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New York (CNN Business) Netflix, once a beloved Wall Street, is suddenly on the ropes.
The streaming giant will report its second-quarter earnings on Tuesday, and is shaping up to be one of the most consequential moments in the company’s 25-year history.
Netflix is having a terrible year. In April, the company reported that it had lost subscribers in the first quarter of 2022 – the first time it has happened in any quarter in more than a decade. Netflix’s stock subsequently burst into flames (currently down about 70% so far this year), wiped out billions of dollars in market value, and the company laid off hundreds of employees.
The loss of subscribers wasn’t the only problem that caused the Netflix world to turn upside down like children on “Stranger Things”. A weak outlook for the second quarter shocked investors: Netflix (NFLX) predicted it would lose another 2 million in the spring.
Whatever happens Tuesday could reshape the future of the company as well as the entire streaming sector. As Netflix goes, so does streaming.
“There will be hell to pay if they report a number that is significantly higher than the $ 2 million loss being dumped,” Andrew Hare, senior vice president of research at Magid, told CNN Business.
The streaming market is immature and saturated, Hare noted. So investors will be asking: “What’s next and where will the growth come from?”
Netflix is putting its hopes on a potential savior: advertising.
The company announced Wednesday that it will partner with Microsoft on a new, cheaper subscription plan backed by ads. Although Netflix CEO Reed Hastings has been allergic to the idea for years, advertising is now a big part of Netflix’s plans to boost revenue. Allegedly, the new level will arrive before the end of 2022, but Netflix admits that the advertising business that is just starting is in the “very early days”.
The company is also focusing on curbing password sharing and focusing on creating compelling content to help change the tide.
But will any of this count if Tuesday’s numbers are so full that Wall Street turns its full back on Netflix?
“Once Netflix becomes highly undervalued by the market, all bets are off,” Hare said.
However, the streamer has some things that work in its favor.
For starters, it’s still Netflix – the streaming leader with 221.6 million subscribers worldwide. It is also reporting numbers in a market that is presenting factors beyond Netflix’s control, such as rising inflation. So it has those excuses you can rely on to possibly ease the blow with investors.
“Investors will give them time to fix the ship but they need to listen to stronger plans on the road to immediate growth,” Hare said. “It’s all about communicating how the business is evolving to ensure they continue to win in streaming … No one has the stomach for a business that loses millions of subscribers every quarter.”
Wall Street CEO struggles with ‘R’
Wall Street CEOs grapple with the ‘R’ word
Big banks started the earnings season last week, putting executives in front of investors and members of the media for questioning.
The report was pretty predictable: Bank execs want to discuss things like net interest margins and credit reserve building. To see also : Holtzman Corp. celebrates 50 years of activity. Everyone had one thing in mind: Recession.
There is no doubt that economics is history and investors believe that banking titans are co-authors. They want to know what happens next.
So here’s what has shone us so far about the state of the economy to come.
Geopolitical tension, high inflation, declining consumer confidence, uncertainty about how high rates should go and unprecedented quantitative easing and their effects on global liquidity, coupled with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy at some point down the road.
Morgan Stanley Chief Executive James Gorman:
We may be going into some form of recession – and I, like many others, have tried to keep it going, but frankly we are at this stage, but I think it is unlikely to be a deep and dramatic recession at least in -United States. I think Asia is a little behind. It depends on how COVID comes out, and is re-emerging in some countries. And then Europe of course – is fighting the worst right now because of the war in Ukraine, because of the pressure on gas and gas prices and so on.
Chief Executive and founder of First Republic Bank Jim Herbert:
The Fed wants to play catch up. They’re back and they’re doing it – they’re likely to do it pretty quickly. So I think you’ll probably see that the recession is probably coming of some sort, stabilizing most of the excesses. I don’t think it’s threatening us too much … I think we are perhaps in the second or third inning of what will be needed to keep inflation under control. That would be my personal opinion.
BNY Mellon President and Chief Elector Robin Vince:
I have all seen those tables. The S&P 500 had the worst performance in the first half in more than 50 years, the 10-year Treasury had the worst start to the year since the beginning of the Index in the early 1970s . And with 150 basis points in rate hikes, this is the fastest six-month tightening cycle since the Volcker era in the late 1970s. Under this news, what we are seeing on our platforms is that investors are clearly rebalancing and removing risk. We are seeing asset reallocation from growth to value, higher-than-expected cash balances, and relatively low market liquidity, making it more difficult for investors to shift risk.
Wells Fargo Chief Executive Charles Scharf:
You are really looking at a number of scenarios that you want to be thought about and include in your modeling. And for a number of quarters in a row, we’ve already had a significant burden on the downturn scenario. And some of those scenarios are pretty severe, right? And so you have weights on what some might call a wild recession, more severe recessions, so you can create a lot of labels for them. But it is a number of scenarios that have different severities of decline.
While sentiment has changed, some of the data I see tells me that the United States is at the point of recession. Consumer spending is still well above pre-Covid levels with household savings providing a cushion for future stress. And as employers tell you, the job market remains very tight.
I have just returned from Europe, where it is a different story. We expect a very difficult winter to come, due to disruptions in energy supply. There are also growing concerns about the effects of second-order on industrial production and how this will affect economic activity across the continent. And the mood, of course, darkens further with the belief that the war in Ukraine will not end soon.
Up next
Monday: Bank of America and Goldman Sachs report Q2 earnings To see also : 11 Best New Movies on Netflix: July 2022 Freshest Movies to Watch.
Tuesday: June building permits; Netflix reports earnings
Wednesday: June Existing home sales; Tesla reports earnings
Thursday: Philadelphia Fed Manufacturing Index
Friday: S&P Global Flash US Composite PMI
