-blowing. So, Rich, I want to bring you something that Julie Beal talked about just a few moments ago. She mentioned the writer's strike. And it wasn't so long ago that whenever we talked about media streaming or otherwise, we talked about content being king. There is a looming writer's strike. How much could it impact Netflix, perhaps others, and just how much should they be worried about a potential hiccup because of this looming writer's strike?

12:22Well, if you remember back to the pandemic, Netflix actually works a year ahead of time. So they have a tremendous amount of content stockpiled. They'll actually be able to probably last through this far longer than others. Most importantly, because where does a lot of Netflix content come from? It actually isn't U.S. content. more and more of the shows that you're watching in the U.S. come from overseas. And so that importation of overseas content is something that none of the other streamers have and is a meaningful advantage for Netflix versus its peer group. And remember, a slowdown in production actually boosts free cash flow.

12:56That's what happened to Netflix during the pandemic. We actually wrote a piece yesterday of why we think the writer's strike could actually be a short-term positive for both Warner Brothers Discovery, that's WBD stock, as well as for Paramount, P-A-R-A stock, both of those companies, if you saw a slowdown in production, that would help their free cash flow in 2023, which is really a core focus for investors in both of those stocks. So I don't think a writer's strike is a problem for the sector, at least in the short term. If a writer's strike lasted a year plus, all bets are off. But our assumption is you'll probably see a three-plus-month writer's strike, and it's going to be problematic for the writing community and certainly is going to hurt anyone who's attached to the film and television industries in Hollywood.

13:39But I don't think it's a reason not to own Netflix stock. If anything, it could be a benefit to Netflix. All right. So it sounds like you're bullish or more constructive on Netflix. Is it the favorite pick, though, among streamers? I think if you're investing in streaming, the one thing that caught Reed Hastings and now the Greg Peters and Ted Sarnoos, who become CEOs now, the one thing that caught them was the aggressiveness of the peer group. They never expected Disney to lose$4 billion, Peacock to lose$2.5 billion, Paramount to lose$2 billion. Now that all the other streaming services are starting to pull back and really focus on profitability, it actually means that Netflix is actually in an advantage position versus the peer group.

14:18This is exactly why you want to jump on Netflix now, is that the advantage they have versus the peer group is actually extending. And that's a meaningful benefit. Others just don't want to be Netflix anymore. The chasing Netflix is sort of over. And that means effectively, Netflix is going to win. All right. The race, not really a race anymore. Rich Greenfield, thank you very much. Always great to get your thoughts. We'll see you soon. Thank you. All right. Julie Beal, he addressed some of the issues that you talked about before. What do you think? Is this Netflix trade one that you would want to get into?

14:52I, you know, I still want to better understand and have the economic model for when they do ad supported and the password sharing. I kind of agree. I think it's probably going to be okay. Password sharing is a little bit like when you have a party and you have that one guest that won't leave and you're just kind of like trying to push them out the door slowly. And I think that's a little bit what they're trying to do is get those people paying. And it's not easy to do that. So I think I want a little bit more data than Canada. I mean, those are like sweet people, right? They're not Americans. So I'd like a little bit more data before jumping on.

15:27But I agree very much on the point that international data, international content, they're able to leverage that in a way that no one else is. Our neighbors to the north are sweet. Our friends to the north. I mean, there's some of the few people that stand behind us all the time. We love Canada. I love Canada. Julie struck the right chord there. All right. Now let's move on to the last minute settlement in the Fox Dominion$1.6 billion lawsuit. Just before opening remarks and statements were set to start, Fox and Dominion reached a deal. And Eamon Javers has been following the case and has the details, including what the settlement number was.

16:06Eamon. Dom, dramatic moments here in Wilmington, Delaware. In the end, Fox didn't want to go to trial, but it took until after the jury had been impaneled and the presiding judge had given them their first instructions until the deal worth more than$787 million could finally be done. And now media mogul Rupert Murdoch will not have to testify about his TV network's conduct before a jury of his peers. The jury never even got to listen to the opening statements in this case. On day one, the judge sent them out for lunch and called them back nearly three hours later only to tell them that the parties had resolved the case.

16:44I was in the hallway outside the holding room in the tense moments before this announcement, Dom, and I could see one of the co-founders of the private equity firm that owns Dominion Voting Systems break into a huge smile as he talked to the Dominion legal team just before this announcement was made. Fox's legal team left the courthouse in silence, declining to answer questions from reporters out here on the street. But the company did issue a statement saying, We acknowledge the court's rulings, finding certain claims about Dominion to be false. This settlement reflects Fox's commitment, continued commitment, to the highest journalistic standards.

