January 28, 2023

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Next week for stocks: Netflix’s most significant earnings report comes

Next week for stocks: Netflix's most significant earnings report comes

A version of this story first appeared in the CNN Business “Before the Bell” newsletter. Not a subscriber? You can register over here. You can listen to an audio version of the newsletter by clicking on the same link.

New York
CNN Business

Netflix, once the darling of Wall Street, is suddenly on edge.

The broadcast giant will report its second-quarter earnings on Tuesday, and it’s shaping up to be one of the most significant moments in the company’s 25-year history.

Netflix is ​​having a terrible year. In April, the company reported that it lost subscribers in the first quarter of 2022 — the first time this has happened in any quarter in more than a decade. Then the Netflix stock caught fire (It’s currently down about 70% so far this year), wiping billions of dollars off market value, and laying off hundreds of employees.

Losing subscribers wasn’t the only problem that caused Netflix

A world turned upside down like children inWeird things. Weak Q2 outlook shocked investors: Netflix

She predicted that she would lose another 2 million in the spring.

Whatever happens on Tuesday could reshape the future of the company as well as the entire broadcasting industry. As with Netflix, streaming goes.

“There would be hell to pay if they reported a figure much higher than the $2 million loss,” Andrew Hare, senior vice president of research at Magid, told CNN Business.

Hare noted that the live broadcasting market has matured and is saturated. So investors will ask: “What’s next and where will the growth come from?”

Netflix is ​​pinning its hopes on a potential savior: advertising.

The company announced Wednesday that it will partner with Microsoft on a new, cheaper, ad-supported subscription plan. Although Netflix CEO Reed Hastings has been allergic to the idea for years, the announcement is now a major part of Netflix’s plans to increase revenue in the future. The new level is said to come before the end of 2022, but Netflix admits that its budding advertising business is still in its “early days”.

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The company is also focusing on cracking down on password sharing and focusing on creating compelling content to help turn the tide.

But would any of this matter if Tuesday’s numbers were so lackluster that Wall Street completely turned its back on Netflix?

“Once Netflix becomes undervalued by the market, all bets are off,” Hare said.

However, the streaming device has a few things working in its favour.

For starters, Netflix – remains the leader in streaming with 221.6 million subscribers worldwide. It’s also reporting numbers in a market that introduce factors beyond Netflix’s control, such as rising inflation. So she has those excuses she can rely on to soften the blow with investors.

“Investors will give them time to rectify the situation, but they need to hear more solid plans about the path toward immediate growth,” Hare said. “It’s all about getting in touch with how they develop the business to ensure that they continue to win live…No one has the audacity to lose business to millions of subscribers every quarter.”

Big banks kicked off earnings season last week, putting executives in front of investors and members of the media for questioning.

The relationship was somewhat predictable: Bank executives want to discuss things like net interest margin and credit reserve accumulation. Everyone else had one thing on their mind: stagnation.

There is no denying that the economy is the story and investors believe the banking giants are co-authors. They want to know what happens next.

So here’s what we’ve been throwing at so far about the state of the economy going forward.

Jamie Dimon, CEO of JPMorgan:

Geopolitical tensions, high inflation, declining consumer confidence, uncertainty about how rates will rise, unprecedented quantitative tightening and its impact on global liquidity, combined with the war in Ukraine and its detrimental impact on global energy and food prices are very likely to have negative consequences. on the global economy sometime down the road.

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Morgan Stanley CEO James Gorman:

We may be heading into some form of recession — and I, like many others, have tried to hold it back, but we’re honestly guessing at this point, but I think it’s very unlikely there will be at least a deep and dramatic recession in the US. I think Asia is a little behind. It depends on how COVID is, and it’s kind of popping up a bit in some countries. And it is clear that Europe is fighting its hardest now because of the war in Ukraine, because of the pressure on gas prices, gas and so on.

First Republic Bank CEO and Founder Jim Herbert:

The Fed has to play catch-up. They are late and they do it – they will probably do it very quickly. So I think you’ll probably see a recession coming of some kind, and it’s going to stabilize a lot of the excesses. I don’t think this threatens us excessively…I think we may be in the second or third half of what will be required to get inflation under control. This will be my personal opinion.

BNY Mellon President and CEO-elect Robin Vince:

You’ve all seen those graphs. The S&P 500 had its worst first-half performance in more than 50 years, and the 10-year Treasury had the worst start to the year since the index’s inception in the early 1970s. With 150 basis points in rate hikes, this is the fastest tightening cycle in six months since the Volcker era at the end of the 1970s. Under these headlines, what we see across our platforms is that investors are clearly rebalancing and eliminating risk. We are seeing reallocation of assets from growth to value, higher-than-expected cash balances, and relatively shallow market liquidity, making it difficult for investors to transfer risk.

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Charles Scharf, CEO of Wells Fargo:

You’re really looking at a number of scenarios that you need to think about and include in your model. And for a number of consecutive quarters, we’ve already had a lot of weight for our downtrend scenario. And some of these scenarios are very dangerous, right? And so you have weight for what some would call a severe slump, a more severe slump, so you can create a lot of labels for them. But there are a number of scenarios that have different severity of negative aspects.

Jane Fraser, CEO of Citigroup:

While sentiment has changed, the little data I’m seeing tells me the US is on the cusp of a recession. Consumer spending remains well above pre-Covid levels, with household savings providing a cushion for future pressure. As any business owner will tell you, the job market is still very tight.

I just got back from Europe, where the story is different. We expect a very difficult winter to come, due to disruptions in the power supply. There is also growing concern about second-tier effects on industrial production and how this will affect economic activity across the continent. Of course, the mood is darkened by the belief that the war in Ukraine will not end any time soon.

Monday: Bank of America and Goldman Sachs report second-quarter earnings

Tuesday: building permits in June; Netflix earnings reports

Wednesday: Existing home sales in June; Tesla earnings reports

Thursday: Philadelphia Fed Manufacturing Index

Friday: S&P Global Flash US Composite PMI