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Netflix reported mixed earnings, with the company posting $$6.64B in revenue and $1.19 in adjusted EPS, compared to consensus estimates of $6.63B in revenue and $1.38 EPS. Annandale Capital CEO George Seay joined Yahoo Finance’s Jared Blikre to break down the details.
SEANA SMITH: We want to get to some breaking news. Jared Blikre has Netflix earnings for us, Netflix shares jumping here after hours. Jared, what are the numbers?
JARED BLIKRE: That's right. And there was a miss on their bottom line. But the shares are up almost 8% as I sit here. Excuse me. So the headline number is for fourth quarter EPS, that miss was $1.19, the estimate was for higher, a $1.38. Fourth quarter revenue was a tiny, tiny beat, came in at 6.64 billion, the estimate was for 6.63-- 6.63 billion.
Now, the numbers everybody's focusing on are those subs. And they got above 200 million for the first time ever. Fourth quarter streaming paid-in, that changes. That came in at 8.5 million, the estimate was for lower at 6.06 million. And their outlook for the first quarter, where they got some tough comps, they're expecting 6 million sub ads in the first quarter.
Estimate was for higher, though. It's 7.45 million. They were also looking at some other things here, it looks like 2021 free cash flow. That should be about break even. And they're saying that they're very close to being sustainably free cash flow positive. A lot of focus on there because, of course, they didn't have that many studio expenses in 2020. But that is going to ramp up in 2021.
They're going to be spending a lot more money on programming. So we'll have to see how that plays out. Also some focus on their gross margin. Operating margin actually is-- they're shooting for 20% in fiscal year '21. That would be an improvement. So aside from that, the headline subscriber number, that was a nice feed. But that adjusted EPS, that was a miss. Shares are up about 8% here in the after hours trading.
ADAM SHAPIRO: I want to bring this to George. And I'm curious, we talk tech, tech, tech, and you appear to be someone who is in favor of tech. But when you break out tech and streaming, as we go through this pandemic-driven transition, do you see this playing into growth for the tech venues that have video streaming?
It's really more entertainment. But does that fall into the tech category and your call on tech?
GEORGE SEAY: No question. And I am favorable in not abandoning tech. But actually, I'm more constructive on value in small cap and international stocks this year. I think that that's where the big money is going to be made. And I think if you look at energy, that's up between 15% to 20% this month alone compared to the S&P that's up about 1.5%.
That's a better trade at this point in time for people who are rotating into areas that are going to have more explosive growth. I would also advise investors to take a look at AT&T because HBO Max had the largest percentage gain in subscribers among any of the streamers last month. And yet, AT&T is such a hated stock.
The strategy of putting out movies in the theaters and streaming at the same time seems to be working so far for AT&T. And if you look at the growth in Netflix the last decade and you look at what happened to Disney last year as Disney Plus rolled out in such a dramatic way, I think AT&T is so hated it could be a really good contrarian play in streaming because that could really move the needle for that company.
SEANA SMITH: George, more broadly speaking, though, when it comes to big tech, and I know some of these names were moving to the upside today when it comes to Amazon, Apple, Microsoft, for example, but they have been under pressure for at least the last couple of weeks. We need to put that in context for everyone. But do you think that this is-- it sounds like it might just be more of a blip and maybe they're not the best investments here going forward compared to some of those other beaten down names. But some of these big tech names I think you're saying still has some room to grow.
GEORGE SEAY: I think when you've got high quality companies, like you just mentioned, Seana, you don't abandon them, maybe you trim them a little bit. I think the ones really at risk are the ones that have tens of billions, if not hundreds of billions, of market cap and no earnings. That's where you're really gambling.
But if you talk about Microsoft and Amazon and Google and some of the real blue chip tech stocks, they're going to continue to grow at very nice rates of return for investors, both in terms of stock price appreciation and the amount of growth they have in their earnings per year. So they may hit some air pockets and they may give back some of these gains and won't accelerate this year as well as some of the more cyclical or international players, but they certainly shouldn't be abandoned.