Paul Meeks, Managing Director at Water Tower Research, tells 'Worldwide Exchange' that Netflix’s earnings growth is priced in, with live events and strong content driving future success.

Los Gatos

Paul Meeks, Managing Director at Water Tower Research, confirmed estimates of 45% year-over-year earnings growth for Netflix, noting that the company has consistently outperformed analyst expectations, including a significant earnings beat in the previous quarter. However, Meeks cautioned that Netflix’s stock price, which has risen 40% year-to-date compared to the S&P 500’s 7%, already factors in much of this optimism.

Meeks emphasized the importance of live events, such as the recent Taylor-Serano boxing match, and the continued traction of Netflix's ad-supported tier and recent price increases. He believes Netflix’s extensive content library and global subscriber base create a competitive advantage, allowing it to invest more in content creation than its rivals. While artificial intelligence may impact digital advertisers, Meeks does not see it as a significant threat to Netflix’s business model.

Meeks: Netflix shows 45% earnings growth but price reflects much of it

All right, so 45% earnings growth year over year, that's the estimate. Do you agree with that outlook? And then at the same time, you say you're concerned about this stock's big run-up. I mean, if they have earnings with 45% growth, what's there to worry about? Yeah. So first of all, to the numbers that you quoted, the revenue and non-GAAP EPS growth rates, I concur. I think that they might even upside a little bit. Remember last quarter, they had one of their biggest EPS beats in a long time. They beat the analyst estimates by a full 17%. But what I'm telling you is this, is here's a stock that is already up 40% year to date. The S&P 500 is up only 7%. And so a lot of goodies baked into this price. As far as the quarter goes, I'll be looking for a couple of things because I think they will easily beat the revenue and EPS numbers. But I will be looking for, on a tactical basis, tell me the viewership of the Jai 11th Taylor-Sereno fight that they broadcast. Also, they had a big price increase in late January. Let's see the continued traction there. And the ad supported tier, as you mentioned in the preamble, it's a big deal. Let's see the traction. Yeah, I'm an old timer. And I will tell you that the greatest of all parlor games, used to be trying to predict their quarterly net subscription ads. Unfortunately, they stopped doing that two quarters ago. So we have to go with other metrics. All right, so the metric you're looking at is that July 11th fight between Katie Taylor and Amanda Serrano. It was part of a trilogy. It was all women's boxing card. I do have to ask, why is that a bellwether of something to you? Like, why is that such a big deal? This is a network that I believe has F1 racing. They have pro wrestling. They have a lot of other live things and other events. Why is this the big thing? Well, I think it's a big thing this quarter. It's not gonna be anything like the Tyson Paul fight from about a year ago. But my thesis with this company, that one of its key legs to its growth is going to be live events. And so I like to follow along. I think they're gonna do very well over time with live events, including sporting events, and also unscripted shows and unscripted celebrity interviews. So I look at all of those events carefully. All right. Is content still king? Is that what this is really all about? Or is it about price? Is it about something else? And when it comes to content down the pipeline, you said that fight matters for this quarter, but going forward, does Netflix still have what I think a lot of people see as a big lead when it comes to content generation, especially original content that resonates not only here in the US, but internationally? Yeah, it's a virtuous wheel, because when you think about it, they have the content so much more than everybody else that they get the subscribers, and then they have so many more subscribers than everybody else that they can create more content and keep the flywheel going, not just in the US, but abroad. And so when I take a look at this group, there's always a lot of chatter about the up-and-comers, like Disney and Warner Brothers and some of the others. At the end of the day, I say, short that basket and just buy some more Netflix. All right, by the way, I've never seen Squid Game. What is it, Prisoner? I've never seen any of these things. I just hear about them. But I want to go to a part of the business that you say has been, I guess, a tailwind for it, the ad-supported tier. What is the outlook when it comes to that? A lot of people think AI is going to kind of shake up the advertising business overall, and just kind of change the different channels that you can sell ads and that people view ads. How does AI play a part in this ad-tier strategy? I think that is going to be more of a direct threat to the digital advertisers like a meta or an alphabet, because as long as we have folks like you and me, though you might have to wake up like super early in the morning so you can't watch TV at night, yeah, you're going to have people wanting the content. And if they have a huge content lead and they turn around and invest more in content creation dollars than anybody else, I think they'll just be fine. I don't see this among all the tech stocks I cover as one that is necessarily going to be that threatened by AI.

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