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Guess what—tech earnings season is back. Yes, you know you missed it. Netflix, as usual, will kick off the quarterly parade of earnings updates, releasing its second-quarter numbers on Thursday. The video-streaming giant’s quarterly updates have become humdrum affairs lately, but this one might be different, given that the company’s stock has lately been sliding as investors fret about its future growth prospects.
Let’s not overstate things: On most metrics, Netflix shares still trade at a big premium to the older entertainment firms like Disney, according to Koyfin data. It’s nowhere near the low it reached in 2022 after a sell-off triggered by a sharp slowdown in growth. But Netflix shares have fallen 44% since hitting an all-time high about this time last year, even as the S&P 500 has risen 22%. What gives?
What initially sparked the sell-off, longtime Netflix watchers will recall, was the company’s surprising decision to buy Warner Bros. Discovery’s studio and streaming services. While Netflix eventually abandoned the deal, after Paramount Skydance’s David (“I’ll pay any price”) Ellison outbid it, the episode implied to Wall Street that management was worried about long-term growth opportunities. (Co-CEO Ted Sarandos insists that’s not the case: “We are very confident in the core business,” he said on the last earnings call.) Though the stock rallied meaningfully after the WBD deal was called off, that rally reversed after Netflix’s first-quarter earnings announcement.
That report showed Netflix doing better than it had projected—growing revenue 16.2%, nearly a percentage point higher than expected.But investors were likely more focused on Netflix’s second quarter projection of growth slowing to 13.5%. For the year as a whole, the company has forecast 12% to 14%, down from 15.9% last year. That’s despite expected rapid growth in its (still small) ad business. There’s no getting around the reality that Netflix’s business is mature and future growth will come from squeezing subscribers for more money and hopefully grabbing a decent share of the ad business. Meanwhile, rivals like a combined Paramount-WBD and Disney are hovering, happy to nibble at Netflix’s share.
A Bloomberg report this past week that Netflix was losing viewers on the second season of shows added to the worries. Those of us of a certain age remember back to traditional TV’s big hits, like “Seinfeld,” which became a huge hit after its first season, thanks to word-of-mouth chatter among viewers. Nowadays, of course, choices are far more plentiful, making that surely much harder. But the array of alternatives people have for streaming, and the ease with which they can cancel, presents a challenge for everyone—including the industry leader.
In Other News
• Tesla CEO Elon Musk told staff at the carmaker to move to using Grok, the AI model from SpaceXAI, according to a memo sent to staff on Friday.
• South Korean memory chipmaker SK Hynix raised $26.5 billion in the largest IPO ever by a foreign company in the U.S., surpassing the record set by Alibaba’s 2014 IPO, which raised $25 billion.
• Junjie Yan, founder and CEO of Chinese AI developer MiniMax, told employees in an internal memo that he will forgo his salary until the company achieves artificial general intelligence, while also promising to allocate some of his personal shares toward employee incentives.
• Venture capitalist Vinod Khosla and his family announced an agreement on Saturday to purchase the Seattle Seahawks NFL team from the estate of Microsoft co-founder Paul Allen. Multiple publications reported that the price was $9.6 billion, a record for an NFL team.
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