The Bank of America media conference was held today. And for those unaware it was happening, comments from Netflix’s chief financial officer (CFO) Spencer Neumann certainly put it on their radars. 👀
At the core of his message was that the Hollywood strikes are bad for business, and the company’s primary focus is getting back to work. For now, it’s managing through the headwind, but the strikes need to move forward for Netflix’s (and the entire media industry’s) business to move forward. 👎
Despite those obvious and lackluster comments about the state of the industry, his view on margins and Netflix’s ad-supported tier threw investors for a major loop.
His operating margin forecast of 18%-20% differed significantly from the consensus view of 22.1%. And although he tried to soften the blow by saying Netflix’s margins are nowhere near their peak, the damage was already done. 😵
As for what’s driving the weakness? Apparently, building an advertising business from scratch is not as easy as the company (and investors) anticipated. Neumann said a ‘healthy proportion’ of accounts moved into their ad-supported tier but that the ad business ‘is not that material yet’ for the company.
This was one of the company’s first times commenting on how that new business was going, and it disappointed, to say the least. As a password-sharing crackdown and price increases push more users to the ad-supported tier, investors had hoped for more optimistic commentary on its revenue impact. But they’ll have to wait. 😟
$NFLX shares fell 5% and closed at their lows. The stock has been stuck below $450 since its pre-earnings release pump failed to hold in mid-July. 👎