Stock Week Ahead: Netflix’s Most Important Earnings Report Is Coming

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

New York
CNN Business

Netflix, once a Wall Street darling, is suddenly on the ropes.

The streaming giant will release its second-quarter results on Tuesday, and it’s shaping up to be one of the most important moments in the company’s 25-year history.

Netflix is ​​having a terrible year. In April, the company announced that it had lost subscribers in the first quarter of 2022 – the first time this had happened in a quarter in over a decade. Netflix shares then caught fire (they are currently down about 70% so far this year), wiping out billions of dollars in market value, and the company has laid off hundreds of employees.

The loss of subscribers was not the only problem that caused Netflix

the world to be turned upside down like the kids in “Stranger Things”. Weak Q2 outlook shocked investors: Netflix

predicted that he would lose another 2 million in the spring.

Whatever happens on Tuesday could reshape the future of the company as well as the entire streaming industry. Like Netflix, so does streaming.

“There will be hell to pay if they report a number significantly higher than the 2 million losses incurred,” Andrew Hare, senior vice president of research at Magid, told CNN Business.

The streaming market has matured and saturated, Hare noted. Investors will therefore ask themselves: “What is the next step and where will the growth come from?

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

The company announced on 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, advertising is now a major part of Netflix’s plans to increase revenue in the future. The new tier is reportedly coming before the end of 2022, but Netflix admits its fledgling advertising business is in its “very early days”.

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

But will that matter if Tuesday’s numbers are so lackluster that Wall Street is turning its back on Netflix altogether?

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

However, the streamer has some things working in its favor.

For starters, it’s still Netflix, the leader in streaming with 221.6 million subscribers worldwide. It also reports numbers in a market that has factors beyond Netflix’s control, such as soaring inflation. So he has those excuses he can count on to eventually soften the blow to investors.

“Investors will give them time to right the ship, but they need to hear more solid plans on the path to immediate growth,” Hare said. “It’s about communicating how they’re moving the business forward to make sure they continue to win in streaming…No one has the stomach for a company that’s losing 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 report was quite predictable: Bank executives want to discuss things like net interest margin and building up credit reserves. Everyone else had one thing in mind: recession.

There is no denying that the economy is history and investors believe that the titans of banking are the co-authors. They want to know what will happen next.

So here’s what we’ve read so far about the state of the economy ahead.

JPMorgan CEO Jamie Dimon:

Geopolitical tensions, high inflation, declining consumer confidence, uncertainty over rising rates and unprecedented quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its adverse effects on global energy and food prices are very likely to have negative consequences for the global economy at some point.

Morgan Stanley CEO James Gorman:

We could be heading for some form of recession – and I, like many others, have tried to handicap it, but we’re frankly guessing at this point, but I think it’s unlikely to be of a deep and dramatic recession, at least in the United States. think Asia is a little behind. It depends on how COVID unfolds, and it reappears a bit in some countries. And then Europe is obviously – is fighting the hardest right now because of the war in Ukraine, because of the pressure on gas and gas prices and so on.

Jim Herbert, CEO and Founder of First Republic Bank:

The Fed needs to catch up. They’re late and they’re getting by – they’ll probably be doing it pretty quickly. So I think you’ll probably see that the recession is coming one way or another and it will stabilize a lot of the excesses. I don’t think it threatens us too much… I think we’re maybe in the second or third round of what it will take to bring inflation under control. That would be my personal opinion.

Robin Vince, President and CEO-elect of BNY Mellon:

You have all seen these paintings. The S&P 500 had its worst first-half performance in more than 50 years, the 10-year Treasury had the worst start to the year since the index began in the early 1970s. rate hikes, this is the fastest six-month tightening cycle since the Volcker era in the late 1970s. Beneath these headlines, what we’re seeing on our platforms is investors rebalancing and clearly reduce the risks. We are seeing a reallocation of assets from growth to value, higher than expected cash balances and relatively low market liquidity, making it harder for investors to shift risk.

Charles Scharf, CEO of Wells Fargo:

You really envision a number of scenarios that you need to think about and include in your modeling. And for several consecutive quarters, we have already had a significant weighting on the bearish scenario. And some of these scenarios are pretty serious, aren’t they? And so you have weights on what some might call a wild recession, more severe recessions, so you could create a lot of labels for them. But it’s a number of scenarios that have different drop severities.

Jane Fraser, CEO of Citigroup:

Although the sentiment has changed, little data I see tells me that the United States is on the verge of a recession. Consumer spending remains well above pre-Covid levels, with household savings providing a cushion for future stress. And as any employer will tell you, the labor market remains very tight.

I just came back from Europe, where it’s another story. We expect a very difficult winter to come, and this is due to disruptions in the energy supply. There is also growing concern about second-order effects on industrial production and how this will affect economic activity across the continent. And the mood is, of course, still clouded by the belief that the war in Ukraine will not end any time soon.

Monday: Bank of America and Goldman Sachs report second quarter results

Tuesday: June building permit; Netflix brings in revenue

Wednesday: June Sales of existing homes; Tesla reports earnings

Thursday: Philadelphia Fed Manufacturing Index

Friday: S&P Global Flash U.S. Compound PMI

Comments are closed.