17:20But Dominion's team headed straight for the microphones in contrast, saying truth matters and lies have consequences. Stephen Shackelford is the Dominion lawyer who never even got to deliver his opening statement. He hinted that this isn't the end of the legal wrangling. Money is accountability. And we got that today from Fox. But we're not done yet. we've got some other people who have some accountability coming towards them. And I'm very proud of the team from Sussman Godfrey that has worked tirelessly for this case. And we'll move right on to the next one.

17:57Now, a person familiar with the case tells me that reference to moving right on to the next one and other people having accountability, that's a reference to cases against Trump 2020 attorneys Sidney Powell and Rudy Giuliani. Clearly, the Dominion team here, Dom, is not done yet. Back over to you. All right. Thank you very much, Amy and Javis, for that. Coming up on the show after the break, we've got more after hours action coming your way. Shares of United Airlines and Western Alliance on the move after recording their results. The details from those quarters coming up next. Plus, the seemingly unstoppable stock.

18:28That's the mystery chart you're looking at. We're looking at the name hitting its sixth straight. Sixth straight record high today. How much longer can this run last? We'll get answers when Fast Money returns after this break.

18:54Welcome back to Fast Money. An earnings alert now on United Airlines. That stock is gaining altitude after reporting a smaller than expected loss in the first quarter. I'm sorry, guys. The airline also issuing an upbeat outlook for the current quarter as it sees an uptick in international travel demand, something we kind of heard from Delta, right? So let's get to Phil Lebeau with the numbers there. Phil, what can you tell us and why is United up 1.5 %? Dom, we've got three reasons why the stock is moving higher. First of all, a smaller than expected loss. For the first quarter, the company lost 63 cents a share, 10 cents better than the analysts were expecting.

19:26Revenue coming in roughly in line with expectations at$11.429 billion. That's reason number one. Reason number two, the guidance for the second quarter. United's way above where the street is right now, expecting to earn between$3.50 and$4 a share, Going into this afternoon, the street was at$3.05 a share in terms of earnings expectations. Revenue up 14 % to 16%. That's in line with analysts' expectations. Cost per seat mile, flat to up 2%. And then there is reason number three, the company's full-year guidance. They are reaffirming full-year guidance of earning$10 to$12 a share. Why is that significant?

20:03The street today is at$8.62. United is not coming down. United is reaffirming that guidance. It'll be interesting to see what the analysts do. One reason why, Dom, they see their international traffic growing twice as fast as domestic. The demand is that much greater and transatlantic will be red hot this summer. Lots to discuss with United CEO Scott Kirby, a Squawk Box exclusive. You don't want to miss this tomorrow morning. We'll talk a little bit about the guidance. And we also want to talk to him about what happened in March, because what he said in March in terms of demand cooling off a little bit, that spooked the market, not just on shares of United, but all of the airline stocks.

20:44Clearly, from their guidance, you can see that they are expecting a strong summer. Dom, back to you. All right. Phil LeBeau, thank you very much for the update on United Airlines. Guys, let's trade this. Carter, I'll start with you this time. we heard kind of similar views from Delta just a couple of weeks ago here, about a week ago, in fact, at this point, Ed Bastian talking about this idea that they're seeing record summer travel bookings. They're anticipating it and that the premium traveler is kind of like where they want to be at higher margin, better, better revenues. Is United kind of in that same league as Delta overall?

21:19Sort of not in my wheelhouse, but I will speak to what you started. Let's trade this. And And that's the issue. I mean, the New York Stock Exchange Airline Index is the same level it was in 1994. So that's called a whole lot of nothing. But can you trade this group, which has been down and down and down, is very near its COVID low? I think you can. There's an ETF, JETS, right? And it has all the elements of a bearish to bullish reversal. I would be long here, JETS. All right. The JETS ETF. Dan Nathan, what do we think? Is United the one that you want to be in, in the friendly skies? Well, it's interesting.

21:49So this whole idea of the premium traveler and they're talking about, you know, the continued demand. I think there's a lot of cross currents there. If you look at just in just transportation and hospitality and lodging and that sort of thing. I mean, some of those expedient bookings are not they're telling a slightly different story. We know that a lot of corporate travel has not come back yet. So maybe there's still pent up demand for vacation, that sort of thing. I mean, listen, these stocks, you know, last week, it was a different story than what we're hearing today because it did not seem like a place you wanted to be.

22:19And I think his chart that he just showed us in Jets is really approaching as a group a really like almost an inflection point, I think you would say. So so maybe the fundamentals, if they can make it through this sort of period, maybe they are about to also inflect. So so Julie Beal, I'm watching you because I have the benefit, unlike our TV audience, of seeing you right in front of me right now on a virtual monitor. You've been nodding along to some of this right now. I didn't want to put you on the spot, but I know that something resonated, something struck the tuning fork with you right now about United in the comments.