00:00 Speaker A
Well, Netflix reporting first quarter earnings after the close on Thursday. Company announcing it will stop disclosing subscriber numbers this quarter, leaving investors looking for other indicators for the company’s performance. For more, we’re bringing in now Alicia Reese. She’s vice president of equity research at Wedbush Securities. Alicia, great to see you. Uh, so Netflix earnings on deck, Alicia, what are you telling clients? What should they expect?
00:40 Alicia Reese
Well, we were a little concerned going into the quarter given the pretty significant price increases across the subscription tiers. But at the end of the quarter, we um conducted our quarterly consumer survey, which showed that there was very little attrition um on the service, very little churn. A lot of people still intending to come back um to the service in the second quarter. Our fourth quarter survey before the price increases had indicated quite a few people coming back to the service after not having it for a while. I think just on content, um, this last year, Netflix gained so many subscribers, 15% in the first half, 16% in the second half. And on that, the viewership didn’t go up very meaningfully. I think that was just because of the lack of content. So when you see that content really becoming far more robust in, you know, 2025, um, and those price increases that should keep a lot of those new subscribers and returned subscribers on the service. I think overall, it’s pretty positive. But we have to remember that Netflix isn’t going to be giving us subscriber numbers or the average revenue per member. So it’s going to be a little bit trickier um to determine, you know, where the stock is going to go once they report. But overall, I think it’ll be positive.
03:04 Speaker A
Alicia, I’m so glad you just mentioned that because I can’t help but feel when a company changes its metrics or stops reporting certain metrics, it’s kind of like when a restaurant changes up its menu or when a company changes its name. What they’re basically saying is something isn’t going the way we’d like it and we need to reinvent. Uh, am I, uh, am I being too harsh here?
03:35 Alicia Reese
I don’t know if it’s harsh, but I think what, what the reason that they’re doing that is because in 2024 they were able to add so many subscribers, um, because of, you know, the um, password sharing crackdown, um, and because of the subscription, the advertising tier, which was much lower cost. So it was a lot easier to keep those members on the service versus them churning out because they wanted to save a buck or two, um, for a month, a few months. Um, so now, uh, in 2025, they have a very different focus. And that is keeping subscribers on the service and raising price. And their, all their testing suggests that they could do this, that they could keep people on the service, and that’s largely due to the content spend, the content quality, uh, becoming a lot more robust in 2025. After last year, we saw the Sag after strikes, um, they really impacted the, the quality of content available in the market. And Netflix is just so profitable, they have so much more money to put into that content versus their peers. So they’re, um, also adding live content like the WWE. And so they have a lot to offer, and I think they can raise that price and our survey indicates that they saw a little churn in the quarter because of that.
05:43 Speaker A
Alicia, I’m curious. If there was a material economic slowdown in the US, Alicia, what could that mean for Netflix?
06:00 Alicia Reese
Well, typically, what we see, um, especially following the movies is that people will cut travel, um, they’ll cut expensive purchases, and they’ll stay home a bit more. For Netflix, that’s great, you know, the more people are home, the more they’re going to seek in-home entertainment or perhaps going out to the movies. Um, so that really benefits Netflix. On the other side, you know, they’re trying to grow their advertising, um, model, and if they don’t have advertisers spending as much calling their, their budgets, that might impact the, the ad tier, advertising tier growth for them and the revenue that they can derive from that.
07:05 Speaker A
Alicia, I’m curious, um, any new super hot hits coming out of Netflix? I think about Drive to Survive, which completely changed the trajectory of F1. Changed my trajectory too. I now go to F1 races. Uh, is there, is there a next, uh, super, super show that’s, uh, coming up or maybe even a couple of them?
07:45 Alicia Reese
Well, I think Netflix is, um, I think we are going to see the benefit, not for Netflix, but, um, for the movies in general, F1 coming out this, this summer. I think that’s going to be, um, a big hit. Um, F1 is up for grabs, it sounds like, and there are a couple other sports properties that are up for grabs. So Netflix might make some, you know, waves by purchasing some more, um, some more sports content, some more live content after the WWE. Um, but just the content that’s, um, coming out right now, there are quite a few really good shows. Uh, frankly, they have to compete with some other big properties out there like The Last of Us. Um, but so far they have some really good breadth and depth and live content quality. So it’s really just the balance of that where they have something for everyone right now.
09:09 Speaker A
Alicia, final question here. Looking at the stock, it is up nearly 55% over the past 12 months. Alicia, how do you think about valuation for this one?
09:30 Alicia Reese
Yeah, the valuation is a little bit trickier now because they’re not giving the subscriber numbers. And so it’s just a basis of revenue growth, um, capabilities, and they have to beat that revenue guidance by quite a large margin now, I think because they’re not giving subscribers. And what investors want to see is just expansion of that free cash flow. So if you’re expanding that free cash flow pretty meaningfully, the shares could continue to go up. They’ve, it’s been a little bumpy as you, you know, through the beginning of the year because of these reasons, because people aren’t sure as much what to expect. Um, but I think they can continue to, um, you know, expand as long as that free cash flow continues to expand.
10:36 Speaker A
Alicia, great to have you on the show today. Thanks so much for your time.
10:42 Alicia Reese
My pleasure. Thanks for having me.