EARNINGS ALERT: NFLX

important to sort of flesh out and give us some color as to what's going on here, but let's break it down with Jeff Pierce, senior manager, derivatives trading over at Charles Schwab. Jeff, thanks for jumping in here. I've just read out these numbers. We're watching this reaction here. What have you made of what we've got so far. Yeah. I'm interested. I'm a little surprised by the reaction that it's not more negative considering, you know the sales missing. But I guess not not a huge miss there. But they did beat on earnings. I think, you know, coming into this report I would have said if revenue you know earnings missed that that would likely we would see a negative reaction on that. But we're probably still waiting to dive a little bit more into what we're seeing in the ad growth, some of the engagement. And, you know, the watch time commentary as well as some churn, any churn we might see from price increases. I know they mentioned price increases did help a little bit this quarter. And of course, content spending as well. Yeah, obviously, engagement has been the big focus not seeing anything on that just yet. Hopefully they'll flesh out a little bit more of a detail on the call. But I know that people have been looking at that because there has been a concern that that's been coming off, obviously, the advertising managing to offset some of that. There had been some expectations around what they're going to do with their M&A strategy. I think the free cash flow is interesting, too. But what do you make of some of the concerns around the viewership numbers and the competition? I mean, would those numbers suggest that there is something to worry about here because some say the content is good and good enough to offset some of those other issues right now, particularly because they've increased their pricing. What is it a number of times this year? And it still feels like people are paying. Yeah. Well, you know, obviously we're continuing to see Netflix grow, but we're in this new stage where growth is really normalized. So we're not asking how many subscribers there are or how many you're adding. Now we're asking, you know, really where is the next wave of growth come from? You know, obviously investors are focusing and have been especially over the past couple of years on, on the revenue growth, the strong margins, the healthy cash free cash flow. You know, the, the debate as we were just talking about is now is engagement, right? Keeping subscribers longer, growing that advertising money, selling premium content and increasing that revenue per member. We've seen them expand into NFL, WWE, live boxing, you know, podcasts all kind of across the board. One issue they have, of course, is competition is growing. It's not just Disney, Hulu and HBO anymore. We've got, you know, names like YouTube, which have become one of their biggest competitive concerns. So the advertising growth is the next growth engine, but they have to continue to generate more revenue from each subscriber. Yeah. And it's interesting. I mean, some analysts have been talking about this today. Some traders I actually heard say that this is trading like a utility where it's sort of like, you know, in two years they've increased their pricing. People are still paying even though we see consumer discretionary spending coming off a bit, people making more choiceful decisions, it doesn't look like the numbers are falling off too much. But as you say, engagement is going to be the big one moving forward. But as far as the stock is concerned, Jeff, down over 30% the last three months, I'm seeing down 45% since hitting the all time high at the back end of June last year. It's wiped out $260 billion in market value ranking among the 20 worst S&P 500 performers over that period. This is according to Bloomberg. Some say that's been a buying opportunity, given the daisy chain of unfortunate events that we've seen here, but still a good company overall. What have you made of the stock performance? Yeah, it's been really interesting to see us get here. Right. I mean, if you think back to summer of 2025, that's really when expectations peaked. We saw the shares get to all time highs. We saw that password sharing initiative really boost subscriber growth. The margins continue to expand. Their pricing power is very strong and their free cash flow improved considerably. Then we saw growth start to normalize you know, and that again switched to how many subscribers are you adding to now you know, what's really what are we, where are we going to get this future growth? I think you mentioned the Warner Bros. Acquisition drama. I think that was one of the bigger stories over the year. You know, in pursuing that, investors were very worried about that deal. And then, of course, we saw those earnings where I think the, you know, the change in sentiment happened a little bit. We saw where the stock really lost momentum, even though it was a good quarter. But investors focused on, again, weaker Q2 guidance, slow revenue growth, higher content spending, which they're doing to try to increase their value. But there's certainly a cost there. And then, of course, some changes to the board. The takeaway has really been that, you know, Netflix is executing very well, but our investors are not necessarily eager to continue to pay these premiums for a multiple that's showing slowing growth, right? Yeah, yeah. So obviously, we've continued to lose a little bit of altitude here. I mean, we're still trading down almost 6% on Netflix. So the call is going to be really important. What would you like to hear on that? I mean, if you could be a fly on the wall or an analyst ask you a question yourself, what exactly would you be throwing at management? Well, yeah, I think now that we've seen the numbers, I mean, I would love to see a revenue and earnings beat, you know, operating margins coming in a little bit more above expectations. That said, I think, you know, they're going to need to to talk more about the advertising growth. And is it coming in faster than they had previously expected? We're going to want to hear a lot of positive commentary around engagement and, you know, try to see if there is any evidence of churn after these price increases. You know, the company has been pretty lucky in terms of price increases. They've been able to continue that without getting without seeing much damage in terms of, of their customer count. That said, you know, obviously, you know, we're in an environment where I think investors are paying more attention to that. And so I think that's going to be listening for any signs of weakness in that engagement, I think is the big story based on the move that we have so far. I think that's what investors are really looking for. All right. Netflix shares trading down 5.7% right now. Jeff really appreciate it. Thanks