to test a new story line. Even a lucky turn in videogames won’t free the streaming giant from the need to keep playing Hollywood’s game, though.
Netflix used its second-quarter report Tuesday afternoon to confirm previously reported plans to enter the videogame business. No timing was given, though the company said the offerings would be included in its current subscription plans at no additional cost. The company isn’t backing away from its work on movies and TV shows, but said in its letter to shareholders “since we are nearly a decade into our push into original programming, we think the time is right to learn more about how our members value games.”
That news comes as Netflix remains mired in somewhat of a post-pandemic slump. It added 1.5 million net new paying subscribers in the second quarter, which was a bit better than it had forecast but still its lowest level of growth in nearly a decade. It also projected 3.5 million net adds for the third quarter—about 29% less than what Wall Street was hoping for. That would bring the total number of new subscribers to about nine million for the first nine months of 2021. Netflix added more than 28 million paying subscribers in the same period last year.
A foray into games might make sense for a company with an intimate knowledge of the viewing habits of a user base that now numbers over 209 million. It is also a tough business to crack—even the mobile gaming market that Netflix says it expects to target initially. There are many participants, but most of the money is still made by long-established properties. Games like “Candy Crush” and “Clash of Clans” remain in the top-five grossing charts even after nearly a decade on the market.
Netflix will need to keep battling it out for video streaming eyeballs. The company expects its pace of new releases to pick up in the second half of this year; analysts from Wedbush count 42 original shows and movies expected for the third quarter alone. But the company still has its own track record to compete with: Last fall included popular shows such as “The Queen’s Gambit,” “The Crown” and “Bridgerton.” Netflix shares are down nearly 2% this year, lagging behind many internet and entertainment peers. Streaming investors hyper-focused on subscriber growth aren’t playing games.
and romance have long been a match made in heaven, but now the streaming giant is taking things to another level.
Perhaps emboldened by the success of recent shows like “The Circle” and “Love Is Blind,” Netflix is now doubling down on dystopian reality dating. According to the trailer, released this week, the new concept will feature “real life singles,” sporting “elaborate makeup and prosthetics” and putting blind date chemistry to the test.
As if dating weren’t already hard enough, contestants on “Sexy Beasts” are expected to find love while looking like a panda or a mouse. The trailer features a suave alien in a bowling alley chatting to his date, an apparent cross between a dolphin and a platypus, stating that “personality, for me, is everything.” Others—especially a beaver who candidly describes his favorite physical feature—are at least honest.
If nothing else, viewers will be in it for catfights.
It is a far cry from last year, when the so-called FAANG stocks took a commanding role in a market driven by the coronavirus pandemic.
This year, as the economy strengthens and vaccinations diminish the pandemic in the U.S., that synchronized march has broken down. Investors have broadened their sights beyond the familiar names whose technology businesses thrived as many Americans switched to working, shopping and socializing at home. With a re-energized economy creating opportunity across industries, money managers have options, as well as renewed scrutiny for stocks whose lofty valuations and widespread popularity could limit further upside.
While Alphabet Class A and Facebook shares are up 37% and 21%, respectively, other members of the group have weighed on the market. Amazon shares are up 7.1% in 2021, lagging behind the 11% rise in the benchmark S&P 500. Apple and Netflix have fared even worse, down 1.7% and 7.4% for the year.
Among the hundreds of S&P 500 stocks outpacing Apple—the U.S. benchmark’s largest company by market value—are many that were hit hard by the pandemic. Cruise company
With a healthier economy improving prospects for many stocks, investors have less reason to snap up ones that look expensive. That is particularly the case as a spurt of inflation focuses investors on the question of when the Federal Reserve will begin lifting interest rates from current, rock-bottom levels.
Fed officials last Wednesday indicated they anticipate raising rates by late 2023, sooner than previously expected. When rates rise, commonly used models show the far-off cash flows factored into many technology stock’s price tags are less valuable.
In recent months, investors haven’t been willing to pay as much for the profits of some of the megacap tech names with the richest valuations. Analyst estimates for Amazon’s per-share profit over the ensuing 12 months rose more than 40% from the end of December through last week, according to FactSet. But since Amazon’s share price rose only 7.1%, the stock’s forward price/earnings multiple contracted from nearly 73 times to about 55 times.
In the case of Netflix, expectations for forward earnings have risen while its share price has fallen. That has compressed the stock’s price/earnings ratio from almost 60 at the end of 2020 to about 43 last week.
