Netflix Beats Every Wall St. Metric, iPhone Demand Surges in China

Netflix Earnings and Growth

• Netflix has surpassed Wall Street's expectations on every major financial metric, with the stock on track for its biggest jump since January of this year, trading at a record high overall, and subscribers, revenue, and earnings beating expectations (51s).
• The company's co-CEO, Ted Sarandos, expressed optimism about the business, stating that they had a plan to reaccelerate growth and delivered on that plan, expecting 15% revenue growth and six percentage points of operating margin improvement in 2025 (1m35s).
• Netflix added 5 million subscribers in the third quarter, bringing the total to 282 plus million across the globe, despite a production slowdown due to the dual strikes in Hollywood (2m11s).
• The company is focusing on a new metric called "engagement," which they view as a proxy for member happiness, as people who watch more content tend to stick around longer (1m50s).

Netflix's Investment in Advertising and Content

• Netflix is investing in technology and better inventory to increase advertising revenue, including live programming such as wrestling, NFL games, and comedy live specials (3m45s).
• The company's future growth is expected to come from advertising, with a ton of content coming down the pipeline, including a live variety show announced at a conference in L.A. (3m54s).
• Netflix has achieved a significant milestone by beating NBCUniversal in corporate demand share, which measures the viability of a company's original programming in the current media market, with Netflix's library growing significantly in just 12 years (4m52s).
• Netflix's success can be attributed to its amassed content, which has required significant spending, and the company is now considering investing in live content and sports to enhance its advertising capabilities (5m38s).

Pressure on Netflix's Ad Tier and Pricing

• The pressure is on Netflix to grow its advertising tier, especially with Amazon expanding its ad tier to five additional markets next year, and Netflix's average revenue per user has dropped for two straight quarters due to ad tier growth (5m59s).
• Netflix is expected to increase the price of its ad-supported tier in 2025, possibly with the addition of WWE and NFL games, and international price hikes have already been enacted, with another price hike anticipated in the future (6m19s).
• The company's strong Q4 content slate and the normalization of the production logjam following the strike may lead to a price increase, and consumers are advised to be cautious with their spending (6m43s).

Netflix's Stock Performance and Live Events

• Netflix shares are up over 10%, trading at their highest level ever on record, driven by subscriber growth and brand strength, despite concerns about a slowdown (7m5s).
• Live events will be a key feature of the Netflix platform going forward, with the company aiming to break new ground by making live entertainment on a streaming-only service work seamlessly (7m43s).
• Netflix's focus on building a massive library and licensing other content has positioned the company well to dive deeper into sports and enhance its ad tier (8m6s).

Netflix's Co-CEO Structure and Gaming Efforts

• Netflix's co-CEO structure is working well, with Greg Peters' coding and software experience being particularly valuable in understanding the tech and consumer experience, which will be crucial in capturing Gen Z and Gen Alpha's attention in a digital future (8m25s).
• Netflix has improved its ability to carry live events, learning from past experiences like the "Love is Blind" disaster, but still faces concerns about matching up with other platforms like TikTok and YouTube in terms of addiction and engagement (8m50s).
• The company is building out a suite of video games, but there have been no material updates on its impact, and it's unclear if they will continue down the gaming path, with some reports suggesting they are developing a triple-A game (9m57s).
• Netflix's gaming efforts are seen as necessary for long-term success, as they need to branch out beyond film and television to create a stickier bundle that solves for multiple consumer pain points (10m21s).

Apple's Demand Surge in China

• Apple is experiencing an unexpected demand surge in China, with iPhone 16 sales up 20% in the country in its first three weeks, according to Counterpoint research data, which is a positive surprise (11m38s).
• However, some analysts believe that the data may not tell us anything new, as the first three weeks of iPhone sales are usually strong, and the issue is whether the demand will be sustained over the long term (12m12s).
• Apple's China turnaround is seen as a tailwind for the company, with some analysts predicting a strong 6-9 months ahead, but others remain cautious about the long-term prospects (11m14s).
• Some analysts have made irrational or irresponsible comments about the iPhone 16, claiming it will create a supercycle despite Apple intelligence not being available in China (12m29s).
• The iPhone 16 is doing well in China due to pent-up demand, as many people did not upgrade to the iPhone 14 Pro or iPhone 15 Pro, and the new model has nice improvements such as a better camera control interface and speed and battery life improvements (13m4s).
• The truth about the iPhone 16's performance will be known at the end of the month when Apple releases its earnings (13m30s).

Apple's API Push and AI Features

• Apple's API push in the iPhone has two components: in-house large language models and generative A.I. features, and third-party components integrated into Siri and other parts of the operating system (14m14s).
• In China, Apple will have to partner with local entities, such as Baidu or Tencent, to integrate third-party A.I. models, and may need to partner with a government-affiliated company to use its server infrastructure to power its in-house generative A.I. models (14m47s).
• Apple intelligence features are not available on the iPhone in China and the European Union, with no clear release date for when they will be available, and it is not expected to happen for at least a year (15m29s).

