THB #238: Netflix Q3 Analysis (pre-call)

Man, are those Wall Street types jonzing for Netflix to become the ubermensch that they once decided to make it!

I have taken a much greater interest in Wall Street over recent years. For most of my career as a journalist, The Street just hasn’t been that interested in the film/television industry. Just not seen as a growth industry in the exciting way they see the tech industry. Netflix changed this. And with the success of its growth, the market raised its stock price to the nosebleed level and then way beyond.

One of the stupid things about Wall St is that it is so much about what analysts say and the idea of “beating” projected estimates. As my father used to observe of my mother, one can save so much money buying things at sale prices that you could go save yourself into bankruptcy.

As of this writing, Netflix has been up 15% in after-hours trading based on… a very mixed quarterly report. (Dare I say, as expected?) As I post this at 2:45pm pacific , the number is up 14.39%/$34.65.

Revenue is up… if you base it on year-over-year. But it is down from last quarter. And it is projecting revenues to go down more next quarter. However, the project, year-over-year for next quarter is projected to be up $67 million from Q4 2021. So everything is great, right?

For the record, revenues for Q4 2021 were UP $226 million from Q3 2021. The projection for Q4 2022 is that it will be DOWN $150 million from Q3 2022. So hiding behind “every quarter is different” is not legit (even though every quarter does have a different personality).

And note… last Q4’s rise in revenues still resulted in the first major drop in Netflix stock price last January. So being down is a positive result?

So please… someone… tell me what I am missing!

Of the 4 regions that Netflix breaks its world into, the only one that didn’t see a drop in ARPU/ARM (Netflix’s nomenclature) was UCan… but UCan had the least growth in subs and it, with the exception of last quarter, has not had as few subscribers as they did last quarter since 2 years ago, Q3 2020.

Meanwhile, Rich Greenfield and his newly colored hair are squealing on CNBC that Netflix is hot for growth again. Didn’t take him long to get back on the bandwagon of irrational joy.

The one region that had more than 600,000 sub ads this quarter, AsiaPacific (APAC), added 1.43 million subs, but saw it’s ARPU drop 49 cents per sub, total revenues off $20 million. Is that a win that makes you want to pay 50 bucks more for the stock than you would have paid yesterday?

Of course, the biggest news of the report is that Netflix is going to stop reporting subscriber numbers starting next quarter. So, less transparency into the business just as they have to add some transparency for ad buyers.

What this tells us - sorry, Rich - is that the still-lousy sub growth numbers are not getting any better in the near future. So Netflix is leaning into its maturity, which means that they can now be modestly profitable, while everyone other major streamer that is not a small part of Apple or Amazon will lose money - as they have all openly projected from launch - for another few years.

That’s encouraging. (not.)

But as I have been saying since the last quarterly, I am not down on Netflix after this report. It is, undeniably, not great. But it’s not terrible at all. It’s still just Netflix revving its engines before making the leap into the ad market. If it is a shocking success, we will get that impression next quarter. But I don’t expect that. Good or bad, the results next quarter will be muted, as the butterfly just begins to emerge from the cocoon. I don’t expect to be able to get a real read on the impact until the Q1 2023 report, with the butterfly having a full quarter to fly around.

I will be on the video interview… but I don’t expect much to happen. Check me out on Twitter if you care. I don’t expect to do another newsletter today.

Until tomorrow…