Apple has seen its valuation fall since the start of the year, as projected earnings increased while its share price is nearly unchanged. It traded last week at about 25 times expected earnings—down from more than 32 times on Dec. 31.
After owning Apple shares for years,
chief investment officer of wealth-management firm The Bahnsen Group, said he sold them late last year because he thought they were too rich.
For much of 2020, a badly constricted economy pushed investors toward stocks—like the FAANG names—whose businesses were less affected and whose future growth became even more alluring with the drop in interest rates. The Russell 1000 Growth Index advanced 37% for the year, while the Russell 1000 Value Index eked out a 0.1% gain—the largest annual performance gap between the two style benchmarks in FactSet data going back to 1979.
Big tech stocks were among the leaders of that rally. Apple shares climbed 81% in 2020—last August becoming the first U.S. public company to surpass $2 trillion in market value—while Amazon rose 76% and Netflix gained 67%. Facebook added 33% for the year, and Alphabet 31%.
“Philosophically if you’re buying those very large-cap stocks—let’s say a trillion dollars and above—you’re doing so not because you think you’ve found some undiscovered gem,” said
who manages the Firsthand Technology Opportunities Fund. “You’re doing it more as an expression of a tech thesis, that people are going to be rotating to tech.”
That rotation began to unwind in November with news that a Covid-19 vaccine was emerging. Value stocks, which trade at low multiples of book value and tend to be more sensitive to the health of the economy, began a monthslong rally. In March, value stocks were beating growth stocks by the widest margin in two decades, although the gains have eroded recently.
Among big tech stocks, Alphabet and Facebook have served as a kind of reopening play, reporting a surge in advertising. Facebook’s profit in its latest quarter nearly doubled from a year earlier, while Alphabet’s earnings more than doubled.
“They’ve had this huge resurgence in online advertising and that’s really been driving the stocks,” said
senior portfolio manager at Synovus Trust Co. “All these businesses are reopening, coming back on, the economy’s accelerating. Where do they go to promote themselves? A lot of them go to Facebook.”
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Netflix, by contrast, disappointed investors when it reported that its subscriber growth had slowed as the economy reopened. The streaming giant got a boost from the pandemic as many consumers were forced or chose to stay home, and it ended 2020 with more than 200 million subscribers.
Those fundamentals matter more now for investors, who seem less inclined to view the market in the same broad terms as they did last year.
“These just are different companies that for a long time were highly correlated because they were popular, they were performing well,” Mr. Bahnsen said. “There really was never an investment logic to a streaming company that was first to market trading in tandem with a social media company.”
shares nudged up 0.6% premarket. Health officials around the country resumed offering the company’s Covid-19 vaccine this weekend after getting a green light from federal regulators on Friday.
Bitcoin prices on Friday ended the week down 18.3%. It was the largest weekly decline since the week ended March 13, 2020, when it fell 40.6%. Monday morning prices were up again, by 11%.
The Dow Jones Transportation Average is up for the past 12 consecutive weeks. It is its longest weekly winning streak since the 15 weeks ended Jan. 28, 1899.
On this day in 1973, the Chicago Board Options Exchange opened for trading, with call options available on 16 U.S. common stocks. For the first time, stock options were listed on a dedicated exchange and registered for trading in standardized form.
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The wild market ride has lifted everything from lumber to stocks to bitcoin—and rarely have so many assets been up this much at once. The frenzy has extended far beyond conventional markets tracked by Wall Street firms.
still aren’t sure if sudden swings in their stock were from banks unloading billions in Archegos investments—or if the drop was from something else entirely, according to people familiar with the matter.
Archegos had previously told executives at LendingClub that it was a big shareholder, said one of the people. But without the regular disclosures that investment firms typically make after they build up a sizable stake in a stock, those executives didn’t have a way to verify the ownership claim.
It might seem surprising that a company can’t pinpoint why its stock suddenly falls, but the Archegos meltdown shows how difficult it can be for executives to determine who owns their company’s stock and for what reason.
‘The U.S. has gone from a leader in timely disclosure to a laggard internationally.’ ”
— Leo Strine Jr. of Wachtell Lipton
A chorus of companies and advocacy groups are now calling on regulators to revise financial-disclosure guidelines, particularly around loosely regulated family offices such as Archegos and around the use of derivatives, investor bets linked to stock prices instead of the stocks themselves.
“The U.S. has gone from a leader in timely disclosure to a laggard internationally,” said
Leo Strine Jr.,
a former chief justice of the Delaware Supreme Court who is now a corporate attorney at Wachtell, Lipton, Rosen & Katz.
