Netflix Turns Upside Down
Great Ones, have you ever heard the saying: “You either die a hero or you live long enough to see yourself become the villain?”
While the quote is most likely drawn from the works of German philosopher Nietzsche, you probably remember hearing it in the 2008 blockbuster Batman movie The Dark Knight.
Now, I’m no Nietzsche … nor am I a caped crusader mentally scarred by the death of his parents … but even I can see that this saying directly applies to streaming giant Netflix (Nasdaq: NFLX).
The current king of streaming will step into the earnings confessional this afternoon — likely by the time you read this edition of Great Stuff.
Netflix is expected to post a profit of $2.90 per share on revenue of $8.06 billion. Then again, these numbers typically don’t do much for NFLX stock.
It’s always been about subscriber growth for Netflix. Always.
In Q1, Netflix lost 200,000 subscribers and said that it would likely lose another 2 million in Q2.
Technically, this should come as no surprise to anyone. Streaming services added massive amounts of new subscribers during the pandemic. But while people trapped in their houses due to pandemic lockdowns made for good temporary gains, it was not destined to last.
Many subscribers were going to drop Netflix and other streaming services after the lockdowns were over. It was just a given as people went outside and got on with their lives again. However, Netflix took this post-pandemic rebalancing personally.
And how could it not? Netflix is precariously clinging to the title of “king of streaming” by the skin of its teeth right now. The company is fending off assaults from Disney+, Hulu, Paramount+, HBO Max and a horde of other streaming barbarians at the gate.
Now, back in the day, Netflix accepted all comers — allowed them all to share and share alike. Sharing is caring, after all.
While the company’s official stance has always been that password sharing is against its terms of service, Netflix directly encouraged subscribers to share their accounts.
Anyone remember this Netflix tweet from 2017?
Love is sharing a password. — Netflix’s official Twitter account.
But that goodwill apparently only lasted as long as Netflix’s subscriber base was growing. Now that it’s contracting … it’s no more Mr. Nice Guy. No more Mr. Clea – hee – hee – hean!
Not only is password sharing bad now — apparently Netflix is all outta love, it’s so lost without you — the company is going to great lengths to make darn sure you don’t share anymore.
Yesterday, news broke that Netflix is testing a new method to stop password sharing in Argentina, El Salvador, Guatemala, Honduras and the Dominican Republic.
This method involves tracking your streaming device’s IP address, your TV’s device ID and your account activity. If Netflix catches your account watching shows outside your home address for more than two weeks … your account will be blocked.
Unless! Unless, of course, you pay more to “add an extra home.” Don’t worry, Millennials. We’re not talking about buying an actual home here. I know that’s a big source of anxiety for y’all right now. I get it.
No, we’re talking about Netflix’s new way to “allow” password sharing. And that new way is: “Pay me!”
That’s right. What Netflix used to allow you to do for free, you now will have to pay roughly $2.99 per month for — at least, that’s the relative price point it’s rolling out in Latin America with this test program.
Now, I have to admit that, from a business perspective, this $2.99 per month for adding a “home” seems rather reasonable — assuming Netflix doesn’t jack the price up when they roll this out stateside, that is. It’s a really good idea with a reasonable price point.
I also need to make clear that I am not saying Netflix shouldn’t get paid. It’s a business. It offers a service. It should be paid for that service.
What I am saying is that if Netflix had started out this way … if the company had always cracked down on password sharing … none of this would be a problem. The problem is that Netflix customers are already used to sharing passwords, since, you know, the company actively encouraged it.
Regardless of whether password sharing is against the company’s terms of service, Netflix subscribers are going to see this crackdown as taking something away from them. Not only that, they’ll see it as Netflix being greedy — especially after the company’s repeated subscription price hikes.
Unless Netflix does something to improve its customer relations and its image, this latest crackdown has a very high chance of sending more subscribers to competing services. And this, Great Ones, is where the streaming market enters the old “cable churn” model of providing expensive discounts and subsidies to lure in new customers.
Consider tonight’s Q2 Netflix report as the first salvo in this new era for the streaming market. I’ll be sure to fill you in on all the details tomorrow after the report. Until then, here’s what you need to be watching:
In the San Francisco area, there’s a company few people have heard of.
Mysterious, Great Stuff. Very mysterious.
According to my colleague Adam O’Dell, it has the potential to be the next great software company. Think of Uber, Airbnb, Facebook, Microsoft, Cisco or Oracle.
