SOTS 2nd Hour: Netflix Gains, Project “Stargate”, and Davos Deep Dives w/the CEOs of BNY & Williams-Sonoma 1/22/25

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Carl Quintanilla (0:31)

Good Wednesday morning. Welcome to another hour of Squawk on the Street. I'm Carl Quintanilla with David Faber here at Post 9 of the New York Stock Exchange. Sara Eisen is with us this hour from the World Economic Forum in Davos, Switzerland. She'll bring us the latest from there in just a moment. In the meantime, within a stone's throw here of all-time highs, S&P 6088 as you got tech taking the lead and yields somewhat well-behaved 10-year 457 Three movers we're watching. Netflix shares are soaring after reporting record sub-numbers, plus a plan to raise prices. We're going to get the streets take in just a minute. Proctors in the green, beating on the top and the bottom line thanks to strengthen the company's beauty and baby segments. And we're watching shares of some big tech names, like we said, like Softbank and Oracle. The president announcing a massive AI infrastructure investment backed by Oracle, OpenAI and Softbank, a lot more ahead on that later this hour.

David Faber (1:20)

All right, but we're getting some economic data crossing the tape right now. And for that, we'll go over to Rick Santelli. Good morning, Rick.

Rick Santelli (1:26)

Yes, good morning, David. This is December Leading Economic Indicators. And boy, they've been running negative for years. And once again, minus one-tenth of a percent as expected. In the rear view mirror, the only positive integer of the year, up three-tenths, gets a little more positive, up four-tenths. So up four-tenths would be the strongest level, going all the way back to DEC of 21 And just to put a face on it, DEC 12 months, we had one zero month unchanged. That was in February. Then, as I said, up four-tenths best since end of 21 Leading Economic Indicators have not led you anywhere that hasn't been negative. And if we look at what's going on, really, this week, the inauguration and the equity markets are quite green. Interest rates very well behaved, as you pointed out, nearly unchanged, 457.10. And remember, we did briefly last week touch back above 480 intraday. We touched 5% in a 30-year bond, and it has been moving lower. We do seem to be consolidating, spent no time under 4.5%. Many traders consider that the best yield support. David, back to you.

David Faber (2:37)

All right, thank you, Rick Santelli. We're going to get to Netflix now. The company did beat across the board. It reported record subscriber additions, or certainly numbers. Our next guest argues there is still significant runway ahead. Joining us now is Guggenheim securities analyst Michael Morris. He raised his price target to $1,100, maintains a buy. All right, good to have you, Michael. Why more runway ahead?

Michael Morris (3:00)

Well, there's a couple of things here. The first is that the penetration for the business on a global basis is still fairly low, based on the information that we have about how many broadband households there are globally. So to put that in some perspective, right now there are about 750 million broadband households worldwide, excluding the markets of China and Russia. And the company has 300 million subscribers at the moment, right? So in the US, the first market, the most successful market, about two-thirds of households have the Netflix service, whereas outside the US, only about one-third have the service. So we still see a lot of runway for member growth. And keep in mind, this company just grew their US households by another four to five million, a market that many people thought was already saturated.

David Faber (3:48)

Yeah, that was certainly something we had anticipated some quarters ago. You know, is the pricing power there for the rest of the world? We know what we may be paying here in the US. What are we seeing in terms of average price around the rest of the world and how profitable those subs are?

Michael Morris (4:05)

Well, in aggregate, including the US and the worldwide subscribers, you're seeing both pricing power and profit expansion. So when you look at the average revenue per user, it's growing up, it's going up across the board and you see the company able to take price increases in a number of markets. Last night, they announced that they were taking price increases in several markets, including the US. So you're seeing that come up on average across the board. And of course, the profit margins continue to expand. They're going to approach 30% operating profit margin. The guidance is 29% for the year. That's an upward revision as well. So you're seeing both of those things. Now, to get a little more to the point, as you expand your subscriber base in lower price markets, your average revenue per user across the entire base does take some pressure, but that's a really good problem to have when you think about both the pricing power in those markets and the number of subscribers you're adding. And of course, we haven't talked about it yet, but the fact that they've added advertising as a significant part of their growth paradigm is just a great part of the story.