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Netflix’s Password Pain, Lulu’s Victory Lap, P&G’s Productivity Pitch

Netflix’s Password Pain, Lulu’s Victory Lap, P&G’s Productivity Pitch

Netflix password sharing meme

Little Red Streaming Service

Great Ones, I guess I should’ve known by the way CEO Reed Hastings parked his car sideways that it wouldn’t last.

See, Netflix (Nasdaq: NFLX) is the kinda company that believed in sharing passwords. Now, it’s love ‘em and leave ‘em fast.

I guess I must be dumb. I had a watchlist full of binge shows, Ozark, all of them new. But it was Saturday night, I guess that makes it all right. And you say: “Here come streaming ads!”

What I'd miss keep Greatness flowing meme

And I say, little red streaming service!

Baby, you’re much too fast.

Little red streaming service!

You need subscriber growth that’s gonna last.

A little Prince for the former king of streaming. Seems fitting, don’t you think?

There’s no doubt, Great Ones. Where is the love? Well … the love is gone, daddy, gone after Netflix’s Q1 earnings report was so abysmal.

How abysmal was it?

It was so abysmal that NFLX stock plummeted more than 35% shortly after the open. I’m not joking. I mean, it was bad … and it wasn’t necessarily the top- or bottom-line figures that did Netflix in, either.

By the numbers, Netflix said it earned $3.53 per share, beating expectations for $2.89 per share. Revenue was a little light, coming in at $7.87 billion versus the consensus view for $7.93 billion.

Now, those figures aren’t too shabby … all things considered. But, as we all know, NFLX stock rises and falls on subscriber numbers, not earnings and revenue. And subscriber numbers were terrifying…

During Q1, Netflix lost 200,000 subscribers — the first such loss in a decade.

Netflix blamed the subscriber loss on the Russia/Ukraine war, which Netflix says cost it 700,000 subscribers on the quarter due to ending operations in Russia.

I could see that news accounting for about a 10% to 20% drop in NFLX stock. I mean, Netflix saw 10 years of subscriber growth, only to have that reverse in one three-month span. Additionally, Netflix said it expects to lose another 2 million subscribers in Q2.

That’s bad, but the company’s response to this loss may be even more frightening for subscribers.

On March 10, 2017, Netflix’s official Twitter account tweeted: “Love is sharing a password.” Well, that love is gone, daddy, gone … as of right now.

The company said that of its 222 million paying customers, about 100 million are sharing their accounts. In a move to bolster subscription growth, Netflix warned that a global crackdown on password sharing is coming.

Furthermore, Netflix said it’s cutting back on new-content spending and exploring an ad-based streaming option.

Now, there are two things CEO Reed Hastings has said for years. Two things Hastings touted as Netflix’s inviolable rules:

1. Love is sharing a password.

2. Netflix will never have commercials.

I guess inviolable rules are only inviolable until you need more subscriber growth. Analyst Michael Nathanson of MoffettNathanson LLC might have put it best when he said:

It’s just shocking. Everything they’ve tried to convince me of over the last five years was given up in one quarter. It’s such an about face.

Nathanson isn’t alone. In fact, he’s part of a growing chorus of disillusioned Wall Street analysts. UBS, Pivotal Research, Wells Fargo, JPMorgan, Evercore, Wedbush … all downgraded NFLX stock, slashed price targets and slammed Netflix’s poor performance.

The best part?

It gets better? Please say it gets better!

Well … better for Great Ones. I told y’all this was coming last year:

I think NFLX investors have to realize that the days of excessive growth are over. Netflix now must fight tooth-and-nail just to maintain its position. Don’t get me wrong: Netflix isn’t going anywhere. It’s a solid company with an impressive business model. However, the bloom has come off the “growth” lily, so to speak.

Netflix is no longer a high-growth tech stock. It’s now a blue-chip company. And that will change how investors all across Wall Street approach the stock.

High growth is gone. Netflix is now a blue-chip company with a saturated market, searching for more revenue. And the worst part about it is that Netflix, just like Peloton, is about to squeeze existing customers to make up the difference.

But, Mr. Great Stuff, Netflix is just trying to get moochers sharing passwords to pay up! What’s wrong with that? It’s stealing!

Netflix password sharing meme

Fair enough. And I’d agree with you … if Netflix’s pseudo-official policy not only allowed password sharing, but encouraged it.

We all know why Netflix is going after password sharing now. It’s because the company knows it can’t raise prices yet again.

There’s too much competition in the streaming market now, and Netflix is already among the highest priced options.

No. Raising prices is right out, unless Netflix wants to lose more subscribers.

So it’s changing its mind on password sharing in hopes that some of those 100 million shared households buck up and sign up.

But do you really think someone who wasn’t paying for a subscription before is suddenly gonna pay now that their free ride is gone? Ha … nope.

As the saying goes, you either die a hero or you live long enough to become the villain. Netflix dropping “Love is sharing a password” is exactly the same as Google dropping “Don’t be evil.”

The problem is that Netflix is no Google. There are many other options, and the streaming landscape is about to change drastically because of Netflix’s decisions now.

