Wall Street Breakfast Catalyst Watch: Q3 GDP, Netflix Strong Performance

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Catalyst watch for the week of October 22. Seeking Alpha Senior Executive Editor Kim Khan on the release of Q3 GDP. (00:21) He also discusses Netflix (NFLX) earnings and the double digit increase following the sub growth and price hike announcement. (01:34) In addition, Kim gives an update on the sale of Manchester United. (05:28)

Julie Morgan: Kim, when we think about next week's big catalyst, it would be Q3 GDP.

Kim Khan: Yep. We get the first look of third quarter GDP. And economists like to remind us that there were revisions coming all the way for the next couple of months. But this is what the market is really going to trade on. And the consensus estimate right now is for Q3 economic growth to come at an annual rate of 4%, which is much stronger than the 2.1% that we saw in Q2 and that shows an economy coming out along nicely. There's always going to be a lot of caveats as they are in GDP numbers of whether, yeah, what's impacting it, whether it's inventories, we know that consumer spending has held up very well. So that's helping a lot.

So there'll be a lot to parse in the numbers. But from the market Fed perspective, it's going to be, again, if there is something higher than 4%, that's going to be a clear sign that the Fed can, maybe have unopen door to hike at the end of the year if it wanted to and certainly to keep rates at the current levels for a long time going through to next year. If it's a little more on the anemic side, we may see some movement in the bond market of these long-term yields coming off multi-year highs.

JM: As we're recording, Netflix, NFLX, is up more than 15%. Now Kim, tell me why is this so?

KK: Well, Netflix reported a big jump in subscribers and that is the main thing that it usually trades off of, and it seems to have underscored how its crackdown on account sharing has worked. Like people said, oh, people will just not re-up, but apparently a lot of people have and it's given them enough confidence that they're going to raise prices in the major markets including the U.S. and the UK on their top level services. So they're confident in what they're seeing and investors like that, they're going to like to see some traction and that's being rewarded in a very big rise in the stock price of just under 10%.

JM: Now, I think that it's quite interesting that they're raising prices, and the actors strike isn't even over yet. So my question is to them obviously would be, are you going to do that again when the actors strike is over after you've reached a deal?

KK: Well, Netflix has never been really shy of raising its prices. I mean, it took a while to get them for the top level above $10 back in the day if you've been a long time Netflix subscriber. But then they've been kind of steady in saying that this is what we need to do to spend on the content we need to battle all the other streaming services.

I like to talk about Netflix because it's kind of a Warren Buffett-ish stock for me because I love streaming TV and I use it a lot and I've still got my Netflix account, but I can see how a lot of people are going to start to clamor for more as viewers rather than shareholders if they keep raising prices and it's possible they could do it again. But then you'd have to come up with something and saying like, this is the next big hit that we're going to give you, so that you see why you're paying more for this.

I saw a really funny comment on Twitter the other day. I was saying, yeah, sure. They don’t have money to renew my favorite show, but they've gotten money for Stranger Things, Pizza Parlor and a Bridgerton restaurant, which is part of that Netflix House initiative they have.

JM: My other question would be, do they really have the content to keep people there? Like is it there? Are we going to get more?

KK: I mean, they've obviously got enough confidence that they can grind out hits. One of the things that they've done very well is mine, their library for hits that could be essentially global hits. So, I mean, they’re sure they barely think that they've got another Squid Game in there and they're also going to pay top dollar, and so the writers now that they're back off strike to see if they can get another hit show that way. They've got the confidence.

And then I think if you look at the other streaming players, Disney seems to be stumbling a bit. It's putting all its eggs in the Marvel, Star Wars basket and those shows they come out, but then you get six episodes and then it's kind of gone, and Max as well doesn't really have a great defined strategy. Now, they're kind of having news as well as combined to that. I don't think Discovery is still really sure what it's doing with Max. So Netflix probably thinks that we've got the model that is still going to work and be the kind of gold standard for people who want to stream TV.

JM: And I think what you just said about global content is interesting. Actually, one of the comments that I read this morning, one of the comments said that if you think Netflix doesn't have enough content, you need to look into other languages and then have it translated on your screen. And I thought that was an interesting comment because they said if you do that, you'll dive deeper into their content.

KK: Yeah, I mean, I have shows recommended for me that come up and I couldn't tell you whether they're originally recorded in English or not before I start them. They have the descriptions, it looks interesting, I play it, then I'll notice audio is not quite syncing up with what their mouths are doing. Oh, this must have been filmed somewhere else in different language originally, but I'll be watching it.

JM: Exactly, exactly. That is a good way to find out more that's out there. Kim, is there anything else you'd like to add?

KK: Yeah, I just wanted to circle back to the discussion we had about Manchester United and the sale process. The most recent development is that Sheikh Jassim and the Qatari bid has dropped out entirely. And so that leaves only one bidder, Sir Jim Ratcliffe, who says he wants to take a minority stake. That isn't even confirmed yet, but there's reports that he'd be paying like £1.5 billion for a 25% stake, which is actually overpaying. It doesn't do anything for the fans to get rid of the Glazer ownership, which they desperately want. It doesn't really put any money right in the coffers because it's all going to buy shares.

So they're still going to have to borrow money to redo the stadium in their training center. So Jim Ratcliffe says he wants total sporting control as part of the deal. We'll see if he gets that. People would think that would be a good idea, but we have no indication that he knows what he's doing on the football side.

And so obviously, if he's the only bidder there, it looks like private equities, people didn't want to overpay for the quarter stake that the Glazers might be offering. So their valuation was obviously too rich for the smart money. And I think it just goes to show that, sometimes billionaire businessmen try to be billionaire investors and it doesn't work out. It goes the other way too, but sometimes they're just not good investors.

JM: Oh, my. I wonder who's going to have something to say about that comment. Well, that's all we have for you today, and we'll see you next time.

KK: Thanks, Julie.