“Even more embarrassingly, the U.S. fails to cover derivatives and other relevant instruments that affect target companies,” he said. “We have a 1975-era regulatory regime governing a 21st century economy, and it’s high time it was fixed.”
Family offices such as Mr. Hwang’s are lightly regulated. A law passed in the wake of the financial crisis intended to shore-up financial markets, known as the Dodd-Frank Act, included an exemption for family offices from certain reporting requirements that pertain to most other investment firms managing more than $100 million.
Archegos was still subject to filing other stock-ownership disclosures required by securities laws, but the firm appeared to avoid those through its use of a type of derivative known as total return swaps—investments made by banks on behalf of clients for a fee. The swaps hid Mr. Hwang’s holdings from the companies he invested in, obscuring how much each was exposed to a single investor. Archegos declined to comment.
Archegos is just one of more than 10,000 family offices that collectively manage nearly $6 trillion in assets, said advocacy group Americans for Financial Reform in a letter calling on the Securities and Exchange Commission to take action to tighten disclosure rules around such firms.
“There is no reason why large investors whose decisions can significantly impact other investors and companies should be able to avoid the same scrutiny other investors face simply because of how they choose to structure their trade or their investment firm,” the group said in the letter.
To be sure, individual stocks move because of broader factors in the market and separate industries that wouldn’t be clear even with more aggressive disclosure requirements.
Public disclosures showed the various banks that Mr. Hwang had worked with—including
—as being the major shareholders in stocks rather than Archegos. When a bank is listed as a shareholder, companies have no way of knowing if the investment is on behalf of a single investor, multiple investors or the bank itself.
Archegos had built up a large stake in ViacomCBS, so when the stock fell, Archegos and its banks sold off Archegos’s holdings to back up the trades. The banks unloaded more than $30 billion in positions that Archegos had built up in ViacomCBS, Discovery and a handful of other companies, sparking huge declines and setting in motion the family office’s meltdown.
Around the same time, shares of online lender LendingClub slumped 11% on March 26, its biggest single-day pullback since May of last year, and digital streaming service fuboTV’s stock dropped 15% that same day.
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If Archegos owned LendingClub or fuboTV stocks, the firm might have driven down the share price by selling off its holdings.
Company executives were stumped by the sudden pullback of their share prices until news broke of the Archegos meltdown, according to people familiar with the matter.
Employees at fuboTV passed around a tweet from a pseudonymous Twitter account after its shares fell on March 26, according to a person familiar with the matter.
The tweet purported to show Archegos positions held at Nomura, including 4.7 million shares of fuboTV. The employees cross-referenced fuboTV’s largest shareholders on FactSet and saw that its largest one was Nomura, with 4.7 million shares as of the end of 2020.
LP, a spinoff from West Texas oil producer Diamondback Energy Inc., said the buildup of stakes by banks’ prime brokerage arms was unusual and now after the incident suggests that Archegos may have been involved.
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Nomura’s prime-brokerage arm is one of Viper Energy’s largest shareholders, owning a nearly 5% stake. That large of a stake by a prime broker is rare, said
Kaes Van’t Hof,
president of Viper Energy. The firm hasn’t tried to confirm whether Archegos was involved, Mr. Van’t Hof said, adding that it is “hard to impossible to find out from the prime brokers who actually owns the stock” even if they had reached out. Nomura declined to comment.
Shares of Viper Energy had mostly fallen around the time Archegos’s bets collapsed, with shares dropping nearly 10% over a three-week stretch ended April 9.
“It’s a bit one-sided how much public companies have to disclose versus investment funds,” Mr. Van’t Hof added.
LendingClub and fuboTV shares have mostly fallen since late March, with the latter’s declines drawing it down 34% for the year. Shares of Viper Energy, meanwhile, have rebounded somewhat, rising about 15% so far this month.
One other stock Mr. Hwang might have been involved with is Chinese educational app maker
Shares of the company had mostly struggled since it went public in October. But on March 29, amid Archegos’s fall, iHuman’s stock experienced its second-biggest decline ever, sliding 13%.
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Like Mr. Hwang’s other bets that are now publicly known, banks such as Credit Suisse and Nomura populate iHuman’s top holdings, according to FactSet. The only other clue that the family office might have been involved is that an Archegos junior analyst had contacted iHuman for a meeting, a person with knowledge of the matter said.
A spokesman for iHuman said the company supported the call for regulators to revise disclosure guidelines for investment firms.
“I think we are in agreement with many companies in the market that there should be greater transparency around the disclosure of fund holdings,” the spokesman said in an email. “We hope the SEC will take a look at this and help increase transparency in the market.”