It’s like Metallica handing out bootlegs for free at its early concerts, but then going after music sharing when the band got much, much bigger.

While it might be technically the correct thing to do, it’s going to leave a really bad taste in consumers’ mouths. And that, Great Ones, is reason enough to stay away from NFLX stock for the time being.

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Quick and Dirty

Lulu Doubles Down

Lululemon doubles menswear business meme

Lululemon (Nasdaq: LULU) laid it all on the line back in 2019 when it introduced menswear into its athletic lineup as a long-term growth plan, a decision that’s now finally starting to bear fruit.

Way back when, Lulu said it hoped to double its men’s business by 2023. As of this quarter — a full year ahead of schedule — it’s already achieved that goal. Lulu also managed to triple its digital revenue from 2018 to 2021. For a sports fashion company, that’s really impressive.

But Lulu isn’t just gonna let its growth lag now that it’s reached this recent revenue milestone — no way, no how. The company’s next checkpoint is five years down the road, when it hopes to hit $12.5 billion in sales (again doubling its current revenue).

Despite Lulu’s victory lap, its stock still sank 2% today, proving that you just can’t please some people.

Master Of International Business Machines

IBM earnings season gif

Sleepy IBM (NYSE: IBM) managed to exceed Wall Street’s earnings and revenue expectations for another quarter, indicating that rumors of its death — or at the very least lethargy — have been greatly exaggerated.

Earnings per share reached $1.40 on revenue of $14.2 billion, rising 7.7% higher from year-ago figures. The double beat sent shares trading 5% higher, with CEO Arvind Krishna saying that IBM’s tech demand should continue to grow despite the potential of an upcoming recession.

Way to build ‘em up just to knock ‘em down a peg, Krishna.

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P&G Gets Productive

P&G inflation raise prices meme

Speaking of boring blue-chip companies, Procter & Gamble (NYSE: PG) reported first-quarter earnings that topped Wall Street’s expectations among elevated commodity prices and supply chain constraints.

When the going gets tough, the tough ups its production to counteract a drag on profits … said someone at P&G HQ, maybe.

The company’s sales topped $19.39 billion this quarter, but P&G believes it can raise full-year revenue by 4% to 5% in 2022 — up from its previous outlook of 3% to 4%.

There’s still room for uncertainty in this kind of inflationary market. But as one of the world’s biggest producers of essential household goods, boring P&G is certainly sitting in a better position than … say, some of its Big Tech counterparts.

Sometimes, it pays to be safe and stable.

ASL? M, Netherlands

Anytime someone brings up chipmakers ASML gif

Would it be a normal day in the earnings arena if we didn’t cover the semiconductor sector? Never! Mitchell D., I hope you had some calls lined up for ASML (Nasdaq: ASML).

Chipmaking demand is up, as you know. (You should know, by now.) But as far as those ever-increasing supply chain hurdles? Welp, here they are.

ASML makes equipment for chipmaking. Pretty handy during the chip crunch, no? While equipment orders are through the roof, ASML’s load time on delivering machines is slacking, recently hitting a high of about 26 weeks.

If chipmakers can’t get the equipment to make more chips, how are they gonna ramp up production? If you can’t ramp up production, how do you meet higher demand for chips? How can you make your chips if you don’t eat your meat, hmm?!

For ASML’s part, the company plans to raise its revenue forecasts later this year (Yay!) but noted next quarter’s sales will be lower while the company works through its order backlog (Not yay!). ASML stock still ended the day up 4%.

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Poll of the week

Welcome to poll day, Great Ones!

With Netflix ready to blame everyone but itself for this quarterly report’s flop, I’m curious about which of these reasons are actually legit.

Sure, a serious drop-off of Russian subs is to be expected with … well … with what’s going on. But as far as password sharing? How many people actually share passwords anyway — and could it be enough to rob Netflix of that full market penetration it desires?

Wow, phrasing.

We’re … just talking about passwords here. I think? All I want to know is: Are you one of the “alleged” 100 million households sharing a Netflix account? Don’t worry, we won’t rat you out to ol’ Netflix.

Well, I won’t if you won’t…

Click on the poll below and let me know:

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For all y’all who said “yes,” here’s a follow-up question: Would you be willing to pay for Netflix if you couldn’t share passwords anymore? Or is it good enough because it’s “free?”

What’s with all the questions? You writing a book report?

It’s … poll day. Asking questions is all we do. Sometimes we get real nutty and even answer the questions we ask.

Such as last week’s poll! We had asked whether or not you’ve flown yet in 2022, which I am still calling “the new year” in my head, and you can’t stop me.

Anyway, 58.3% of your fellow Great Ones have already traveled this year, while 38.1% have yet to experience the post-pandemic, plane-based pandemonium. Meanwhile, another 3.6% of you are still learning to fly, even though Pink Floyd and Tom Petty figured it out years ago.

Anyway, if you’d like to sound off on the week’s hot topics, write to us for Friday Feedback! GreatStuffToday@BanyanHill.com is where you can reach us best. You can also keep up with the action here:

Until next time, stay Great!

Regards,
Joseph Hargett. Editor of Great Stuff

Joseph Hargett
Editor, Great Stuff

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