Truist Securities analyst Matthew Thornton joins Yahoo Finance Live to discuss Netflix’s hiring of Mike Verdu — a former EA and Oculus executive — and what its speculated expansion into the gaming industry means for its competitors and stock.
Video Transcript
MYLES UDLAND: Welcome back to Yahoo Finance Live on this Thursday morning. Yesterday, Netflix shares were higher in after market trading. And we see shares this morning at last check up a couple tenths of 1% amid a red day, as the company-- or as it was reported that the company has hired Mike Purdue, a gaming executive from Facebook, though he's had tenures at a number of other gaming companies, as we talked about earlier on in the program, to beef up the company's push into the gaming space.
And joining us now to discuss is Matt Thornton. He's a security analyst over at Truist. Matt, thanks so much for jumping on. And I'm just curious how you're thinking about Netflix's opportunity in gaming-- first, what it means for maybe their competitors, and how serious you think they could be about this push.
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MATTHEW THORNTON: Yeah, good morning. Thanks for having me. I think for Netflix, look, I think this is an extension of their content strategy-- an extension of just like they moved into unscripted and premium films, children's programming, and the like. I think this is another extension here.
And there is an opportunity here, at least at the margin, to differentiate the service versus some of their direct peers and help drive engagement, retention, and, of course, thus, subscriber growth and revenue growth. What the content strategy will be here still remains to be seen. Are they going to keep this to their own first party content only, build their own content?
And if that is the case, it would be probably fairly small, it would be very slow to reach scale, and probably wouldn't be overly disruptive to the overall videogame sphere, but, again, could be accretive to their business. They could also get more aggressive by going after acquisitions to kind of supplement their own organic development efforts.
And I think, you know, the biggest opportunity, of course, would be to actually open up to third party content as well, which would put them a little more head to head and comparable to the platforms out there that are offered by Microsoft, or Sony, or Nintendo, Google, Amazon, and others. So again, we think it's marginally accretive here at a minimum for Netflix over the long-term. But the content strategy and how they'll dial that up, I think, still remains to be seen.
BRIAN SOZZI: Matt, is this the last-- depending on how Netflix-- has serious Netflix is about this, and I'm going to assume that they are, is this the development that would once and for all end the packaged goods gaming industry? Just finally, we're all fully download moving forward?
MATTHEW THORNTON: I think it's another push in that direction. I think everyone knows where that puck is going, and it has been going for many years. I think every year, you're seeing 5% to 10% shift from the purchase of physical, packaged goods to the digital, downloaded games.
So I don't know if it materially alters the path there. We're going in that direction, and that's not going to change. It also remains to be seen how they would look to ultimately price, you know, this type of a product. Again, they're a subscription service. There are subscription gaming services out there. But they've tended to co-exist with transactional, digital downloads of games.
Obviously, purchase of in-game content is where the real trend is. So that still remains to be seen as well. But the overall trend is going to continue. I'm not sure if Netflix will affect that too much.
JULIE HYMAN: Well, and how-- hi, Matt, it's Julie-- how will Netflix affect the other gaming companies just generally in terms of competition? I mean, you didn't quite get the Amazon effect, right, where there's the whisper that Amazon is going to enter a new industry and everything falls out of bed. But, you know, Netflix is a big company with a lot of resources. So is it going to be a real competitor to these other companies?
MATTHEW THORNTON: Yeah, again, I think it's going to come back to what the strategy ends up being, like I said, if you take the side A where they're going to build their own content, which would, again, be very slow to scale. It could still be accretive to their platform, but it's not going to disrupt your other platforms or publishers out there-- what I mean by that is your platforms like your Microsoft, Xbox, your Sony Playstation, your Nintendo, or some of the larger publishers of Activision, Electronic Arts, Take Two, and the likes.
Now, if Netflix, again, does want to open up this platform to third party content, now you start to encroach on and compete more with some of those platforms that we just talked about. But for the publishers, it actually provides another buyer of content, another distribution point. More distribution tends to put downward pressure on the take rate that you have to pay or the fees you have to pay for distribution.
So you know, they could become more a competitor to those platforms. But actually, it could be spun positive for the content publishers. You still need the content.
BRIAN SOZZI: And speaking of needing the content, Matt, does this ultimately put Netflix in the position to potentially make a play for a Take Two, make a play for Zynga-- just buy something bolt-on, instead of incurring all these costs to try to develop your own original gaming content?
MATTHEW THORNTON: Yeah, it's a great question. You know, on one hand, keep in mind, obviously, Netflix's DNA really hasn't been to be acquisitive-- I think in the history of the company I can think of two acquisitions, and they were pretty small-- not that that couldn't change, but that's been pretty small. But bigger picture, if you step back and think about the size of all these platforms that we just alluded to-- you know, Microsoft, and Sony, Amazon, Google, maybe even Apple, and now you've got Netflix entering the fray-- could you start to see verticalization of gaming services, similar to what we saw in-- are seeing in the video world? And in that case, yes, some of those players that we just named could look to become acquirers of scaled content providers like your Activisions, your EAs, your Take Twos, your Zyngas, and others.
MYLES UDLAND: All right, Matthew Thornton, Analyst at Truist Securities. Matt, really appreciate your time this morning. Thanks for hopping on to talk about Netflix, all things gaming-- I know we'll be in touch.