Still, Netflix shares slumped nearly 9% in after-hours trading following the results. The company added slightly under 4 million paid subscribers in the first quarter and projected net additions of just 1 million for the second quarter. That means it could end the first half of the year nearly 6 million subscribers short of where Wall Street thought it would be by that time. Netflix would also require the addition of nearly 21 million subscribers in the second half of 2021 to reach analysts’ year-end target of 229.4 million. Over the past five years, Netflix has averaged about 12.4 million net new subscribers during the second half of the year.
In its quarterly shareholder letter Tuesday, Netflix blamed part of this year’s lag on a “lighter content slate” caused by last year’s pandemic-related production shutdowns. The company expects that situation to improve; the latter half of 2021 will see new seasons of “The Witcher” and “Cobra Kai,” and some expect a new season of the company’s blockbuster series “Stranger Things” in that period as well. Of course, the many Netflix competitors now in the market will be executing on similar plans. What’s more, rivals like
Netflix did maintain its goal of breaking even on a free-cash-flow basis this year. The company even plans to start buying back stock for the first time since 2012; a $5 billion repurchase program gets under way this year. All are important steps for the undisputed streaming king after more than a decade in the business. But with streaming investors myopically focused on subscriber counts, Netflix will still need a lot of viewers to find their way back indoors later this year.
Futures on the S&P 500 and the Dow Jones Industrial Average fell 0.4% apiece. Tech-heavy Nasdaq-100 futures slipped 0.3%.
10-year Treasury yields are higher at 1.625%, from 1.599% on Monday. The dollar slipped again. Crude-oil prices are rising ahead of stockpile data from the American Petroleum Institute. Read our full market wrap here.
Through Thursday, healthcare stocks have returned about 7% so far this year. That lags behind the S&P 500 by about 5 percentage points.
On this day in 1720, declaring that he “can calculate the motions of the heavenly bodies, but not the madness of the people,” Isaac Newton sold his 7,000 pounds’ worth of South Sea Co. stock at a 100% profit. But the excitement around England’s first great IPO proved too much even for him, and he soon got back in. Newton ended up losing 20,000 pounds when the bubble burst, and from that moment on, he could “never bear to hear the South Sea referred to for the rest of his life.”
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European carbon credits are as close as investors can come to a sure thing. Ironically, the chief thing that might trip them up is too much excitement too soon, writes Heard on the Street columnist Rochelle Toplensky.
U.S. stock futures wobbled Tuesday ahead of a bumper day of earnings reports from blue-chip companies.
Futures on the S&P 500 and the Dow Jones Industrial Average ticked up less than 0.1%. Technology-heavy Nasdaq-100 futures rose 0.1%, a day after faltering tech companies dragged major indexes lower.
Investors are looking to companies’ first-quarter earnings and their outlook for the rest of the year to gauge whether valuations on stocks are justified. Progress in rolling out Covid-19 vaccines and strong economic data has bolstered expectations, and fueled the recent rally that has left the major indexes hovering close to record highs.
“Companies are doing even better than was expected—which in many ways is shocking—but that is also one of the reasons why the market is at an all-time high,” said Andrew Slimmon, a managing director and senior portfolio manager at Morgan Stanley Investment Management. “The earnings season is validating what a lot of companies’ stock prices have already been saying.”
is expected to post its results after markets close.
“The only risk is that expectations across the board are so high, they are going to be very difficult to meet,” said
chief strategist at Principal Global Investors. “We are getting into territory—both with earnings and economic data—where it will be very difficult to have positive surprises.”
Investors are also keeping an eye on the bond market, with yields climbing higher for a third consecutive day. The 10-year U.S. Treasury yield edged up to 1.622%, from 1.599% on Monday. Yields rise as prices fall.
Dogecoin, the cryptocurrency created as a joke, extended its gains after climbing more than 8,000% this year. It rose over 7% to 42 cents, according to CoinDesk. Some users of online forums have said they plan to push the cryptocurrency to $1 by Tuesday, in what some have called “Doge Day.”
In commodity markets, Brent crude, the international benchmark for oil, rose 1.3% to $67.93 a barrel.
Overseas, the pan-continental Stoxx Europe 600 fell 0.6%.
In Asia, major stock indexes were mixed by the close of trading. Japan’s Nikkei 225 fell almost 2% while Hong Kong’s Hang Seng ticked up 0.1%. The Shanghai Composite Index edged down 0.1%.
in 1997. A few years after founding the company, Mr. Hastings reportedly offered to sell Netflix to Blockbuster, then at its peak with 9,000 U.S. video stores, for $50 million.
