Netflix in ‘transitional phase’ and may not see growth until 2024

KeyBanc Managing Director Justin Patterson and CFRA Research Director of Equity Research Ken Leon joined Yahoo Finance Live to discuss Netflix earnings, advertising, customer base, and the future of the company. Patterson said, 'I think you're in a transitional phase across the entire group. You are seeing some more volatility in just quarterly results.' While Leon added, 'this is really an adjustment for longer-term growth.' Full video transcript: Justin Patterson (00:00:06 -> 00:01:05) - Netflix is more of a pricing story. When you think about just the phasing of revenue growth this year and over the medium term, it's really a function of extracting more value from that customer base. Whether it's cracking down on the password sharing or moving from walk to run on the ad service where you have much more ads being delivered, better targeting, and ultimately better monetization of that time spent on the platform. How do you get just users to pay a little more, to consume more ads on a platform, so on and so forth? So I think you're in a transitional phase across the entire group. You are seeing some more volatility in just quarterly results. I don't think you'll actually start to see more normalized growth until 2024 when we get out of some of these macro factors near term. And a lot of these product initiatives, just move from initial testing phase toward broader deployment and adoption. Ken Leon (00:01:06 -> 00:01:57) - What does Netflix look like as it goes more significantly to paid sharing or friends and family? We're gonna see that in the second quarter. And the the other issue really relates to the ad pay plan. There hasn't been any cannibalization from the higher ad-free plan. And then advertising revenue really is not gonna be material until next year. And it all, for Netflix, it's kind of, it's not self-inflicted as, but this is really an adjustment for longer-term growth. I have total confidence that their $17 billion content spent on programming and film is the most efficient and highest return, and they got a global platform that enables them to have local programming by country and then share it in other parts of the world. Watch KeyBanc Managing Director Justin Patterson's full appearance here. Check out CFRA Research Director of Equity Research Ken Leon's entire interview here. Read More...

Patterson said, ‘I think you’re in a transitional phase across the entire group. You are seeing some more volatility in just quarterly results.’

While Leon added, ‘this is really an adjustment for longer-term growth.’

Full video transcript:

Justin Patterson (00:00:06 -> 00:01:05) – Netflix is more of a pricing story. When you think about just the phasing of revenue growth this year and over the medium term, it’s really a function of extracting more value from that customer base. Whether it’s cracking down on the password sharing or moving from walk to run on the ad service where you have much more ads being delivered, better targeting, and ultimately better monetization of that time spent on the platform. How do you get just users to pay a little more, to consume more ads on a platform, so on and so forth? So I think you’re in a transitional phase across the entire group. You are seeing some more volatility in just quarterly results. I don’t think you’ll actually start to see more normalized growth until 2024 when we get out of some of these macro factors near term. And a lot of these product initiatives, just move from initial testing phase toward broader deployment and adoption.

Ken Leon (00:01:06 -> 00:01:57) – What does Netflix look like as it goes more significantly to paid sharing or friends and family? We’re gonna see that in the second quarter. And the the other issue really relates to the ad pay plan. There hasn’t been any cannibalization from the higher ad-free plan. And then advertising revenue really is not gonna be material until next year. And it all, for Netflix, it’s kind of, it’s not self-inflicted as, but this is really an adjustment for longer-term growth. I have total confidence that their $17 billion content spent on programming and film is the most efficient and highest return, and they got a global platform that enables them to have local programming by country and then share it in other parts of the world.

Watch KeyBanc Managing Director Justin Patterson’s full appearance here.

Check out CFRA Research Director of Equity Research Ken Leon’s entire interview here.

Video Transcript

[AUDIO LOGO]

JUSTIN PATTERSON: Netflix is more of a pricing story. When you think about just the phasing of revenue growth this year and over the medium term, it’s really a function of extracting more value from that customer base, whether it’s cracking down on the password sharing, or moving from block to run on the ad service, where you have much more ads being delivered, better targeting, and ultimately better monetization of that time spent on the platform.

How do you get just users to pay a little more, to consume more ads on a platform, so on and so forth. So I think you’re in a transitional phase across the entire group. You are seeing some more volatility in just quarterly results.

I don’t think you’ll actually start to see more normalized growth until 2024, when we get out of some of these macro factors near-term, and a lot of these product initiatives just move from initial testing phase toward broader deployment and adoption.

KEN LEON: What does Netflix look like as it goes more significantly to paid sharing or friends and family? We’re going to see that in the second quarter. And the other issue really relates to the ad pay plan. There hasn’t been any cannibalization from the higher ad-free plan. And then advertising revenue really is not going to be material until next year.

And it all up for Netflix, it’s kind of, it’s not self-inflicted, but this is really an adjustment for longer term growth. I have total confidence that there’s $17 billion content spend on programming and film is the most efficient and highest return. And they’ve got a global platform that enables them to have local programming by country, and then share it in other parts of the world.