Market Analysis and UK Retail Data

• Bloomberg's Mark Gurman will have more news on Apple and its gains, and Angelo Cephas, senior investment strategist at Edward Jones, will discuss the broader market and what Apple's performance signals (15m38s).
• UK retail data shows strength in consumer spending, buoyed by products like the Apple iPhone and Google Pixel, indicating a resilient consumer market for technology companies like Apple (15m59s).
• The consumer has been the main driver for technology names and the broader economy, with economic surprises turning positive and retail sales showing strength and resilience, suggesting the US economy is nowhere near recession (16m40s).

China's Economic Situation and Apple's Strength

• China's economic situation is complicated, but there are signs of a bottom, with policymakers pledging to support growth, and investor sentiment suggesting the worst may be behind us (16m58s).
• Apple's strength is driven by both its long-term secular thesis, including a strong balance sheet and market position, and its innovation, particularly in artificial intelligence, which provides a long runway for growth (17m28s).
• The current economic backdrop, with a growing economy, rising corporate profits, and lower interest rates, provides tailwinds for areas of the market that have been left behind, including big cap technology companies with net cash positions (17m56s).

American Express and Chinese Stock ETFs

• American Express is refocusing its revenue forecast, with a possible 9% growth for the year, and has reported ten consecutive quarters of record revenue, with the CEO expressing optimism about the company's performance (18m46s).
• Strategists are urging caution for investors in volatile Chinese stock ETFs, which have been among the most risky and have made some of the biggest wealth destroyers among US ETFs, with the KraneShares CSI China Internet ETF (KWEB) being a particular example (19m42s).
• Many ETFs have lost investors' money over time, with Chinese ETFs being at the top of the list, and Cathie Wood's ARK funds also experiencing losses, with a valuation gap of $5 billion for Quip since its inception in 2013 (20m12s).
• In contrast, the S&P 500 ETF has seen investors pull in $160 billion and now has around $700 billion in assets, rewarding investors (20m28s).
• The Chinese ETFs have struggled, but recent China stimulus and regulatory signals, such as support for video games, may indicate a potential rebound (20m49s).
• In 2021, Chinese ETFs saw fantastic inflows, but then tumbled 52% due to a deepening housing crisis and industry crackdowns (21m10s).
• Recently, a massive stimulus blitz in China led to a 40% rise in indexes tracking Chinese stocks, and investors poured billions into Chinese ETFs, but the rally has since fizzled (21m25s).
• The volatility of Chinese ETFs makes them a vulnerable investment vehicle (21m46s).
• Bloomberg's Isabel wrote a notable story on the Bloomberg terminal and website about the topic (21m52s).

Nasdaq Volatility and Stock Performance

• The Nasdaq has been volatile, but is currently holding on to a 10% gain over the last five trading days (22m48s).
• MicroStrategy has seen its price target raised by analysts and is one of the biggest contributors to the Nasdaq 100 today (22m58s).
• Netflix has seen a 10% increase, reaching a record high, after adding 5 million subscribers in the previous quarter and expecting to eclipse that in the fiscal fourth quarter (23m4s).
• ASML has seen a 3% increase, potentially a "buy the dip" story, after being sold off 14% over the course of the week (23m14s).
• ASML released its results early, cutting its outlook and raising growth concerns, but TSMC's chip contract manufacturers later boosted sales growth predictions and spending plans, signaling the investment cycle might be okay (23m46s).
• The semiconductor industry is showing signs of stability, with Vedere flirting with new record highs, but other areas such as automotive and industrial PC are still a concern (24m3s).
• Nvidia's high demand has been supported by huge orders, and evidence suggests this demand can continue, at least for now (24m23s).
• The automotive sector is not doing well, but companies like Mackenzie Hawkins' Wall Street are expanding their manufacturing for EV chips, with the help of investments from companies like Apollo (24m44s).
• Wall Street was previously struggling with existential concerns and manufacturing problems, but the new investment has given the company a massive injection into its balance sheet, allowing it to emerge from its difficulties (24m57s).
• Texas Instruments, which makes analog and embedded processors for automotive and industrial markets, is reporting earnings on Tuesday, and its results will be closely watched for signs of hope in these struggling markets (25m50s).
• The company's narrative could change if it provides positive comments about the future, but its numbers are still struggling, and the market is waiting to see if it can turn things around (26m15s).

