Speaker 2 0:02

Welcome to this week's edition of the Dan Rayburn podcast, the show that curates the streaming media industry news that matters most, unvarnished, unscripted and providing you with the factual data you need to know, without any of the hype, the Pulse of the Streaming Media Industry.

Speaker 3 0:24

Welcome to the Dan Rayburn Podcast. I'm Dan Rayburn, along with co-host Mark Donegan. Back to recap what is a busy, busy week.

Speaker 1 0:33

Yes, it is Dan.

Speaker 3 0:34

Of news earnings, not good ones from.

Speaker 3 0:36

Warner Bros, discovery, paramount, disney. We've also got McAllister, so pay TV subs with Dish and Sling TV. We've got Lionsgate, amc, Vizio, fastly, akamai, some data from Crunchyroll, brightco, kaltura. It's been a busy week so let's just jump right into this Now. Mark, before we get into this, I just want to do a quick top of the podcast here, talk a little bit about how companies report finances to wall street. The reason this is important is we're starting to see some companies report profitability some call it profitability some free cash flow when it comes to their direct consumer business. But there's many different ways that companies report these numbers and it's important for listeners to understand they're not all apples to apples. So I'm going to go through a couple counting terms here, just so people know what they are. High level. So there's something called GAAP, g-a-a-p, which stands for Generally Accepted Accounting Principles, which stands for generally accepted accounting principles. This is how the vast majority of companies report numbers. It's either GAAP or non-GAAP, and GAAP is just a collection of commonly followed accounting rules and standards for financial reporting. You then have non-GAAP, so non-GAAP is an accounting measure that doesn't include irregular or non-recurring costs, such as if you do an acquisition Mm-hmm, that's considered non-GAAP.

Speaker 3 2:15

Yeah, others report based on EBITDA. Ebitda that's actually how it's pronounced, that's right. It stands for Earnings Before Interest, before interest taxes, depreciation and amortization. This is simply an alternate measure of profitability to net income. So what companies are doing here is they're excluding depreciation and amortization, as well as taxes, debt payments, other things tied to the balance sheet, and the reason some companies do that is to represent cash profit generated by the company's operations. Another one is called OBDA adjusted. I believe I'm saying that right. O-i-b-d-a. I've heard people pronounce it differently and that just means that this is a non-gap financial measure but unlike EBITDA, it does not incorporate operating income or one-time charges. Non-operating income. That is how Paramount just gave out some numbers on the direct-to-consumer business O-I-B-D-A.

Speaker 1 3:20

I noticed that too, dan, and in fact I wasn't familiar with it. Of course I'm not an accountant, but I've worked enough around finance and I was like what is that? I had to go look it up. Operating income before depreciation and amortization of that's right.

Speaker 3 3:44

So that's right. Everyone's doing things a little bit differently here. Some of them. And then the last one you have is eps, which is earnings per share. Yeah, and this is what disney does. Disney does this because it's a measure of a company's profitability and it indicates how much profit each outstanding share of common stock has earned. However, the fine print total segment operating income, diluted EPS excludes certain items and free cash flow are not financial measures defined by GAAP. So the key takeaway for listeners you don't have to be institutional money manager in Wall Street to understand this. You can Google some of these terms. Street to understand this. You can Google some of these terms.

Speaker 3 4:25

But the reason we bring this up before we're about to go through a lot of numbers. You see some people you know saying oh well, you know, these two streaming services direct to consumer both just became profitable for the first time or the second time. Well, yes, profitable, based on how they measure profitability, how they are reporting, how they are reporting it. But Paramount and Disney don't report it the same way. So just a heads up, right, mark and I like to be sticklers for details. The financial metrics of how it's reported, I think, are very important. So with that, let's jump into Warner Bros. Discovery, you've got a lot here with them. Discovery, you've got a lot here with them. Wow.

Speaker 3 5:04

So they added 3.6 million direct-to-consumer subs. So they ended the quarter with 103.3 million. Even though they added subs, their direct-to-consumer revenue was 2.56 billion, so it was actually down 5%. They had a direct-to-consumer EBITDA loss of 107 million. So all you need to know is they added subs, revenue went down and they lost money, mm-hmm, but they gained 3.6 million subs. Yeah, true, but the issue is that their ARPU didn't increase. Yeah, in certain markets Now, their global ARPU average revenue per user on a monthly basis was $8 flat, which was up 4% year over year. They did recently do a price increase, so we're not really going to see that price increase hit until Q3, q4 numbers really particular.

