Daily Brief: Netflix May Have Missed The Bar, But The Streaming Wars Aren't Over Yet

Daily Brief: Netflix May Have Missed The Bar, But The Streaming Wars Aren't Over Yet

almost 3 years ago3 mins

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Netflix’s first-quarter subscriber growth came in worse than expected late on Tuesday, and the streaming service wouldn’t like to thank its parents, its agent, or – sniff – its investors.

What does this mean?

Here’s the trouble with pocketing a record number of subscribers last year like Netflix did: it sets a high bar for every subsequent earnings announcement. Too high, this time around, with the streaming service only adding four million new subscribers last quarter – two million less than it promised. And too high this quarter as well, by the sounds of things: Netflix admitted it’s expecting to add just a million subscribers versus a predicted 4 million. That matters because new subscribers are a proxy for future income, so while the lower costs of delayed production did push profit over expectations, unimpressed investors initially sent Netflix’s stock down 10%.

Netflix subscriber growth

Why should I care?

For markets: Accountants are sneaky.

Thing is, Netflix’s profit doesn't even account for the full cost of making content, which is spread over a few years even though the company generally pays for everything up front. Investors, then, prefer a figure Netflix can’t obscure with accounting quirks, like how much cash it brings in each year. Or rather, how much it doesn’t bring in: the streaming giant hasn’t made enough cash to cover costs in almost any year since 2012. That’s a tradition it’s promised to end this year, but it might be easier said than done when production fully ramps up again…

Downstream

The bigger picture: These endless US streaming wars.

Still, a recent survey by Morgan Stanley found that 39% of Americans think Netflix has the best original content of all the streaming services – well ahead of Amazon Prime (12%) and Disney+ (7%). And this update aside, investors seem to agree that the world needs more Emily In Paris: Netflix’s shares have risen about 80% since Disney+ launched, dwarfing the average 15% gains of its competitors.

Stock performance

Keep reading for our next story...

Procter & Gamble’s Earnings Beat Expectations

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Procter & Gamble (P&G) announced better-than-expected quarterly earnings on Tuesday, proving that – wow! – its home care range really does get sparkling results every time!

What does this mean?

One year into the pandemic and P&G’s results suggest we’re still committed to sprucing up our homes and hairdos alike. It’s those segments that did particularly well for the consumer staples giant, driving strong results even as its beauty and family care units missed the mark. And those uneven gains aren’t just expected, they’re why investors are so keen on P&G in the first place: that diversified business model has seen the company latch onto pandemic-driven trends in the last twelve months, and should see it adapt to post-pandemic trends too – whatever they might be.

Pricing Power on Display

Why should I care?

The bigger picture: Price hikes are coming.

Investors were also focused on P&G’s admission that it’d need to balance out the rising prices of raw materials by hiking the prices of its products. It’s the third big consumer firm to clamp down after Coca-Cola and Kimberly-Clark’s announcements earlier this month, and the move might add to the mounting evidence that inflation is on its way. That’s a scary prospect for investors: central banks are more likely to raise interest rates if prices are rising too quickly, which could hurt company earnings and, in turn, drive stocks lower.

Slowing growth

Zooming out: Veganism is the future.

Talking of consumer staples, France’s Danone posted weaker results on Tuesday as the pandemic continues to dent demand for bottled water and baby food. The world’s biggest yogurt maker might want to take a leaf out of Oatly’s book: the plant-based rival officially filed to list on the stock market earlier in the week, and its paperwork revealed that the company’s sales more than doubled last year. In other words, vegan products are only getting more popular – and incumbents like Danone might want to play catch-up.

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