The "earnings call" has been a typical part of Wall Street life for some time. On the day that a company reports earnings (or occasionally, the following day), it will host a conference call for senior executives to discuss the quarter's results and outlook and take questions from Wall Street analysts.
However, Netflix (NASDAQ: NFLX ) has never liked to follow standard procedure. Several years ago, the company began taking questions from analysts by email, with the director of investor relations then posing those questions to management on a live call. Netflix later began to take questions from individual investors as well, and beginning in 2011 it allowed a few follow-up questions from analysts live over the phone.
For the most recent "earnings call," Netflix decided to adopt yet another new format. On Monday evening, the company streamed a Google Hangout over YouTube for investors, featuring financial news anchor Julia Boorstin, BTIG analyst Rich Greenfield, and Netflix senior executives. The interlocutors collected questions via email and social media from financial analysts, journalists, and regular investors.
This format was supposed to mimic a fireside chat and allow for better dialogue. Yet many investors were extremely concerned about the new interview format, especially because one of the moderators, Greenfield, was an analyst who has been extremely bullish on Netflix, raising conflict-of-interest questions.
All things considered, I think the earnings "hangout" worked better than many people feared. While Greenfield has been a big supporter of Netflix, he did not seem to be asking "softball" questions. Boorstin and Greenfield both asked some tough questions about issues such as subscriber churn and originals viewership.
On the other hand, there were other aspects of the format that left a lot to be desired. Since the five participants weren't in the same room, on several occasions people were talking over each other, making it difficult to understand what was going on. Businessweek complained that the whole setup looked amateurish, but, more importantly, that the exclusion of other analysts made the follow-up questions less effective.
Indeed, while Boorstin and Greenfield asked "tough" questions, they didn't get many answers. We still don't know anything about absolute churn rates or the churn effect from recent content changes such as the addition of originals and the loss of children's shows from Viacom, including Dora the Explorer and SpongeBob SquarePants. We also don't know anything new about how many people are watching Netflix's new original shows.
Of course, it's quite possible that Netflix executives wouldn't have revealed anything useful on those subjects under any circumstances. However, giving analysts open access to ask questions on a call gives them a better chance to pose a question that will elicit useful information, however limited that might be.
Simple might be better
It's hard to know why Netflix refuses to hold a traditional earnings call. Perhaps the company's motives are good, and executives want to try these other formats to find something that's better than the traditional model. However, so far, the effect has been to help Netflix executives avoid answering the really tough questions about its new business model.
Netflix's high valuation is almost entirely driven by long-term projections of the company's market potential. Hard data such as current earnings and current subscriber growth can't do very much to confirm or deny Netflix's ultimate growth potential. Unfortunately, Netflix's recent "earnings calls" haven't been set up in a manner conducive to learning about underlying trends in churn and originals viewership. Without that data, it's hard to have very much confidence at all that Netflix's earnings will grow into the stock price.
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