Speaker 3 6:01

They did mention that Macs are now available in 65 countries and territories. Okay, now let's go to the really good stuff here. They did mention that Macs are now available in 65 countries and territories. Okay, now let's go to the really good stuff here. So WBD took a massive $11.2 billion write down on their business and out of that 11.2 billion, 9.1 billion of that is what's called a non-cash goodwill impairment charge tied to the revaluation of the book value of the TV network segment. What they're saying is our TV business is not valued at what it used to be. Shocker, we knew that. So they're taking a $9.1 billion charge on that, and we're going to get to this later because Paramount did the same thing. Warner Bros Discovery CEO said quote it's fair to say that even two years ago, market valuations and prevailing conditions for legacy media companies were quite different than they are today, and this impairment acknowledges this and better aligns our carrying values with our future outlook. In other words, your linear business stinks.

Speaker 1 7:03

Yeah, I found it interesting that he literally used the word legacy. Yes, I mean that's, that's that's true, you can't sugarcoat this anymore, you just can't.

Speaker 3 7:20

Yeah, so that's that's a big deal. Yeah, so that's that's a big deal. Uh, they also blame the quote continuing softness in the U S linear advertising market and uncertainty related to affiliate and sports rights renewals, including the NBA, for part of the write-down. Now, the main key takeaway listeners need to know here is the write-down clearly shows that Warner Bros clearly overpaid for the linear assets of their merger with discovery, cause that wasn't that long ago. I don't for the linear assets of their merger with Discovery, because that wasn't that long ago. I don't remember how long, mark, but it wasn't that long ago and as a result, you're now like oh, a short time later, what I consider to be a short time, it's worth 9.1 billion less than we thought Less than yeah, than we valued it originally.

Speaker 3 8:03

So it's good. I saw some reporting that, hey, they're adding streaming subscribers and DTC is moving towards sustained profitability. Yeah, that's good, but the decline in the linear revenue and associated earnings continues to outweigh the growth in DTC business. Streaming is not going to get them out of that hole. It just, it just won't.

Speaker 3 8:25

But you know, interesting Mark, I was thinking when we saw a lot of these mergers over the last couple of years. It's fascinating how the egos of the CEOs and management team I'm thinking the ABC one, abc AT&T, at&t direct TV we all knew, hey, this deal makes no sense. Yeah, you're acquiring a, an asset that's that's not growing. You're paying way too much for it. You already have a ton of debt, yeah, but you're selling it to wall street. That like no, no, no, we really know what we're doing. Fascinating, because so much of us in the industry just who are living in this day to day, you know like wait, these numbers don't make sense. Yeah, to day, you know like, wait, these numbers don't make sense. Yeah, yeah. And yet the deal still get done.

Speaker 2 9:05

Yeah.

Speaker 3 9:07

So WBD has a lot of work to do. Um, a lot of work to do. Uh, it also came out I think it was a day after their earnings that they pulled the entire contents of cartoonnetworkcom offline, so they're sending everyone on the web to max. Um, that said, the cartoon network on TV, the TV linear channel. It's still offering programming. Yeah, let's go into debt here. In Q2, Warner Bros Discovery paid down $1.8 billion in debt. At the end of the quarter, had $41.4 billion in gross debt and $3.6 billion of cash on hand. Now, this was interesting. The CEO's compensation last year 2023, rose 26.5%, almost $50 million Mark. When I dug into this a little bit, more, do you know what his compensation is tied to? It's tied to how much debt they pay off and how much free cash flow they have.

Speaker 3 10:03

Wow, To me that's a conflict of interest. Wow, wow, because now are you making business decisions because, hey, this is great for the balance sheet, even though it's not strategic. Potentially you're making more money tied to your compensation.

Speaker 1 10:17

Yeah.

Speaker 3 10:18

Not great. Yeah, stock is down 50% in the last 12 months and it's down 71% in the last five years.

Speaker 1 10:26

Yeah, I mean. You know, Dan, this is a phrase. There's variations of it, but we've all heard it and probably said it, you know. You know, show me the incentive and I will. I will show you what the actions, the, the corresponding actions are. You know, and, and, and the most fundamental is sales, right, hey, you know and, and and the most fundamental is sales, right, hey, you know. You commission a salesperson, while the incentive is I sell more, I make more money, Um, you know, but generally that works pretty well.

Speaker 1 10:53

People are going to go out there and they're going to, you know, work really hard to sell more. Um, in this case, it it does seem unusual that it's not tied to the overall enterprise value, meaning capitalization of the stock value of the company. So, therefore, guess what? That's why they are doing a good job of paying down debt, and we made that point, and we made that point. In fact, we made that point, I think. The last couple earnings reports with Warner Bros, Discovery In particular, Is that they're doing a good job paying down debt. Well, guess what?

Speaker 3 11:34

Now we know why. It could be one of the reasons. There's the incentive. It's the only one. Yeah, exactly this is the fault of the board.

