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.”
Apple TV app is now available on the Android TV platform, with Apple extending the app’s compatibility to include Google’s popular operating system for smart TVs and streaming devices. Although Apple TV was initially only available on Apple devices, the service has over the years been expanded to other devices and platforms such as Amazon’s Fire OS ecosystem and LG’s webOS. Android TV is a significant platform that covers smart TVs from numerous brands and is a popular option in India where many affordable TV manufacturers opt to use the OS for their smart TVs.
The Apple TV app can be downloaded through the Google Play store for Android TV, and is available for Android TV devices running Android TV 8 and later with access to the Google Play store already, as per a report by 9to5Google. We tried this on Realme Smart TV 4K 43 (Review), and were able to install and sign in to Apple TV app without a hitch. Content is accessible at up to Ultra-HD resolution, with support for HDR up to Dolby Vision and Dolby Atmos, as supported by the television itself.
This is a big step from Apple, particularly for users in India where the Android TV platform is a popular one. Many television manufacturers across various price segments use Android TV for their smart TVs, including Sony, Xiaomi, Realme, TCL, Vu, and OnePlus, to name a few. Apple TV will now be accessible on all these devices, allowing streaming of movies available to buy or rent, as well as the Apple TV+ subscription service that is the home to Apple’s critically acclaimed original shows, such as Ted Lasso and The Morning Show.
Apple TV’s key competitors Netflix, Amazon Prime Video, and Disney+ (Disney+Hotstar in India) have been available on the Android TV platform for a while now. Although the app and service was introduced on the Amazon Fire TV platform in late 2019, its availability on Android TV has been a long time coming. It also signals Apple’s intent to be viewed more seriously as a provider of services such as music and video streaming for users beyond the Apple hardware ecosystem, rather than exclusively as a manufacturer of hardware.
It’s an all television spectacular this week on Orbital, the Gadgets 360 podcast, as we discuss 8K, screen sizes, QLED and mini-LED panels — and offer some buying advice. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, Amazon Music and wherever you get your podcasts.
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.”
Chart of the Day
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.
Square Inc. is buying a majority stake in Tidal, a music and entertainment platform owned by rapper Shawn “Jay-Z” Carter and other artists, for $297 million in cash and stock.
The San Francisco payments company said Thursday that Mr. Carter will join its board as part of the deal, and Tidal’s current shareholders will remain co-owners.
Square—best known for its signature white card reader—has created a financial ecosystem for retailers, small-business owners and shoppers. It offers loans through its seller platform, and its Cash App payment service allows consumers to digitally store and transfer their money like they would at a bank.
It is looking to do much the same thing for musicians on the Tidal platform by, for example, integrating merchandise sales and hosting collaboration tools, Square Chief Executive
said in a tweet Thursday morning.
“New ideas are found at the intersections, and we believe there’s a compelling one between music and the economy,” Mr. Dorsey tweeted. “Making the economy work for artists is similar to what Square has done for sellers.”
Tidal was always about more than streaming music, Mr. Carter said in a statement. “Artists deserve better tools to assist them in their creative journey,” he said.
Square already has ties with the music business. The company has recruited hip-hop artists, one of Cash App’s most devoted fan bases, to help bring aboard new users during the pandemic. To promote Cash App and their single, “WAP,” rappers Cardi B and Megan Thee Stallion gave away $1 million to fans who messaged them on Twitter with their Cash App usernames, called “cashtags.”
Square said Tidal will operate independently within Square, alongside its seller and Cash App platforms. It expects to complete the transaction in the second quarter.
Cryptocurrency exchange Coinbase Global Inc. said Thursday it plans to go public through a direct listing, making the popular platform the latest company to forgo the traditional public-offering process.
The company said last month it had filed a draft registration statement with the Securities and Exchange Commission for a public offering.
Direct listings differ from traditional initial public offerings in that companies take their shares to the stock market directly. Companies are able to save money that in a more traditional IPO would be shelled out to investment banks. This option to go public isn’t as common as traditional IPOs.