Mark Mahaney, Evercore ISI head of internet research, joins 'Closing Bell' to discuss Mahaney's thoughts on Netflix, if churn will pickup among the streaming stocks and much more.

Analyst Mark Mahaney from Evercore ISI believes Netflix has significant growth potential, citing a 20% upside from current levels. He attributes this to a strong content slate, the ramp-up of advertising revenue, and Netflix's increasing involvement in live events, including sports. Mahaney also notes that Netflix's pricing strategy, particularly its low-cost tier, has been successful in retaining subscribers despite periodic price increases.

The discussion also touches on broader industry trends, such as the impact of AI investments among major tech companies. Mahaney argues that companies investing heavily in AI, like Meta, have seen substantial increases in revenue per employee, suggesting that effective AI integration can drive productivity and monetization. He maintains that these trends are likely to persist, benefiting both Netflix and other leading tech firms.

Why Netflix's next growth opp is a ramp on ad revenue, live events

He sees another 20% upside from here. Joining us this afternoon, Mark Mahaney, Evercore ISS Head of Internet Research. Mark, good to see you again. On Netflix, I know you've done some survey work. You've got some stuff to talk about, about sentiment. Does it deserve to have treaded water, really, since Memorial Day or so? Oh, I, well, that's a good take on it. I was looking at the stock that's up 36% year to date and kind of patting myself on the back, but you're right. The stock has, there was an anticipation in the trade year to date that we were gonna have a heck of a strong content slate in the back half the year. I think that's coming through. And I think there was a little bit of surprise in this drama that everybody's now loved and it's the most popular movie, I guess, of all time, K-pop Demon Hunters. But you still have, you still have, Carl, don't forget. You still got Stranger Things and that's coming out in three batches. So this is gonna keep you busy. Thanksgiving, Christmas, and New Year's. And then I think the content slate will just continue to get stronger. I think the next move in the stock is gonna be based on them ramping up advertising revenue. I think they're gonna do it, but this is gonna be a long slog and then also getting more and more into live events, including sports. And I think we're gonna see that. I think Netflix has just begun to become more crucial, more essential to households around the world over the next two to three years. It's a really good asset. You wanna be long it. This is not an aggressive entry point, but if you don't own any, you should buy some, I think. And look for those big pullbacks to step in and take big positions. I like Netflix as a core franchise. I know you've looked at satisfaction, at least in terms of US fundamental trends, but you did get some pricing action today on Disney+, which was reported by The Verge. Would you expect churn to pick up overall among the streamers right now? I don't see any particular reason why it does. Look, you're gonna get these shoot-ups in churn when you have price increases and all these companies are gonna be taking price up over time because they offer you really compelling value propositions. I mean, if you just step back, you're doing eight bucks a month for Netflix on the cheapest version of the offering for $19 billion worth of content. You can spend $8 a month to get that. I mean, the value proposition is still truly compelling. I think they'll also accordion their prices at the high end, they'll take up more and more. They'll take up pricing consistently over time. They've been able to do it in the past. As long as they have that catch-all, that safety net of that low-priced offering, I think they can do that. I think that was the really important pivot by the company two or three years ago. It's been phenomenally successful. I expect with that, with those price increases, you'll get a little spikes in churn, but I think long-term, they'll still stick there because the best value proposition for your money, for your entertainment dollars, isn't streaming, whether that's Disney or Netflix, and you'll probably buy a couple of these services. I think these companies have staying power and they have pricing power. While I have you, Mark, I wanna get you on some of your other favorites in the space, including any hyperscalers. I know you've done some work looking at not ROI, but ROI, meaning the return on AI investment by a lot of the giants, and you argue that it is accretive. Well, look, there's this great debate in the market. There was this MIT study that came out a month ago that said 95% of corporations were probably wasting their money on AI. I don't know if that's true or not. I look at the hyperscalers. I look at four companies that have leaned in more heavily than anybody else into AI spend, and you know how it's paid off? They've gotten accelerating revenue per employee. In other words, if you look at the last couple of years when they've really leaned into this gen AI investment spending, CapEx has gone up aggressively. Their revenue per employee has gone up 30% over the last three years. Now, there's a lot of factors that are in there. I know that, but still, I'm sure that some of the innovations they've made, I think about names like Meta that have dramatically improved the user experience and the advertiser experience, and has caused revenue per employee to jump up, in their case, almost 70%. Like, if you do AI right, if you invest in it aggressively, you can materially improve your monetization. And I'm not talking about costs. I'm talking about improving your productivity, your revenue per employee. You don't normally see that. So I think that's why, it's just great case studies for why this is such an exceptional period for these companies to be investing, and they're investing successfully, and investors can take advantage of that and stick with these stocks, because I think these trends are gonna be in place for several more years.

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