Speaker 1 11:41

By the way, paying down debt is fundamentally a good thing, Sure, and by the way, paying down debt is a is fundamentally a good thing, you know. So I get there's, this is a good activity, but, but it is fascinating. Uh, what's?

Speaker 3 11:51

interesting when you look at some of the SEC filings, just some of the information that you get there yeah, but we're you know another, another one that you just have to watch on with the legacy media business. So let's jump into another one here. Disney so their Q2 2024 earnings, which is their fiscal year Q3. So Disney Plus and Hulu combined turned profitable with an operating profit of $47 million. But when you added in ESPN Plus, their entire D2C business lost $19 million. They added 700K Disney Plus core subs, so they ended with $ 118.3 million.

Speaker 3 12:25

Okay, that doesn't include the ones in India. Disney Hotstar yeah, they lost 500,000 subs. Disney Hotstar in India to have 35.5 million total Mm-hmm. Hulu S5 gained 900,000 subs. So Hulu has 46.7 million. Hulu Plus Live TV lost 100,000 subs. That's 4.4 million. 46.7 million. Hulu plus live TV lost 100,000 subs. That's 4.4 million. Hulu live TV seems to gain or lose just about 100,000 subs every quarter. Yeah, that's always about the number. Now, interesting, this is the first earnings report. Mark, I could have missed it here, but nobody pointed a correction to me on LinkedIn and I asked. Disney did not disclose how many ESPN Plus subscribers it had at the end of this quarter.

Speaker 2 13:11

It's the first time.

Speaker 3 13:11

I've never seen them report that. So we're getting less and less information on ESPN Plus every quarter Interesting. The other thing that's important here is they did say they're going to crack down on password sharing quote in earnest this September.

Speaker 1 13:27

That means we're going to be serious about it, whatever that means.

Speaker 3 13:31

Well, I think not only serious because they'd already started it, but I think it also means, even though they didn't say the term, I think they're going to go global with it in every territory. Sure Interesting they made a comment. They said they're continuing to look for strategic partners for ESPN, but could not yet outline a specific partner. But conversations are still ongoing. Now, what I thought was interesting there is we've been hearing that for almost a year now- yeah.

Speaker 3 13:59

So, if you have a partner that is interested, I don't think that's a conversation that takes a year to figure out. Well, what would the terms be? What does the relationship look like? Yeah, it makes it sound like to me I'm just speculating here that you don't have anyone interested in being your partner in ESPN at the terms you want.

Speaker 3 14:19

Sure, overall, the parks business is under pressure, so that's why Wall Street was initially didn't like the number. It's just because the parks business, disney, also said um, consumers are watching the money and how much they spend and they expect some pressure on the parks department to continue for the next couple couple months at least. So, um, that wasn't great. Wall street didn't like that. That said, the stock is down one and a half percent in the last 12 months, so it's evened out at least, but in the last five years it's still down 37%. It's not a great return.

Speaker 3 14:59

Let's jump into Paramount. There's a lot here to cover in Paramount. So Paramount's going to cut 15% of its workforce in the next few weeks. I don't know exactly how many. That is the last number they told us in terms of how many employees they had was Q4 2023, where they broke out how many employees they had. I simply did 15% of that. That means the layoff amount is around 3,000 employees. I'm hearing others report it's 2,500. Could be we don't know the exact number they have. They did do some layoffs. It sounds like starting in the year. So put it somewhere between 2,000 and 3,000 employees. So it's a big number.

Speaker 2 15:44

It is.

Speaker 3 15:44

They lost 2.8 million Paramount Plus subs. So they ended the quarter with 68 million Paramount Plus subs. So they ended the quarter with 68 million Paramount Plus subscribers. Even though they lost subs, dtc revenue was up 13%. 1.8 billion. Ad revenue was up 16% year over year. Paramount Plus total revenue was up 46% year over year and ARPU was up 26%. So ad revenue's up, total revenue's up, arpu is up and yet they lost subs. So why was it up?

Speaker 1 16:15

Well, raised pricing. They raised pricing, yeah.

Speaker 3 16:18

Yeah, and they got more in the advertising side. Yeah, the company also said they're on track to reach domestic important word there domestic profitability for Paramount Plus in 2025.

Speaker 2 16:30

Right, Important word there.

