In this podcast, Motley Fool senior analyst Maria Gallagher discusses:
- How Microsoft (MSFT -1.69%) being “agnostic” helped it beat Google and Comcast in a bid to help Netflix (NFLX -1.54%) with ad-supported streaming.
- Why she’s focused on the ripple effects of Target‘s (TGT -0.58%) upcoming report.
In addition, Motley Fool producer Ricky Mulvey and Fool.com contributor Rick Munarriz discuss Celsius Holdings (CELH -5.94%), an energy drink company with triple-digit growth.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on July 14, 2022.
Chris Hill: We’re going looking for the next Monster. Meanwhile, Netflix has found itself a new partner. Motley Fool Money starts now.
I’m Chris Hill, joining me today from the financial capital of the United States of America, it’s Maria Gallagher. Good to see you.
Maria Gallagher: Nice to see you, too.
Chris Hill: Netflix has chosen its partner to help with its ad-supported streaming plan, and it is not Google or Comcast, who were reportedly the front runners. Netflix has chosen Microsoft, and this struck me as a dark horse choice to the extent that a company as big and as valuable as Microsoft can be a dark horse in anything until I remembered that Microsoft does not have its own streaming service. Microsoft — and apparently they stressed this in the negotiations — hey, we’re agnostic. Comcast has Peacock, Google has YouTube. We’re just a little old Microsoft. Were you surprised by this?
Maria Gallagher: I think you really know that I think that the agnostic argument is really what cinched it for them. They also recently acquired the digital ad business Xandr from AT&T in 2021. Before 2021, they didn’t really have those digital ad capabilities, but after that acquisition, I think that they said, we have these capabilities, and we’re willing to work with you. We can innovate together and we’re not competing with you, and Netflix said that part of this is that agnostic quality, that Microsoft is really heavy on privacy and that they can innovate together and make this work for them. Like you said, as much as the dark horse as it could be, I do think it was a little bit surprising, but I think it makes sense.
Chris Hill: Since the news first broke earlier this year that Netflix is going to go this route, it seems like they have been moving about as quickly as possible to make this happen. Do you think they felt it was important to get this news out there before they report earnings next Tuesday?
Maria Gallagher: Absolutely. I think they do because last quarter they lost about 200,000 subscribers. This quarter they’re predicting a loss of 2 million subscribers, and so I wonder what that number is even actually going to be if they want something to say, listen, we know this doesn’t look great, we predicted it wasn’t going to look great, but we have this other thing coming. We think it’s going to be here at the end of 2022. They’re also working on making Netflix bigger and better and more specific in the movies and the shows that they produce. They fired about 2% of their workforce, about 150 people. They have focused where those firings are: family live-action film, original independent features. You’re seeing them trying to compete more with the typical Hollywood movie of those bigger films like Knives Out that had a really big splash and less on those romantic comedies or indies that were kind of their bread and butter for the past couple of years.
Chris Hill: It is going to be interesting to see what we hear from Netflix. I do wonder if maybe they were buying themselves some wiggle room by putting out the number of 2 million. Who knows? Maybe they come out. They’re like, hey, we only lost one and a half million subscribers, which would be seen as a win of some sorts I suppose. You and I were chatting about this earlier. The Emmy nominations came out earlier this week, and, from a creative standpoint, it seems like this is one more pressure point for Netflix. They don’t have the bragging rights in terms of the most Emmy nominations and let’s face it, bragging rights count for something.
Maria Gallagher: Yeah, you’ve seen it change so much. In 2013, they picked up their first Emmy nomination with House of Cards. This year they picked up 105, which sounds great, but it’s actually their weakest number since 2017 when it peaked at 160. HBO received more, they had 140 nominations, and also what’s interesting is that Netflix is a lot of aging favorites. So you have Stranger Things which has a couple of seasons. Ozark nailed it, all of these are already established and not that many new entrants as compared to things like Euphoria, White Lotus, Only Murders in the Building were all getting Emmy nominations and are in that earlier iteration. I think we’re seeing Netflix trying to have that next big show that they haven’t quite figured out what that is yet.