Technology and Politics

• The intersection of technology and politics is becoming increasingly important, with the next US president facing a major decision on how to regulate the US chip industry to stay ahead of global competition (26m37s).
• The limitations on selling chips to China will be a key issue, with companies like Nvidia and others facing restrictions on their sales to the country (26m54s).
• The US needs to scrutinize where it sends its most advanced chips, as they also power critical military equipment like the F-35s, and this will be an important consideration in regulating the chip industry (27m21s).
• The US has to be cautious when sharing advanced technology, such as video chips and semiconductors, with other countries to prevent them from ending up in the hands of adversaries like Russia, China, and the People's Liberation Army (27m37s).
• The US has taken measures to prevent its most critical technology from going to adversaries, specifically China, over the course of a couple of administrations (28m4s).
• Tech diplomacy is important, and the US wants to ensure that its allies and partners use trusted technology, rather than untrusted Chinese technology, in their government infrastructure and across their countries (28m15s).
• The US and 12 of its closest democratic partners make up almost two-thirds of global GDP, while China, Russia, Iran, and Venezuela make up less than 20% (28m43s).
• The US has implemented policies around semiconductors to help partners in the trusted network and not in the untrusted network, providing financial and diplomatic opportunities (28m57s).
• Former President Trump discussed his good relationship with President Xi, but did not provide a clear understanding of whether he would continue with the existing stance on export control on leading-edge chips (29m51s).
• Export controls on critical technology from China began under President Trump, specifically with Huawei, and have continued under the Biden administration (30m12s).
• The Congress is bipartisan in its approach to China, with the China Select Committee recently calling for putting more Chinese companies on the entity list (30m45s).
• Companies like Apple and NVIDIA still want to access the Chinese consumer, but CEOs like Tim Cook and Jensen Huang face a dilemma in balancing this desire with the need to comply with US policies and regulations (31m4s).
• Jensen Huang was asked about China export controls and deferred policymaking to the United States, but CEOs of critical tech companies cannot defer such decisions as they play a significant role in advancing tech competitiveness while preventing adversaries from accessing the technology (31m21s).
• American CEOs, especially those in the tech industry, must work together to advance the country's tech competitiveness and ensure that technology is not given to adversaries (31m37s).

Tesla's Robotaxi and NHTSA Investigation

• Tesla's Robotaxi event was underwhelming, leading Wall Street to question the stock's premium valuation, which is trading at around 75 times forward earnings due to hopes that AI will transform the auto industry (32m29s).
• The next catalyst to watch is Tesla's third-quarter results (32m52s).
• The National Highway Traffic Safety Administration is investigating Tesla's full self-driving system due to concerns it is defective after a series of crashes, including one fatality (33m8s).
• The investigation is initially focused on the system's performance in low-visibility conditions, such as foggy weather (33m27s).
• However, the investigation may broaden in scope, similar to a previous investigation into Tesla's Autopilot system, which led to a recall (33m52s).
• The current probe may have more significant consequences than previous investigations, which have taken several years to produce results (35m1s).
• Tesla may face regulatory issues with its Full Self-Driving (FSD) system, as the National Highway Traffic Safety Administration (NHTSA) has expressed concerns over the system's safety, and may require Tesla to install additional equipment, such as sensors, to handle poor visibility conditions, which could impact the company's timeline for releasing a fully autonomous vehicle (35m47s).
• Tesla's CEO Elon Musk has announced plans to offer a version of FSD that doesn't require supervision in certain states, such as Texas and California, but this timeline may be ambitious given the regulatory concerns and past crashes involving the system (36m38s).

Other Business News

• Japanese software developer Fuji Soft has rejected a higher bid from Bain Capital, citing doubts about the feasibility of Bain's goal of taking the company private (37m25s).
• Google is moving the team behind its Gemini AI assistant app to its DeepMind research lab as part of a plan to consolidate its AI structure (37m42s).
• Verizon is buying $1 billion worth of US cellular spectrum licenses for its core business, which will help the company expand its network (37m50s).

Detailed Analysis of Netflix's Earnings and Growth

• Netflix has reported earnings that beat investor expectations, with the stock up 10.5% and trading at all-time highs, driven by strong subscriber gains and solid financial metrics (38m33s).
• Netflix's operating margin is expected to reach 27% in 2024, up from the initial guidance of 22%, and the company's target for 2025 is seen as conservative by Bloomberg Intelligence (39m48s).
• Netflix has proven that its streaming economics model can be successful, despite initial doubts about its viability (40m9s).
• The company's subscriber growth trajectory is slowing down, with Latin America experiencing no growth in subscribers, although this is attributed to a timing issue and growth is expected to resume in the calendar fourth quarter (40m21s).
• % of Netflix's subscriber growth comes from outside the US, with mature markets like the US showing slower growth and emerging markets like Asia Pacific and India offering more opportunities for growth (40m48s).
• India was one of Netflix's highest-growing markets in terms of new subscribers and revenue growth last quarter, and the company is looking to reinvigorate subscriber growth in regions like Eastern Europe and Asia-Pacific (41m2s).
• Netflix is considered the number one streamer globally, with a significant lead over its competitors in terms of subscriber numbers and engagement, and is expected to consolidate this lead over time (41m27s).
• Despite being a paid subscription service, Netflix has almost 10% of viewing time in the US, just behind YouTube, which has over 2 billion viewers worldwide and is a free service (41m58s).