Speaker 3 16:32

Domestic profitability for Paramount Plus in 2025. Still a lot of work to do there. Now, across the entire business, paramount lost nearly $5.32 billion year over year. That's up from $250 million. That's a big number. Now here's another one. Paramount did this first because they reported earnings first, but Paramount took a goodwill impairment charge of $5.98 billion in the quarter due to its legacy media business. Speaking of their legacy media business, their TV media business revenue dropped by 17%. Advertising revenue within that dropped 11% and affiliate and subscription revenue decreased 5%. Their film business revenue decreased by 18%. That's not so surprising due to timing of releases of movies in the quarter. Yeah, exactly, so that's not a shocker. Yeah, exactly, this was new to me, mark. It's the first time I've heard them say that they expect the Skydance transaction to close in the first half yeah, 2025. I've heard them say that they expect the Skydance transaction to close in the first half, first half yeah, 2025. Because originally the estimate they gave was Q3, september timeframe yeah, so it sounds like that's moved up a little bit.

Speaker 3 17:41

It came out today that somebody reported Paramount hasn't confirmed this, but the reporting was accurate enough that it's definitely accurate that paramount has sold comic book, uh pop culture sites to a nashville-based company called savage venter ventures now there's no details on the price, but it's reported that there's a total 40 employees that will go over to the new owner. So, whatever the sale was there, it's very small but you're starting to see paramount. Okay, what assets do we have to divest? Yeah, yeah.

Speaker 3 18:12

Their stock is down 34% in the past 12 months and it's down 78% in the past five years. I did not look at the charge they're going to take for cutting 15% of the workforce, but that's going to be a big number. It's going to be big. Yeah, it's going to be big. Let's go to Echo Star. So they lost 104,000 paid TV subs. That's linear. They gained about 80,000 Sling TV subs to end the quarter with 2 million Sling TV subs. So previous quarter Sling TV was under 2 million. They ended Q2 with 8.07 million video subscribers, so that's just over 6 million in dish tv and 2 million sling tv slang. Yeah, uh, for the first six months of this year, calendar year, total revenue, uh, was 7.97 billion. That's down from 8.97 billion. That's down from $8.74 billion in the year ago period. So that's one to watch. I did not get to read yet, mark, just what they're looking at as far as the debt. There's been talk about whether or not they can pay off their debt or if they're going to have to declare bankruptcy. So I have to read more on that.

Speaker 3 19:30

After the podcast, let's go to Lionsgate, real quickly. They lost 180,000 North American OTT subscribers, so they ended the quarter with 13.2 million. Their North American media networks revenue is up 1%, super flat. Total company revenue was 834 million on a net loss of almost $60 million. So not much of a change there. They did increase the price of Starz by $1. So consumers are going to see that. Another quick one AMC Networks they ended the quarter with 11.6 million domestic subscribers, which was up 5%, so they saw a little growth year over year.

Speaker 3 20:17

Streaming revenue of $150 million was up 9% year over year, but overall their domestic advertising revenues decreased 11%. Due to take a guess, linear ratings declines and challenging ad market. Domestic revenues decreased by 7%. Affiliate revenues decreased by 12%.

Speaker 1 20:32

International revenues by 9 out how to make the most money off of the assets that you have and what that market and go-to-market strategy is. Yeah, yeah, let's go to Vizio.

Speaker 3 21:00

Vizio's got some real problems here. So I've been last two, three quarters saying, hey, Vizio's got a real issue because their growth is slowing. This is the slowest I've ever seen. Because their growth is slowing, this is the slowest I've ever seen. They added only 200,000 smart cast active accounts. In Q1, they added 800,000. So they ended Q2 with 18.8 million. Platform plus net revenue was almost 170 million and that's good. It was up 20% year over year, but it continues to slow. Arpu of $35.39 trailing 12 months was up 16%, but again their ARPU growth is slowing. The number of hours streamed per SmartCast active account was flat Q1 from Q2. Invisio shipped 1.2 million TVs in the quarter, which is up 15% year over year.

Speaker 1 21:52

Now that's so. That's fascinating, Dan, because why would smart cast accounts be down if their TV sales are up? Shouldn't they correlate, Shouldn't they track somewhat?

Speaker 3 22:07

Well, not everyone who's buying a smart tv is actually then setting up an account?

Speaker 1 22:13

no, of course not, but you you would. You would think that you know that these numbers don't just, you know, vary um that um wildly from quarter to quarter. In other words, consumer behavior largely kind of normalizes. There's some percentage of yeah, you know early, or you know tech, not early adopters. Connected tvs are way, way past early adoption, but you know people who are very tech forward and you know they're gonna always sign up quick, yeah, I mean, you know and it's kind of like quarter over quarter.

Speaker 1 22:45

My point is quarter over quarter. One could assume that these numbers must not vary a whole lot, so I'm just raising the point. Yeah, I mean you're talking about 600,000 in one quarter less.

Speaker 3 22:57

But note, Mark, the word they use is they ship 1.2 million TVs. They didn't say they sold.

Speaker 1 23:04

They might be sitting in warehouses. They might be sitting in Costco and Walmart warehouses.