Chris Hill: Let’s go back to Microsoft for a second because some people have already floated the idea that this relationship could be a prelude to Microsoft buying Netflix. It’s as tantalizing a prospect as that sounds. The more I dig into this, the more it seems like Nadella and his team at Microsoft really seem interested in growing this advertising support network. Do you think that is the likely a route because the their ability to perform not just on a technological level, but to go into meetings and just say, we’re not content creators. We’re not going to compete with you with our own content. Therefore, we’re the best choice for your ad network. It seems like the better move for them.
Maria Gallagher: Yeah, I think absolutely, and I also think building out that infrastructure, it’s easier to scale, it’s easier to appeal to multiple audiences than becoming content creators on their own. So I think that’s going to be their continued route and I think it’s the smartest route to go for them.
Chris Hill: Yeah, also I think people who are floating that idea are forgetting the fact that at the moment, Microsoft is doing its best to make sure that its acquisition of Activision Blizzard goes through without a hitch. So for those who are wondering about the competitive landscape in the gaming world and what Microsoft might do to upset that balance. I don’t think they’re looking to jump into the video streaming world just yet. Earnings season has kicked off, a couple of the big banks this morning. It really kicks into higher gear next week. What are you watching this earning season?
Maria Gallagher: I think what we’ve really been talking about is inflation, recession, consumer spending habits, and unemployment. I think one that I’m always really interested to see its Target, because you see an understanding of the consumer, their spending habits, their current employment rates and understanding how that’s working in terms of pricing for employees, and then you also get a lot of interesting information about freight and transportation and how that’s impacting that we saw last quarter, that they brought in revenue, but their profitability was worse than expected because they had to work on inventory and they had to work on their freight and transportation cost, and so I think that’s going to be one to really watch to see, well, how has that changed over the past quarter? What do they think that’s going to look like in the next quarter? How are consumers reacting to these types of global problems that we’re seeing?
Chris Hill: This is music to my ears because I’m always interested in what the retailers are doing for the reasons that you laid out, particularly when you think about how important consumer spending is to the U.S. economy. For me, a Target goes to the top of the list because of what happened last time around, because of the stumble by Brian Cornell and his team around inventory. It’s not just the usual, well, it’s the summer and we get to hear some insight into how they’re prepping for back-to-school, but, I think it’s going to be fascinating to hear the questions that they get about the challenges that they’re facing right now.
Maria Gallagher: I’m really interested to see and also compare the back-to-school environment of this year versus the back-to-school environment of last year, and as we’re seeing the tail end of COVID restrictions, what that means, are people back with a vengeance? What does that spending look like? I think all of that will be really fascinating to watch.
Chris Hill: Maria Gallagher, thanks so much for being here.
Maria Gallagher: Thanks for having me.
Chris Hill: Over the course of two decades, the best-performing stock in the S&P 500 wasn’t Amazon or Google — or for that matter, even a so-called tech company. It was Monster Beverage. What’s the next Amazon is a worthwhile question, but given the performance of its stock, might it also be worth asking, what’s the next Monster Beverage? Ricky Mulvey and Rick Munarriz take a look at Celsius Holdings, a smaller energy drink company with triple-digit growth and a habit of beating Wall Street’s expectations.
Ricky Mulvey: We’re talking an energy drink company with who else, a Florida man, Rick Munarriz. We’re talking Celsius today. Welcome to the show.
Rick Munarriz: Thank you, Ricky. Great to be here.
Ricky Mulvey: You look back at a company like Monster Energy, which was one of the best-performing stocks, I think of the aughts and the 2010s, why are energy drinks something that have rewarded investors so well?
Rick Munarriz: Technically you think there’s no way that an energy drink or even a functional energy drink like Celsius should work as an investment in a world where there are beverage giants, where they are fads, where things go in and out of style so quickly, but Celsius, just as Red Bull before that and Monster before…
Read More: Why It Makes Sense That Netflix Chose Microsoft for Its Ad-Supported Option | The Motley