VIDEO: Netflix Reporting Says Good Things Ahead for This Holding

In today’s Daily Rundown video, Chris Versace touches on today’s IT outage and discusses why Netflix’s NFLX earnings and plan changes are a positive for the portfolio’s position in Trade Desk TTD. 

"Netflix said that about 45% of its new signups are advertising based," Versace noted. "A few months ago, Netflix announced that Trade Desk would be a new ... programmatic advertising partner for it."

Versace also shares some insights on earnings from American Express AXP and why we’ll be assessing Visa’s V outlook for the back half of the year. 

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here. Friday, July 19. End of the week. One that's been a challenging one for the markets, as you know. But if you've been reading our comments, watching the videos we've been putting out this week, you know that our view is, we will remain disciplined, and we'll continue to act in a cool, calm, and as I like to say, collected manner following the data.

But also, too, if you're like me, you're also probably starting to get a better sense of the fallout of this It outage. We're starting to see more companies warn of disruptions. Fedex, UPS are joining the likes of McDonald's and others. But we're seeing state government entities like DMVs and other services being impacted as well. So let's face it, we're going through the end of the week with a bit of a snafu.

But as we shared in our comments earlier this morning, we discussed how this impacts the portfolio, particularly given our indirect exposure to CrowdStrike with cyber shares, but also with Microsoft. So I'm not going to rehash those comments today. If you haven't seen that alert, I would certainly say take a look. But the nutshell takeaway is that we do like the diversified exposure that we get with cyber. We're not over-reliant on any one particular cybersecurity company, including CrowdStrike.

And as far as Microsoft goes, look, we do think there's going to be a knee jerk reaction to overcompensate for this. That likely means that Microsoft is going to talk about renewing efforts or doubling down on efforts to make sure something like this doesn't happen again. Odds are that means some incremental spending. So we're a little concerned about what that might mean for the company's guidance for the second half of the year.

Typically, when Microsoft talks about upping its spending, the shares tend to trade off. That's because we have to readjust our EPS expectations. So that is a possible risk here with Microsoft. And as I noted in our alert to you on all of this, we're going to stay on the sidelines with Microsoft shares, at least until the company reports its June quarter results.

So let's quickly catch up on some other things that are going on here. Last night, Netflix-- even though we're not involved, they did report their quarterly results. But there were a couple of things that really stood out to me as it relates to Trade Desk. Well, first, Netflix said that about 45% of its new sign-ups are advertising-based. And more importantly, the company is also phasing out its basic plan, pushing folks to either a higher price plan or to the advertising-based ones.

Now, why is this important? Well, clearly, Netflix is looking to lean more into advertising. But remember that a few months ago, Netflix announced that Trade Desk would be a new-- and I have to say this slow so I get it right-- programmatic advertising partner for it. So Netflix is welcoming Trade Desk into the fold as its digital advertising business continues to grow. And it looks like the outlook for that is possibly even brighter than before.

We continue to like Trade Desk as the shift towards digital advertising continues to accelerate across a number of different platforms from primarily analog, but also to connected TV and streaming services. It's no secret that not only Netflix, but Amazon and others-- Hulu-- are embracing the use of commercials to offset their content costs. We do see Trade Desk continuing to benefit. And let's not forget, it is an election year, which means that we will see stronger advertising spend, particularly digital advertising spend, in the second half of the year. So we continue to Trade Desk for all of that.

We also had American Express report this morning. And here too, while we're not involved with American Express, we are rather curious as to what it says about the consumer in general, because the consumer is a key piece of the overall economy. But also kind of an indication of what we might hear from MasterCard when it reports in the next couple of weeks as well. So what did American Express show?

Well, what we saw inside their quarterly results was a slower rate of revenue and network volume growth on a year over year basis. Now, this does support the notion that consumers, especially those using Amex cards, obviously, are slowing their spending. But let's remember a few things. First, MasterCard is a different company than American Express in a few ways. It's not a membership-based business. And their network takes both debit cards and credit cards.

So whether consumers are spending on credit or debit, trying to figure out how best to position themselves, or even using some BNPL programs as well, which as we saw, really grew very nicely during Amazon's Prime Day for 2024, they're poised to benefit. Also remember earlier this week that overall June retail sales-- that factors everything in there-- rose about 3.4% on a year over year basis. So when we think about that versus inflation numbers, people are actually buying more volume. That's going to be good for MasterCard when they report their June quarter.

But remember, too, we are very, very focused on guidance and the outlook for the second half of the year. That's why we will be paying very close attention to what Visa says when it reports its quarterly results ahead of MasterCard. So based on what we hear from Visa, we'll start to update our thinking about the second half of the year for MasterCard. So you'll want to make sure that you pay attention when we share those updated thoughts with you, most likely sometime next week.

And finally, just a larger, higher-level thought. I've been talking with you over the last few months how one of the benchmarks that we're using for the portfolio is EPS growth for the S&P 500. And as we move through the next few weeks as the earnings season really kicks into gear, we're going to see more and more S&P 500 companies reporting their quarterly results. Pretty much what this means is that next week, the two weeks after, and the like, we're going to get some revisions to second half EPS expectations for the S&P 500.

And this is going to be important for us because that's the hurdle that we're using as we move through the coming quarters for the portfolio any-- excuse me-- for any new candidates that we might have for the portfolio. So that's the line that we're going to be watching very closely. And as it sits coming into this week, second half EPS for the S&P 500 was expected to grow about 10.7% compared to the first half. That's down a little bit.

We did see some downward revisions in the September quarter, if I remember correctly, for the S&P 500 basket. But again, this is going to shift around a little bit. But as we move through, we'll be sharing these updated figures with you, most likely on Fridays in the roundup, just given when they come out on midday Friday. So I want to call special attention to that. And make sure that you, as a result, pay extra special attention to what we're talking about each Friday in the roundup, at least for the next few weeks. But we like to think folks enjoy the roundup every Friday.

So with that, I'll leave it with you saying that, be sure to look today for the roundup. We'll update those figures again as best we can. Next week will become a little busier. We have some more portfolio companies reporting. But on Monday in our video, we will share our full game plan for the week ahead.

So with that, have a wonderful weekend. I hope your day and part of the weekend isn't overly impacted by this IT outage. If you want to talk about it, feel free to march on over to the forum. Share your experiences. I would love to hear it. I'm sure other members would like to hear it, too. And of course, always be sure to check your emails. Your alerts. We want to make sure you're getting our latest thoughts. Our latest insights. And of course, if we make any moves with the portfolio, we want you right there with us. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long TTD.