Speaker 3 23:09

Yes. I mean and actually, or Amazon, I mean actually, that's a very good point, a time when people buy TVs. What's taking place in Q2?

Speaker 1 23:19

Nothing, yeah, nothing. I mean, you've got so Olympics in the summer potentially could be a little bit of a driver. You know, hey, let's, but Not enough to move the numbers. No, no, no, yeah, little bit of a driver, you know hey let's, but not enough to move the numbers.

Speaker 3 23:30

No, no, no yeah, because it's still a football season, some yeah. But yeah, I mean, look, you bring up a good point. You're going from 800 000 to only 200 200, like why?

Speaker 1 23:40

yeah, I mean my first assumption. When I saw that that that numbers, I went wow, their tv sales must have fallen off a cliff. Well, no, they were up 15% Year over year.

Speaker 3 23:50

I have a post on LinkedIn where I break out the number of subs that they've gained over, I think, the last eight quarters, and I can't remember the numbers off top of my head, but it's incredible how quickly it's declining, and we have seen a few periods there, mark, where there was a huge number that just reduced in one quarter in reduction. I don't know why, though it's a fair question.

Speaker 1 24:13

Yeah, yeah, you know it's almost like a Vizio and and I'm I'm just not tracking. You know, consumer advertising I don't watch that much, so maybe they are doing this, but you know they, from a marketing perspective, of course you know that's the hat that I wear most most of my days is you need to sell the hardware, it's true, but you also need to be marketing and selling, like the value of actually activating the, the, the smart cast. That's that's really critical, because just because I sold the TV, like as a consumer, you know, hey, not everybody's just automatically like, oh yeah, I should set this up. You know this is like you have to market it, it's an afterthought.

Speaker 3 24:58

It's a product you know and yeah, but nobody thinks that way. Because when you buy a TV, if you're buying it online, you're looking at the TV specs. You're not looking at, well, what platform does this run on? Our You're not looking at, well, what platform does this run on? Our industry wants to argue about all this tvOS stuff. It's ridiculous.

Speaker 1 25:13

Oh, yeah, yeah no.

Speaker 3 25:14

I'm talking about consumer.

Speaker 2 25:15

Yeah, yeah, I'm talking about to the consumer Like what does this mean for me?

Speaker 1 25:19

What's it going to do for me? You know why is this Well?

Speaker 3 25:22

how many even know, yeah exactly, when you go't know what streaming service Exactly?

Speaker 1 25:31

And the boxes. They all almost say exactly the same thing, it's like bullets. Yeah, a bunch of logos and like kind of bullet points, and you know, if you're walking around and you're trying to decide like how in the world it's impossible to know it is, you know anything tied to content and fast.

Speaker 3 25:48

And speaking of fast, vizio announced that its watch-free service is going to be the exclusive home in the US for the Women's World Cup Summer 2024 tournament games. Okay, interesting here only because it makes the Vizio platform the first time they've ever done an exclusive live sporting event. Maggi's powering a lot of that. But then, looking at the details, vizio has eight exclusive games which are available from August 7th to 19th. So then it's like, oh okay, that's not that big of a deal.

Speaker 1 26:20

Yeah, yeah, I'm talking about 12 days, which it has eight games, A little over a week and a half almost two weeks, so kind of not a big deal there.

Speaker 3 26:31

Also, we'll just just we'll cover because we're talking fast. Um roku launched a new roku sports channel, so this 24 by 7 channel is going to curate all their premium sports content, both what they own and they license, into one channel and it'll include live major league baseball and formula erases Interesting, that's interesting.

Speaker 2 26:50

Yeah.

Speaker 3 26:52

Uh, so Vizio stock, unlike everyone else's, vizio stock is up 73% in the past 12 months, but keep in mind that is mostly due to the bump it got when Walmart announced they were going to acquire them, which still has not gone through as of yet. Yeah, because if you look at Vizio stock over the last five years, it's down 46 percent yeah let's jump into crunchyroll.

Speaker 3 27:16

Just quickly, they announced I love how much information they give out on their blog um, they announced that they've officially crossed 15 million monthly paying subscribers. Amazing that they now offer 50 000000 episodes and more than 25,000 hours of content. That's just. That's a lot. So if you're into anime, that is the place.

Speaker 1 27:41

You know, Crunchyroll is an OG.

Speaker 2 27:44

They've been around forever.

Speaker 1 27:46

Yeah, they've been around forever. Around one of yeah, they've been around forever. And I mean boy, we'd have to go back and look at when they were founded, but it it had to have been around the time of justin tv, which became twitch, you know, or somewhere in that vintage and and that seems like a that was another lifetime that's it, it's a lifetime ago, but that's my point Crunchyroll has been around a long time you know what, mark?

