Ann Berry, Chief Investment Officer at Wheelhouse, joined Wake Up With Cheddar to break down why Netflix stock saw such a steep decline in after hours trading on Thursday.

Wake Up With Cheddar

Netflix Stock Plunges After Q4 Earnings Report

let's bring in an barry chief investment officer over at wheelhouse and good morning, happy friday to you. So obviously investors turned pretty bearish on netflix after the reveal of their earnings yesterday, what were some of your big takeaways from yesterday? I think there are a couple of things. One is that when you actually look objectively at the burnings, they were pretty strong, they actually beat earnings and they came on top of what revenue estimates were. So in terms of the purest definition of an earnings report, netflix did pretty well. I think what's so interesting is how quickly sentiment turned in terms of the fact that 222 million subscribers is not enough to satisfy the market that's hungry for growth that the pull forward of growth acceleration uh, is now very much in the rear view mirror as far as the trading markets concerned. And what's interesting for me is now that netflix is going to have to pivot to really cash flow generation and monetizing the growth and the installed base that it has. And I think what we're going to see now, it's an early indication of how these growth stocks are going to start being viewed as mature businesses. And so that to me was it was an indication of market sentiment to communists. So how much do you think at the end of the day and the increase in the price, the dollar increase that they're doing on all the plans right now. How much is that going to impact the subscriber counts because now if you think about it, netflix is the most expensive of all the streamers right now, if at the end of the day, if people are cutting subscriptions and deciding what's going to be the most important is that a concern that netflix is now the most expensive? I think that's really a function of the quality of content and that continues to issue folks, consumers are willing to pay premium prices for premium product. Netflix has had some wins. We saw what happened with squid games for example. Um, so when it comes to the price hike that we saw, I actually think that's testimony to the conviction that netflix has behind the quality of content that's coming. That's where I would start. And then like netflix is really starting to experiment now at speed, that's going into gaming. It's got merchandise and collaborations. I think it's going to start to pivot to diversify its product range and again try to look at how to create stickiness and monetizing stickiness it creates for the longest time. Netflix reed Hastings has sort of said that they're the only competition Netflix was really going up against was sleep and maybe video games, they never sort of viewed all the other streamers out there as competition. But yesterday that kind of changed yesterday for the really sort of for the first time, they sort of admitted that the competition is making things a little bit more difficult here, What was your sort of take on that? Well, it's interesting. I thought the definition of the competitive, so it actually was quite narrow. So there are other streamers when we think about Disney Plus for example, um in that case targeting a slightly different demographic, but the other big competitive set is social media, youtube channels. When we look at gen z and younger Youtube is almost the new netflix for that generation. And so I actually think there was understatement around what netflix is competing with for consumer eyeball time. So I'm gonna be watching that in the future to see what perhaps social media collaborations or references competitively. Reed Hastings starts to make um how much also, let's get you mentioned gaming, which I think is also important because netflix has sort of dip their toe into gaming here and there. How much do you think the acquisition of, of Activision by Microsoft this week is gonna sort of complicate netflix's plans here when it comes to the gaming space? Well, I think it certainly reinforces in some way uh and adds conviction to the fact that Netflix focused on going into that space more aggressively is the right strategic move. That's where the market is heading. Netflix identified that and they acted on it. What I do think it means is this Activision Microsoft combination, which in many ways is being viewed as Microsoft's way of moving more increasingly into virtual reality, hitting that younger demographic, moving into new technologies. Netflix, I now is going to feel the pressure not just to go into gaming, but to start announcing strategic moves that do hit things like the metaverse a lot more quickly and with a lot more differentiation. So I have to see netflix has typically been quite good at differentiation, but it's got a new chapter ahead of it. Okay, how concerned also argue about the subscriber growth internationally. I mean look even over the last year or so the amount of domestic subscriptions have continued to get smaller and smaller. I think maybe last year maybe a million domestic ads were added. So almost all the subscriptions are are international here, but it looks like just every every quarter they're forecasting almost half of what they had from last year. So how much of a concern are these international subscriptions for for netflix here? Well, I think one of the things that we need to make sure we focus on is the fact that netflix is still growing, it's still growing fairly quickly, it's growing off a much larger base. And so while the growth has decelerated, it still exists. And if we think about now, how long netflix has been around the fact that the market has evolved, the moment was always going to come whether domestically or internationally netflix's growth rate, the pace of expansion had to slow down now. It maybe feels as though it's come faster, but that's because we just had two years through covid of growth accelerated by folks sitting at home. So I'm concerned that perhaps market expectations weren't realistic and therefore will not be met. But I think it is very natural that netflix was going to reach the point and start shifting its attention to profitability and away just the headline growth numbers well. So how much growth do you think is there? Like do you still believe that this is a growth stock? Because we've seen some analysts say that this could be a $700 share prices. You see now at $400. I mean given the increased competition here being much more fierce, how much more growth is left for netflix? Yeah, I I no longer think of netflix as a growth stock. I now think of netflix almost as one of the mature big, big tech players. And that is because it's emerge into a position where it's got a strong cash based, it's going to grow that by virtue of things like its price hikes. And I think this is much less now about an explosive revenue trajectory and it's about margin expansion. It's about expanding cash flow generation. It's about reinvesting in stickiness and creating a very sticky base from which there could be more merchandise sales, experiential activations and other revenue streams. So I didn't think of it as a top line revenue growth stock anymore. I think of this as a mature tech business that's looking to try and yield the best return on capital and looked at innovate with through that lens. Much more than just a are you also liking the international um doubling down on the international content spent here because obviously Q three squid game did incredibly well. They just announced, I believe yesterday the second season of squid game is gonna come out and netflix saying they're going to spend even more in the korean area. How much do you think that that is going to be beneficial for this company? Given the fact that squid game was literally one of the hottest shows of the year last year, I think it's hugely beneficial. And if we think about some of the most successful content businesses out there, let's take Disney as an example what they have been able to do consistently. So not just one and done is create content that could be distributed globally. And in many cases it's actually the global distribution that makes the real money, the U. S. Has tended to get the glamorous headlines. What the global distribution has tended to be in many cases is the great cash generator. So to me again, this is a natural evolution. I'm very excited by the idea that netflix is continuing to move aggressively overseas. And I see that as upside, I don't see that as a negative and I don't see that as an indictment of the company's performance? Yeah, I'm just excited for the second season of squid game. Still so many questions I have after that, and very good to see you as always, have a great weekend chief investment officer over at Wheelhouse joining us this morning.