Loop Capital's Alan Gould: Only thing not to like in Netflix's earnings report is U.S. engagement

Netflix Q2 2024 Earnings Analysis: Loop Capital's Perspective

Key Concepts:

• Revenue Growth
• Member Growth
• Engagement Metrics (US vs. Global, Netflix vs. YouTube)
• Churn Rate
• Valuation (P/E Ratio)
• Competition (YouTube, Short-Form Video, Free Streaming Services)
• FX Impact

1. Earnings Report Overview:

• Netflix's Q2 earnings topped estimates, with double-digit revenue growth.
• The company raised its full-year revenue guidance, citing healthy member growth.
• Loop Capital analyst Alan Gould maintains a $1,150 price target and a "hold" rating.
• Gould states the report was "fine" with no real surprises, as Loop Capital anticipated strong Q2 results and increased full-year guidance. The revenue guidance was slightly higher than expected, partially due to favorable foreign exchange (FX) rates.

2. Engagement Analysis:

• US engagement is relatively flat.
• YouTube engagement is growing faster than Netflix engagement.
• Nielsen data indicates Netflix engagement is strong, reaching 8% of households.
• Netflix is targeting the 80% of households that don't use Netflix or YouTube.
• Content slate is more back-end weighted this year.
• Gould believes a +10% engagement benchmark was unrealistic, as the highest Netflix gauge was 8.6%.
• Netflix's first-half engagement report showed a 1% increase to 95 billion hours.
• Per-user household engagement has been flat for the last two and a half years.

3. Pricing and Churn:

• The recent price increase was well-accepted, and churn has not increased.
• Competition is the primary factor affecting engagement, with YouTube gaining share.
• Short-form video and free streaming services like Roku and Fox's Tubi are also gaining share.

4. Valuation Concerns:

• Gould's "hold" rating is based purely on valuation.
• He projects earnings north of $26 next year and almost $60 in 2030.
• The stock is trading at 40 times next year's earnings and 20+ times earnings five years out.
• Gould believes this valuation is "fully valued."
• He acknowledges Netflix's strong execution and dominance in the traditional media business.

5. Competition:

• YouTube is a significant competitor, gaining market share.
• Short-form video platforms are also impacting engagement.
• Free, ad-supported streaming services (FAST) like Roku and Tubi are gaining traction.

6. Notable Quotes:

• "The report was fine. It just. Was there any real surprises in the report? I would ask..." - Alan Gould, on the lack of major surprises in the earnings report.
• "...it's purely a valuation question." - Alan Gould, explaining the reason for his "hold" rating.
• "They've executed better than just about anyone. They've basically taken over the traditional media business." - Alan Gould, acknowledging Netflix's strong performance.

7. Synthesis/Conclusion:

Netflix delivered a solid Q2 earnings report with strong revenue and member growth, leading to increased full-year guidance. However, Loop Capital maintains a "hold" rating due to valuation concerns, despite acknowledging the company's strong execution and market dominance. Competition from YouTube, short-form video, and free streaming services is impacting engagement, but Netflix's pricing power remains strong with no significant churn increase. The future performance hinges on Netflix's ability to sustain growth at its current valuation multiples.