Speaker 2 28:11

Let's look, look them up when I'm going through.

Speaker 3 28:14

Akamai it could be interesting to me. So Akamai earnings. Let me go through this Pretty straightforward. Akamai had good earnings revenue of $980 million up 5% year over year. They had a gap net income of $132 million. Security revenue made up 499 million of that 15% up year over year. Compute revenue 150 million up 23%. Delivery revenue was down 13%. Nobody should be surprised by that if you're following the content delivery market. The key number here is security and compute revenue represented 66% of their total revenue. So they still continue to diversify away from delivery, which is great because the business continues to shrink overall. Cash and cash equivalent and marketable securities too, for them was just under $2 billion.

Speaker 3 29:14

Their full year 2024 revenue guidance was $7 billion to 4.01. So they they raised the guidance just very slightly. Wall street did like their earnings. They were up four or five dollars after earnings and he checked them today. But but they're doing, they're doing pretty good, so did you? Uh, did you see it?

Speaker 1 29:28

mark. 2006 was the founding of Crunchyroll and, by the way, justin TV, which became Twitch, the same year, 2006. So two OGs came out of the ground at the same time, yeah it's a long time. Yeah, it is, it is, it's a lifetime in our industry.

Speaker 3 29:46

It is In our industry, it is. Akamoi's stock in the last 12 months is pretty much flat. It's down one percent, uh, last five years it's up almost 13 percent and I.

Speaker 1 30:00

I think we talked about this before, but just clarify, excuse me for me again compute revenue is linode Part of it.

Speaker 3 30:10

Part of it. Okay, yeah, what they like. What I like is that they break out some of the different products and services in terms of how they define it, which is good. Now, I don't know, is 100% of that exactly under that bucket? I'm not going to speak on their behalf. Yeah, yeah, but they break it out pretty well. So let's go into more earnings here, infrastructure-wise, fastly, not good. Another really bad earnings report. So their stock was down 15%. After hours, their stock is now down 72% in the past 12 months. Mark and I are recording this after market closed on Friday, august 9th.

Speaker 3 30:49

So their stock's down 72% in 12 months. Mark and I are recording this after market close on Friday, august 9th. So their stock's down 72% in 12 months. In 2020, fastly's market cap was just under 13 billion. Today it's about 750 million. Yeah, amazing. So Fastly did, unfortunately, the exact same thing they did last quarter.

Speaker 3 31:11

The exact same thing they did last quarter, which was they lowered full year revenue guidance. So they lowered it from the previous estimate. So originally they had 580 to 590. Then in Q1, they lowered it to 555. Now in Q2, they've lowered it to 530 to 540.

Speaker 3 31:28

So just no clear insight in terms of what's happening with their media business. They did comment that quote we are experiencing demand challenges with some of our largest customers. We are taking measures to align our cost structure accordingly. End quote. But that's the exact same thing they said in Q1. So that is not good. Total revenue was flat from Q1. It was up 8% year over year. They had a gap net loss of $43.7 million. So they're losing a lot of money. And then they also announced that they're going to lay off approximately 11% of its global full-time employees. So that's about 130 employees global full-time employees. So that's about 130 employees. They're going to have to do something here. They're going to have to do something because, on one hand, they're talking about an earnings call. Well, we're not that interested in immediate business. It's just not really something we're interested in. In their last earnings day, they didn't mention the word video once.

Speaker 3 32:30

It's all about compute compute edge security, but the problem is that your delivery revenue, your network services revenue this was 104 million dollars, yeah, and your total revenue is 132, so it's making up such a large percentage of their revenue that they've got to do something to address that. I don't know what that is. The other thing is I've been seeing them do some squirrely things with pricing lately, just giving some pricing rates where I'm just like you're not making money off that, yeah, and you're trying to grab some share in the market Not the way to do it. That's not going to help you long term. So I really hope they get their media strategy in line. They do have a new CRO now that we talked about and highlighted last time we talked about them, so maybe that changes their strategy going forward. But they're in a very interesting spot here. There's some serious changes they need to make to their business.

Speaker 1 33:29

How do you see them, dan, being represented in the market? You know, and I'm not asking you to get specific, like compared to the way Egeo is selling or Akamai, but just like are they? Is their go-to-market, the way that their salespeople are approaching customers? Is it similar? Is it different? Are they just not out there, like? You know what's your sense?

Speaker 3 33:55

Well, I won't give specific customer names.

Speaker 1 33:59

Yeah, yeah, yeah, not trying to.

Speaker 3 34:01

I can't go into your points.