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Fast forward 21 years and one of the most-watched documentaries last month on Netflix, now valued at $239 billion, was “The Last Blockbuster,” about one lone outpost of the bankrupt chain hanging on for dear life in Bend, Ore. One could view it as the ultimate irony that Netflix is getting even richer at the expense of the company that it helped bankrupt after being rebuffed, but the documentary has given the now-independent store a shot in the arm. The Oregonian reports that business has been booming the past two weeks since the documentary took off on Netflix, with sales of retro Blockbuster merchandise flying off the shelves.
If you’re one of the few people in America without a Netflix account, you can even rent a copy of “The Last Blockbuster” there.
The international trading boom has sent a Chinese broker on a wild ride.
Worth just $1.2 billion a year ago, Nasdaq-listed Futu Holdings Ltd. has surged in value and at its peak in February was worth nearly $26 billion. Despite a pullback since then, the company, which is backed by
, still had a market capitalization of more than $14 billion as of Wednesday’s close.
Futu and other Chinese online brokers have benefited as younger investors have poured money into booming markets, both in the U.S., and in Hong Kong and mainland China. They have also thrived since investors often see the sector as a good way to bet on a broader rally.
Alongside Futu, the smaller UP Fintech Ltd., which is known in Asia as Tiger Brokers, has jumped in U.S. trading. And in Shenzhen,
Alex Cheung, a 27-year-old in Hong Kong with a business degree, said he has been buying and selling stocks, mostly in the U.S., for about a year using the company’s Futubull app. “You don’t need to be a sophisticated investor to trade on Futubull,” said Mr. Cheung, who posts online about investing under the name Shiba Daytrader.
Futu and others provide services that are a combination of the trading functions offered by apps such as Robinhood’s flagship product, plus social networking similar to online forums such as Reddit’s WallStreetBets.
“Futu is more an online social-media platform than just a trading platform,” said Dennis Wu, a senior partner at the company. Its app lets users swap trading ideas and monitor news feeds, financial data and other content.
Heavily traded stocks on Futu include some that are also favored by U.S. day traders, plus some Chinese technology giants. Mr. Wu said hot stocks on the app included
, as well as Hong Kong-listed tech stocks such as Tencent.
By dollar value, U.S. stocks made up 65% of all trading handled by Futu in the fourth quarter of 2020, with Hong Kong shares accounting for most of the rest and mainland Chinese shares making up about 1%.
Capital controls can limit overseas investments by people from mainland China. But there are no such restrictions in Hong Kong, where Futu is based, including for mainland customers who have assets in the city. Futu also caters to U.S. and Singapore-based clients, including Chinese expats.
Mr. Wu said millennial and Generation Z clients were comfortable trading stocks on mobile apps and that many worked in tech, giving them a good understanding of the sector. “They don’t need intermediaries or analysts for trading advice,” he said.
The emphasis is firmly on the positive: Advertisements for Futubull feature a young man with horns and a nose ring, sometimes riding a bull.
Brokerage stocks can be volatile and could sell off sharply in a broader market drawdown, as happened to East Money when Chinese markets crashed in 2015. Despite its phenomenal year-over-year gains, Futu has shed about 45% from its peak in mid-February, as shares in some high-growth companies have retreated.
In Futu’s case, a limited public float might add to the volatility. According to the company, founder Leaf Li, who also goes by Hua Li, and his former employer Tencent together own around 60% of the stock.
For now, however, business is booming. Trading more than quintupled year over year in the fourth quarter, to the equivalent of $156 billion.
Jasmine Chin, an analyst at Bank of China International Holdings Ltd.’s research arm, said high-profile listings by Chinese companies in Hong Kong and the U.S. helped Futu add paying clients last year. Futu had 517,000 such customers as of December and aims to add 700,000 more in 2021, while Morgan Stanley analysts forecast it could add one million.
In addition to brokerage commissions and interest on margin loans, the company earns revenue from areas such as fund sales and underwriting initial public offerings. It also manages employee stock-ownership plans for 159 companies, including Tencent and its subsidiary
Alex Wong, a director at hedge fund Ample Capital, said competition could intensify as more online brokers emerge. Mr. Wong said he sold his holdings in Futu earlier this month, citing stretched valuations.
As of Wednesday, Futu’s stock traded at a price of 32.6 times expected earnings for the next 12 months, according to FactSet. That compares with price-to-earnings ratios of roughly 27.6 for Interactive Brokers and 22.2 for