Netflix, John Farrow, CSX discussed on Bloomberg Surveillance


On the commodities front WTI crude oil is lower just over $85 per barrel gold is also lower It's called $1845 an ounce Bitcoin That's the story here this morning It's about 7% lower today and now trades about $38,400 per token or so maybe an entry point for somebody just sitting down Let's get some more color on those equity markets Well bloomer markets correspond to pretty good Pretty what are you looking at Yeah Paul we have to start talking about Netflix because you know there's a real shortage of that this network Is your ticker down 20% I'm gonna quote John farrow here and saying that a company worth $225 billion should not be moving 20% Right In just the pre market this of course coming off of an outlook miss a Netflix expecting to add only 2.5 million users in the current quarter and to add on to that the company also reporting 18.2 million customers in 2021 that's down from 50% from 2020 So major hit for Netflix and you're seeing some of those other streaming companies taking a hit as well Roku is one of them are okay use the ticker down just shy of 4% Disney as well DIS is your taker down 3.6% Well I'm trying to download Ozark as we speak and it's just not working here so I don't know what's going on Is that your Netflix show of choice Right now yeah it's big I noted I'm gonna add that to my Netflix watching list on the good upside though We were talking about kind of the perhaps money coming out of those stay at home stocks peloton getting a little bit of a bid this morning PT ON is your ticker up 4.4% Remember it had a major hey yesterday down over 20% in its own stock This comes after a report that it was slashing costs to cope with slowing demand for its stationary bikes They're also planning to cut jobs Of course they're also posting revenue of $1.1 billion There was a time when you had to wait months to get a bike Yeah I mean months Oh yeah And you know it's just amazing Now they're cutting production on some of the bikes and the treadmills and things like that just amazing The times have certainly changed and to go really quickly back to Netflix here If you actually looked at a chart of Netflix and its market cap it made a literal round round trip in its chart all because of the squid game returns that boosted the stock since the 2020 pandemic and then now it's coming back I will see what it does at the open of course Moving on to another earnings story here this morning CSX the railroad down just shy of 4% It's called cheshi systems back in the day when we trade it When I traded railroad stocks chessy system Noted Fun fact you're Friday fun fact folks Fourth quarter profits Are you sure the running railroad I traded for Marvin gardens which usually never worked out Is they called reading or reading Ready Oh really Yeah Yeah She's like from a foreign country That's Texas I know I know It is the Republican Party I know I even say Houston not Halston You scandal Baltimore in Ohio Yes And how you would trade from my mother was smarter than me She would always go for Illinois For me I just go in circles until I create no idea We're talking about monopoly Yeah There we go Give me some credit Anyway CSX I'll wrap it up here Fourth quarter profit and revenue beat overshadowing by a miss in this operating ratio a measure of the railroads efficiency You don't need those road efficiency numbers from an hour I love them But revenue ten miles RTN that was a basis for your earnings model for the railroad companies how much revenue did they generate from moving a ton of freight over one mile Oh interesting There you go That's your modeling tip of the bacon You and I just leave and you can do it Yeah exactly We should do that for charge of the day Tom We should Pretty good to thank you so much greatly appreciate it We said good morning to all of you Bloomberg surveillance futures negative 23 Dow futures here down which means that you know we probably have to talk about Netflix Yes it seems to be the theme this morning It's actually really interesting and I just had a raging debate with Barry Ritz on this ether rug enough joints as we pick up the pieces of Netflix Keith does the company have an obligation to maybe sort of kind of like suggest to the sell side to the 51 analysts on the Bloomberg that follow Netflix to maybe suggest this quarter doesn't look that good That's the understatement of the year yet So the fourth quarter actually was much better than feared I think what's really spooked all of us has been the worst I think it's the worst of the worst case scenario for the one Q guide And that's about 60% lower than consensus but I think really what everybody was kind of hoping for was some kind of return to a predictable pattern of growth and that's obviously not happening Why is a predictable pattern of growth not happening Because typically if you look at a pre-pandemic year the first quarter kind of sets the tone for the whole year So you have the service typically adding anywhere from about 6 million to about 8 to 9 million subscribers in a regular year That's about 30% of their entire years additions And now if you extrapolate and you take this two and a half million and you kind of model it out for the whole year you basically get under 10 million And that just does not work for the Netflix story The Netflix model is predicated on about at least 25 million subscriber additions per year And this is what kind of throwing everybody off And to kind of amplify these problems further is the whole margin story They were guiding to about 300 basis points of margin improvement every year And now you suddenly have them walking that back a little bit for 2022 and actually kind of guiding them Jump in here I'm talking to two experts who ranging out and Paul Sweeney to both you and Paul pick up the conversation Are they wandering back to negative free cash flow because I don't think so No I think this is a profitable business We've seen it in the U.S. for a long time But is this just a simply a question of the programming expenses rising faster than maybe the revenue because of subscriber growth is slowing Is that the kind of the story So on the margin side Paul the operating margin underperformance is really just more effects issue They said that that's going to hit revenue Just the fact that the U.S. dollar has strengthened so much that is going to cause about a $1 billion impact on the revenue line And that's really what's affecting the margin guidance But really what it's come down to your point about free cash flow I think they still have a lot of operating leverage in the model So I think this will be a sustainably free cash flow positive story I just think it's going to take us longer to get there because initially when we kind of modeled out this company we thought about a billion and a half dollars in free cash flow in 2022 I think it might take a little bit longer to kind of get there and we're not necessarily going to see that huge ramp up So I think subscriber growth definitely decelerating it's going to be at least I think another three to 6 months before we get some clarity I'm binging Ozark this weekend just let me know right now Keith what does this mean for the kind of the streaming business overall I know some of the other stocks Roku and Disney taking a little bit of.

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