April 20, 2022
We're over the hump! Hope here with special guest Emily Peck from Markets. (Nathan → ✈️). Emily looks at the commercial significance of 4/20, while I try to parse what Netflix's results mean for everyone from Madison Avenue to Gen Z. How much are you watching Netflix these days?
🚨 Situational awareness: Tesla shares rose 4.7% after hours following the company's earnings report, which exceeded expectations.
Today's newsletter, edited by Pete Gannon, is 672 words, a 2½-minute read.
🔔 The dashboard: The S&P 500 closed down 0.1%.
- Biggest gainer? M&T Bank (+8.8%) after first-quarter earnings beat expectations.
- Biggest decliner? Netflix (-35.1%) after disclosing it lost 200,000 paying subscribers in the first quarter.
1 big thing: Where Netflix goes from here
Netflix’s business is at a precipice, Hope writes.
Why it matters: As the biggest subscription streaming service in the world, the company is not only a bellwether of its industry, but also of consumer discretionary spending and sentiment.
- U.S. businesses have earmarked more than $100 billion on content this year to try to emulate Netflix’s model, FT reports.
- Meanwhile, the waning pandemic, global inflation and geopolitical challenges are prompting consumers to shift their budgets.
Catch up quick: Excluding the suspension of its service in Russia, Netflix added a net 500,000 paid subscribers in the first three months of this year.
- Analyst expectations were for 2.7 million.
- Between now and the end of June alone, the company says it may lose 2 million, or about 1% of its current base.
Netflix is now talking about adding advertising components and pulling back on the massive spending on content of the last several years.
- Where it takes itself from here will likely fuel a new rise in online advertising while diluting the quality of content for consumers, analysts say.
- Yes, but: Axios' Felix Salmon also points out that Netflix's pre-pandemic net income, in the fourth quarter of 2019, was $587 million. Its earnings in this latest quarter came in at $1.6 billion on all-time record revenue of $7.9 billion, up $2.4 billion pre-pandemic.
The big picture: Streaming video platforms have matured and content options have hit (and probably way exceeded) a saturation point.
- Competitors like Disney+ and Apple TV+, including short-form, on-demand and social video, have exploded.
2. Charted: Student loan sacrifices
Student loan debt has taken a toll, especially on younger borrowers, Axios' Pete Gannon writes.
By the numbers: Nearly 3 out of 4 Gen Zers (age 18–25) have delayed financial decisions due to student debt, according to a Bankrate.com report.
- Millennial borrowers (26–41) are close behind at 68%.
Of note: Less than half of baby boomers surveyed (42%) said the same.
3. What's happening
4. Grubhub for sale again
Just Eat Takeaway.com this morning said it's considering selling Grubhub, less than a year after buying the U.S. food delivery group, Axios' Dan Primack writes.
- Just Eats' food delivery orders fell 5% in North America in the first quarter compared to 2021, the company said. The WSJ confirmed that number relates to the Grubhub business.
Why it matters: This would be the unwinding of a merger that kicked off a consolidation spree in the food delivery space.
- After Just Eat first announced its $7.3 billion deal for Grubhub, Uber Eats agreed to buy Postmates for $2.65 billion, DoorDash took out Wolt for €7 billion and Gopuff acquired a pair of small British players.
What to watch: How potential buyers will value a food delivery business at this stage in the pandemic.
5. Awww — 420 is all grown up!
Today is April 20, or 420, formerly a counterculture way to talk about smoking cannabis.
- It's a corporate phrase now, used in legislation, CEO tweets and SEC filings, Axios' Emily Peck writes.
Driving the news: The "high" stakes battle, as the NY Post called it, for Twitter basically jumped the 420 shark. Elon Musk offered to buy the company at $54.20 a share, and Twitter trolled him back in its poison pill filing.
Flashback: The origins of the term 420 are kind of hazy, as Ryan Grim reported years ago, but it's probably safe to assume that back in the 1970s, most securities lawyers didn't know what it meant.
- "I could say to one of my friends, I'd go, 420, and it was telepathic," one of the men believed to have coined the term told Grim. "Our teachers didn't know what we were talking about. Our parents didn't know what we were talking about."
State of play: Now they know.
6. What they're saying
"Currently we see no signs of any weakening in our customer base. Zero."— Peter Wennink, CEO of ASML, semiconductor industry supplier
Thanks to Sheryl Miller for copy editing today's (and every day's) newsletter.