Speaker 3 34:03

It's a good question. So Fastly was always a developer first mentality. Exactly that's what they were about. They were all about quality of the network. But you start talking to customers over the last three or four quarters and it's hey, we've had some issues on Fastly's network, we've had some performance issues. And you never used to hear that about Fastly. So I'm not saying that's every customer out there, but it was something you pretty much never heard. So what's going on with the network? Not really sure. And then you had some of the people who ran that media business that were gone. And then you had some of the people who were in that media business that were gone.

Speaker 3 34:34

You never really came back to the market and said, hey, here's our strategy going forward. Yeah, right, I mean even me trying to get a briefing on what they're really doing from a product program. They won't do it. They'll talk high level, sure. And then their latest I forget when it was, but their investor relations day. At least a couple of months ago, maybe two, three quarters ago. I reached out afterwards and said you know, it was fascinating.

Speaker 3 34:58

All your materials, everything you said, all the Q&A you did. I never heard you use the video once, the word video, and yet it makes up the largest portion of your overall revenue. Now, naturally, they said well, you know, we're trying to diversify away. Moving to security compute hey, I totally get that, but Akamai has been doing that for since they bought Netly, which is, I'm guessing, 10 years ago, and they just reported that 66% of their revenue is now tied to something other than you know what they call delivery. Yeah, but that means that 34% of your revenue is still tied to, and look how long it's taken Akamai to do that. So why would Fastly think they'd be able to do that in a shorter period of time? The market's not big enough.

Speaker 1 35:44

Yeah.

Speaker 3 35:46

So I have seen them here and there and get a little bit more traffic for certain customers simply because they've lowered some pricing on some deals. But that's not going to win you business over a long period of time. And the biggest issue that they have is the cost structure, Because when you're taking on more customers and more traffic, your capex is going up. So that's an issue that really all CDNs have pretty much always had when they get to a certain size and scale, and that's why they said they are taking measures, to quote align our cost structure accordingly. It's too expensive to deliver a bit.

Speaker 3 36:24

Can't make margin, enough margin.

Speaker 1 36:26

So definitely one to watch. Well, it's interesting. So I'm on the Fastly homepage now and you're absolutely right. I mean you know they were founded. They did a great job of of being like developer first. You know that was their positioning. Hey, you know we're the friend of the developer and I know that that really helped them in the early days. You know, fuel a lot of their business. But you go to their homepage now and I'm they have in the navigation they have the word developers. Okay, but on the homepage. So if somebody is trying to, you know, like, get a sense of what can this company do for me, the word developer is basically nowhere to be found, certainly not in H1, h2. It's like I would have no idea what these guys do. To be really frank, I mean, I know they're in the CDM business, but like what's your focus?

Speaker 3 37:25

So Focus is key, but keep in mind they've expanded, like all CDMs. You know they bought Signal Sciences, they bought other companies, of course, of course.

Speaker 3 37:32

What you're saying is and they bought other companies to push the security. What you're saying is and from a marketing standpoint, it's true it's difficult for companies when they're selling different products and services, especially when those products and services don't align. When you're selling cloud security and WAF and DDoS, bot mitigation, credential stuffing, the vast majority of that is not being sold to media customers. It's what they all call enterprise. Yeah, that's right. Well, that's a whole different pitch. It's a different marketing approach. How you package it is different. It's not an easy business.

Speaker 1 37:58

Yeah, look, this stuff is hard, you know. I mean, there's no doubt about it, it is.

Speaker 3 38:06

And the cost to build all this is the issue, right, what it costs to build it versus what you can charge. Now, on the Wall Street side, I will say, mark, I don't feel bad for any single investor. Yeah, because for years fastly was talking about we're not a cdn, we're an edge compute platform, we're a security company, right, and hey, that's cool if you want to promote that. But you didn't have to follow the industry too close to realize fastly was getting the vast majority of their revenue from being a content delivery network. Yeah, so when they launched and then they were in the market and Wall Street went bonkers and it was like, oh, this is a new company, that's not a CDN, and yet that's where the vast majority of the revenue is coming from, and still is today, which they call network. And then, all of a sudden, wall Street found out and was shocked and then, you know, just killed the stock. That's Wall Street's fault. It's Wall Street's fault, yeah, it's Wall Street's fault.

Speaker 3 38:54

At one point, the peak of Fastly's stock oh yeah, just in terms of where they were. I'm looking at the chart. Okay, they peaked at $126.

Speaker 1 39:07

October 9th 2020.

Speaker 3 39:10

This company is not worth. Ever was worth $126. No offense to Fastly, I'm just saying from a number standpoint. If you look at free cash flow.

Speaker 1 39:19

Yeah.

Speaker 3 39:20

If you look at revenue growth, they should have never been at $126.

