Thanks for reading The Briefing, our nightly column where we break down the day’s news. If you like what you see, I encourage you to subscribe to our reporting here.
Greetings!
We interrupt our regular AI programming to talk about something more entertaining: Netflix! The video-streaming giant kicks off tech earnings season on Thursday with its first-quarter earnings. It’s the first quarterly report since Netflix walked away from its $82.7 billion deal to buy Warner Bros. Discovery’s streaming and studio operations, so that distraction is gone.
Now we’re back to guessing how long Netflix can keep growing at its recent annual pace of around 15%, well above rival streaming firms like Disney (8% last fiscal year) and WBD (5% in 2025). Netflix forecast 15.3% top-line growth for the first quarter but 12% to 14% growth for the full year. That full year projection is still decent growth, but a more serious slowdown is inevitable, perhaps within a year or two.
Netflix is relying on its small ad business to drive growth right now but that can only last so long. Netflix forecast ad revenue would double to $3 billion this year, out of total revenue it projects will be as high as $51.7 billion. How much bigger can its ad business get? The streaming ad market is not huge—$37 billion in the U.S. this year, estimates eMarketer, compared with $133 billion for U.S. social media. And the market is extremely crowded, with everyone from YouTube to Amazon to Disney to WBD jockeying for market share.
Otherwise, Netflix is propping up growth with price increases—it announced the most recent one in March—but that comes at a cost. The price of Netflix’s ad free plans have roughly doubled since 2017. Raising prices is a good way to drive away subscribers over time, as the cable industry learned. And it’s much easier to cancel Netflix than it is to cancel cable. Netflix no doubt thinks anyone unhappy about the price will downgrade to the tier with ads, which is still cheap at $8.99 a month. But for many people, the ad-free nature of Netflix has always been a big part of the service’s appeal.
Netflix is still the streaming company to beat, but its above-average growth won’t last—nor will its premium stock valuation.
Saas-pocalypse Revisited
How bad can things get in the stock market’s software sector? Mass selling of enterprise software stocks resumed last week after a pause of a few weeks, as jitters about the impact of new AI tools on older software businesses intensified. UBS Securities on Thursday published a report saying that since December, it had been hearing from big companies that growth in spending on AI this year would likely squeeze their spending on other software.
UBS said over half of the calls it has with business customers include anecdotes of “containing” spending on non-AI software. It’s no wonder investors reacted badly. On Friday, ServiceNow and Snowflake were each down around 8% respectively, Salesforce fell 3.5%, and even cybersecurity stocks such as Palo Alto Networks and CrowdStrike were off 6.7% and 4% respectively. (See our story today about software companies’ spending on research and development).
Cybersecurity firms until now had been insulated from the investor freak-out, presumably because investors know AI will make it easier for hackers to break into systems, making cybersecurity even more important. Increasingly, however, it seems that AI firms could simply take over cybersecurity themselves.
The most battered stocks, all up, include Figma, a software design firm, which has lost half its value this year and on Friday had an enterprise value of just $7.9 billion—less than half the $20 billion Adobe planned to pay for it in 2022, before antitrust opposition squelched the deal. And Asana, Dustin Moskovitz’s collaboration software tool, is down 60% so far this year.
In Other News
• Meta Platforms is hiring three senior OpenAI executives who helped lead the ChatGPT-maker’s ambitious Stargate cloud and data center initiative, according to two people with direct knowledge, marking a notable escalation in the battle for AI infrastructure talent.
• Tesla won approval to sell its driver assistance software in the Netherlands, the country’s vehicle regulator said on Friday, in a key step toward potentially selling the service in the entire European Union.
• CoreWeave, a provider of cloud computing for AI, on Friday said it had struck a multi-year deal to develop and run Anthropic’s Claude AI models. The company expects the first servers to come online for Anthropic later this year. The two companies didn’t disclose the size of the deal.
Start your day with Applied AI, the newsletter from The Information that uncovers how leading businesses are leveraging AI to automate tasks across the board. Subscribe now for free to get it delivered straight to your inbox twice a week.
Join The Information at the New York Stock Exchange on Monday, April 27, to hear from top executives and investors on how the rapid buildout of AI is reshaping tech, finance, and capital markets
Save the date for The Information’s annual AI Agenda Live in San Francisco, where top AI researchers, founders, investors and executives come together for a day of conversations about the breakthroughs and applications shaping the future of AI.