Right now, its market cap is still under $2 billion. So if you invest now, you’re getting in on the ground floor.
Click here to watch Adam’s special presentation about it.
Good: I’ve Hacked Their Mainframe … Sales
We’ve not talked up IBM (NYSE: IBM) in these here virtual pages in some time now … partly because it’s, you know, IBM.
But this quarter? Oh, why, this quarter IBM actually released a new, widely anticipated product — no, seriously. As part of its Z series of mainframe systems, IBM just launched the z16 mainframe computer. Feel free to “ooh” and “ahh” to your heart’s content.
Neato … how do I get one?
Uhh, start up a data center? Or launch an e-commerce platform? Or do something that requires massive amounts of computing processing power? And no, opening 100 tabs in Chrome doesn’t count — but, let’s be honest … it should.
Regardless, enough data-hungry businesses wanted the new z16 mainframes that Z system revenue jumped 69% on the quarter, compared to a 19% decline last quarter. Nice. Overall revenue and earnings both beat analysts’ expectations, but guidance is where IBM’s cookie crumbles.
Looking ahead, IBM dropped its 2022 cash flow estimates from a range of $10 billion to $10.5 billion … down to just $10 billion even.
It’s an absolute tragedy — a travesty, even. The nerve of IBM to get us all excited over its earnings beat and then stop the hype train immediately. IBM better have some good reason why it dropped guidance…
Oh, wait, IBM’s blaming the strong U.S. dollar for this? Plus the loss of its Russian business?
Excuses, excuses. It wasn’t good enough of a song and dance for Wall Street, which struck IBM stock down 7%.
Better: Boeing’s Back (Back Again)
Ain’t nothin’ gonna break Boeing’s stride. It’s running and won’t touch ground — oh no — it’s got to keep on moving.
Hold up… Eminem into Matthew Wilder? Really? Unexpected, but I’ll run with it.
Also, we just got good news from Boeing (NYSE: BA) twice in the same week? And BA stock actually rallied both times?! What kind of bizarro upside-down world have we dropped into?
Investment firm 777 Partners just announced it’s buying up to 66 Boeing 737 MAXs — right after yesterday’s supersized MAX order from Delta (NYSE: DAL).
Now you might be thinking … what does an investment firm need that many planes for? Are y’all traveling to “conferences” that often?
But 777 Partners isn’t just any investment firm: It’s setting up independent, low-cost airlines based everywhere from Canada to Australia … on top of its other hustles in “insurance, consumer and commercial finance; litigation finance; direct lending; sports, media and entertainment.”
So the secret to 777 Partners’ new, low-cost airlines? The efficient and high-capacity 737 MAX.
Dude. So many 7s.
You’re telling me. I’m surprised 777 Partners didn’t order 777 737s just for the memes. Nevertheless, any sales for Boeing are a welcome sight for Great Stuff Picks investors — it’s almost like someone predicted this demand for new planes way back in the pandemic doldrums.
Best: Hasbro, Do You Even Lift?
Oh, Hasbro (Nasdaq: HAS) does more than just lift … it, umm … where was I going with this metaphor again?
Anywho, judging by its latest report, Hasbro — the maker of board games, Dungeons & Dragons and Magic: The Gathering trading cards — wasn’t playing any games this earnings season.
I’ll have you know D&D isn’t just a game. It’s a lifestyle.
Yeah, sure. Sure, it is… Whatever you call it, Hasbro’s Wizards of the Coast segment — which includes everything to do with the Dungeons and Dragons “lifestyle” — saw profits tick up 17% last quarter. And I have to wonder how much the new season of Netflix’s Stranger Things juiced up those sales.
Anyone remember when activist investors tried to get Hasbro to sell off Wizards of the Coast earlier this year? Yeah … I’m pretty sure we all know now why Hasbro squashed that idea.
Hasbro’s overall earnings were up 10% last quarter and handily beat expectations. Revenue, on the other hand, rose a mere 1% and missed analysts’ estimates. Pretty much everything Hasbro makes got more expensive during the quarter, from the My Little Ponies to the Nerf blasters, which helped boost Hasbro’s earnings.
As for HAS investors? They’re not exactly “feasting” after this report … but they’re eating. HAS stock rallied 1% today, which is more than IBM investors can say…
TikTok On The Clock
Great Stuff, blow my speakers up…
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Regards,
Joseph Hargett
Editor, Great Stuff