Speaker 1 39:25

Yeah, because their revenue. Then what was it? Do you know or do you an estimate? I don't see in the chart here 2020. No, no, it doesn't have revenue, but so right now there's a touch over 500 million in 2023. They did 506. So, you know, I don't know. Were they doing like 350 or 300 or something? I don't know, maybe not even that much.

Speaker 3 39:48

But the point was, wall Street made this into a stock that it wasn't, and that happens with companies, right?

Speaker 2 39:54

That's not a facet.

Speaker 3 39:54

Yeah, if people want to value you more than your work go for it.

Speaker 1 39:58

I hope you sold some stock during that period. Who me? No, no, no, no employees, oh yeah, if they could. But the point is.

Speaker 3 40:07

You know that's too much of a drop and it shows just how different wall street now looks at them and some others as well. It's not just them, but yeah, they've got a lot of work to do with this business and I hope they can do it because 130 employees it's getting laid off. Yeah, yeah, people lost their jobs yesterday. Yeah, very sad. So, um, nature of the business yeah, yeah, a couple more here, no-transcript. So that was up by a couple million dollars. That's good. The downside their stock is down 47% in the past 12 months and it's down 82% over the past five years. Their market cap now stands just below $100 million. So interesting Mark that we've got a couple companies in this space Egeo, brightcove and some others that have a market cap of under $100 million but are generating at least two to four times that in total revenue.

Speaker 1 41:29

Yeah, yeah, egeo's touching $400 million right Now.

Speaker 3 41:33

the good news with Brightcove is they're saying that they're going to have a non-gap loss of $1 to $2.5 million. So basically they've figured out from a P&L standpoint how do we run the business from an operational standpoint to where we're pretty much break-even. The downside is, for the third year in a row, their revenue will decline year over year over year total revenue. So now you have to figure out how do you grow revenue now that you've stopped the bleeding and your balance sheet is not losing money and you're adding a couple million dollars to the money that you have. But now what's the growth story? And that's what Wall Street wants to know is what is your growth story?

Speaker 3 42:15

Calpora they had revenue of 44 million flat year over year. Gap net loss was 10 million. They expect full year revenue guidance of 174 to 176, which would be flat up 1%. So here's another one, similar like Bray Cove in the sense that flat slightly down 1% to 2% year over year. Calporto stock is down 48% the past 12 months and they're down 83% over the past five years. Almost exactly. Brightcove 47% in 82% and 48% in 83%. Yeah, different companies, a lot of what they do, but very similar in terms of how they're being valued.

Speaker 3 42:56

And then finally, mark, I totally missed this when the new Google TV streamer was announced. That we covered last week that Chromecast with Google TV 4K and HD is only going to remain on sale until the inventory runs out and Google's not going to replenish it. So no more of those. However, google did go on record to say they will continue to support all existing Chromecast devices without ongoing updates. They didn't say for how long, so I don't know what continue to support means, but the new Google TV streamer, that's going to be the new go forward path for for Google.

Speaker 3 43:34

It's not going to be about Chromecast anymore. So, mark, that's what we got this week. We are done with earnings. Finally, I don't have anybody else on my list. The rest of this month, next week I might've missed one, but otherwise we we had them all. We had all the larger ones as well. No doubt for listeners, this is a lot of numbers to take away. I get it. You probably can only remember one or two.

Speaker 3 43:59

Mark and I talked about Understandable. The key thing here is just think about what the legacy media business is doing, what it's going to continue to do, how these companies are writing it down, how they are still doing layoffs, how they're reporting earnings. There is no legacy media businesses out of the woods and will not be for years. This isn't like oh, we're almost at the end of this. Nope, this has been going on for a few years and we'll continue to. That's the nature of the business that we're in. So keep an eye on all this. Everything Mark and I talked about today. I've put up an individual post on LinkedIn recapping all the earnings. Mark, this weekend I'll probably do one post that just recaps everything in links, like I usually do. Yeah, make it easy for people to find. But that's what we got for this week. So if you have any questions, hit Mark and I up.

Speaker 3 44:47

We appreciate everyone listening Everyone. Well, it's weekend for us. I don't know if it's weekend for us, I don't know if it's weekend for the listeners, but, mark, I hope you have a good weekend. I will, dan, you get some rest. That's right, and we we appreciate the, the uh shows just continuing to get more and more listeners every month. So that's, that's been really nice. I didn't look at it last, mark, but I think we're at now 55 60 000 downloads, so it continues to grow organically every month. So thanks everyone for listening. Have a good week, mark, and I will talk to you next week.

Speaker 2 45:22

If you enjoyed the show, send it to a friend, have questions for Dan or Mark, connect with them on LinkedIn at any time and be sure to check out Dan's blog at streamingmediablogcom.