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Analyst explains why Netflix 'won't run out of content' during coronavirus

Constellation Research Principal Analyst & Founder R "Ray" Wang joins Yahoo Finance’s Seana Smith to discuss Netflix's quarterly earnings report and original content spending amid the coronavirus.

Video Transcript

SEANA SMITH: Netflix-- let's talk about that stock. It's in focus today on the street after its strong results after the bell yesterday. Now, the company showed a huge uptick in the number of new subscribers, adding 15.7 million global subscribers. And for more on this, we want to bring in Ray Wang, analyst and founder at Constellation Research.

And Ray, just taking a look at the numbers, it's clear that Netflix-- I don't want to say that it has benefited from coronavirus, but we haven't seen the pain that we've seen in many other companies really at all. And when you take a look into their business, they don't have sports. They don't have commercials. They're not relying on movie theaters. What did you think of these numbers from Netflix last night?

RAY WANG: You know, these are amazing numbers. I mean, this is talking about the power of the subscription economy. And more importantly, they're competing for time and attention. And guess what? Everybody's home, right? And so they've done really well by doing that. If you look at their growth, I mean, it's 27.6% year-over-year growth. They picked up so many more users than they thought they were, 15.77 million ads. We thought it was going to be half that amount before what would happen over the last four weeks. And so this shelter-from-home poster stock-- I mean, this is it. They're the poster child for shelter at home. And so it's helped them a lot. And also the fact that they invested a lot in content-- they're not going to run out of content, which is a very important point.

SEANA SMITH: Yeah. Speaking about investing a lot in content, they're raising a billion dollars via its latest debt offering in order to boost that content spending. How important is original content to the future of Netflix?

RAY WANG: It is really important. Most of Hollywood has shut down. People haven't been filming. Getting to that original content right now-- content is king. Content is king, queen, depending on how you want to put it. And what's happening is if you don't have the content, people are binge-watching through almost all the shows. You saw what happened with Tiger King, right? I'm not a fan, but it's like everyone's watching it. It's amazing, right?

But the content piece also drives a lot of what they do. Because they're in a battle right now with other folks on the streaming services side from Disney to others. And this is making a big difference.

SEANA SMITH: Ray, how much of the results, though, were pulled forward at this point? And how much is already factored into the stock price? Because they're seeing shares dip into the red today. And the stock is already up more than 30% since the start of the year.

RAY WANG: It is. Netflix has been one of those stocks which moves a lot, has a lot of momentum. Some of it is because people are worried that when shelter-at-home restrictions end, people will stop going and watching Netflix, and doing the binging. But I think it's still going to happen because of their content lineup. And also, a lot of this ramp-up is going to be slow. You're not going to all show up at a baseball game, or a sports game, or a football game. You're not going to live concerts. And so I think that they're still going to have a lot of interest and a lot of subscribers to go for some time.

And the other thing is subscribers don't necessarily cancel that quickly on the subscription model. They'll have it on just as a backup in case something happens. And I think with a great content library, I think that you're not going have to worry as much.

SEANA SMITH: Yeah. Ray, real quick, I just want to get your thoughts on competition. Because what do you think Netflix needs to do to maintain its market share? Again, some of its very deep-pocketed investors-- because we have Disney+-- at this point, over 50 million subscribers. And they also have Comcast's Peacock service, and then AT&T's HBO Max, which are rolling out at the end of May.

RAY WANG: Yeah. So one of the things that may be interesting if they decide to do that is roll out more-- get into the live events portion, putting together the ability to bring a live concert that might not have happened traditionally because live venues were actually in action, having people do more kind of subscription-types of services for a live event that might not have any audience in the background. So there's opportunities there. There's opportunities in product placement, which they haven't necessarily taken advantage of.

And of course, they've done a really good job with managing some of this negative free cash flow as they put into the content given the slowdown. There isn't a race for content right now because no one can produce the content. So it's giving them some breathing room.

SEANA SMITH: All right. Ray Wang, analyst and founder at Constellation Research, thanks so much for joining us this afternoon.

RAY WANG: Hey, thanks a lot.