🍿 Netflix + ads?

Wednesday, April 20, 2022 by Robinhood Snacks |
From “never ads” to “never say never” to ads (Ethan Miller/Getty Images)

From “never ads” to “never say never” to ads (Ethan Miller/Getty Images)

From “never ads” to “never say never” to ads (Ethan Miller/Getty Images)

From “never ads” to “never say never” to ads (Ethan Miller/Getty Images)

Yesterday’s Market Moves
Dow Jones
34,911 (+1.45%)
S&P 500
4,462 (+1.61%)
Nasdaq
13,620 (+2.15%)
Bitcoin
$41,327 (+1.29%)

Hey Snackers,

As if the pandemic weren’t enough, some people are postponing their weddings and trips again because Mercury is in retrograde for an extra time this year.

Stocks closed higher as investors checked earnings to see how corporate America is navigating inflation, war, and supply shortages. That was before Netflix dropped a shocker after the bell…

Ultimatum

Binged “Anatomy of a Scandal”... Netflix knows we can devour a limited series as if we had unlimited time. The streaming leader revealed yesterday that it lost 200K subscribers last quarter (it was expected to add 2.5M). Even worse: it expects to lose 2M global subs this quarter. Flix shares plunged 25% after hours and are down over 40% this year.

  • Old plot: Netflix saw explosive growth in 2020 as Emily in sweats binged “Emily in Paris.”
  • Current plot: The pandemic boom led to subscription saturation (#subscripturation) and slowing growth. Netflix added 18M paid subs last year, versus 37M in 2020. Now it’s losing subs.
  • New plot: To spur growth, Netflix has expanded beyond content. Last year it launched a show-themed merch shop (think: “Ultimatum” tees) and five in-app games. It’s also expanded into “experiences” like a “Stranger Things” Upside Down world in NYC.

Netflix’s ultimatum... Unlike Hulu, HBO Max, and other ad-supported streamers, Netflix has rejected commercials, relying instead on subscription $$. In 2019, CEO Reed Hastings said he’d never do ads, “period.” But high prices (#flation) + subscription overload (#subscripuration) have made it harder for consumers to afford multiple streamers. Fast-forward to now:

  • Netflix CFO Spencer Neumann recently cracked the door open to ads, saying "never say never" to an ad-supported tier.
  • Even Disney+ is launching a lower-priced ad tier to hit its subscription goals.
THE TAKEAWAY

It’s the price-cutting paradox… Lowering prices can boost revenue — but only if customers who were paying “premium” prices don’t downgrade. Netflix’s $15.50/month standard plan may be out of reach for many budget-conscious households, so adding a cheaper plan supported by commercials could help it grab a new market. The risk: subscribers who are paying for pricier ad-free plans might downgrade (that hasn’t happened to HBO Max yet). As streaming competition intensifies, it may be worth the risk for the Flix.

Bud

Slow burn… Today is 4/20, the unofficial holiday of cannabis connoisseurs. It’s been a decade since recreational pot was first legalized in the US, in Washington and Colorado. Since then, 16 more states and DC have followed. While national legalization remains an open question, the industry has found ways to advance:

  • Legal cannabis sales are expected to total $33B in 2022, a 32% jump from last year.
  • Three quarters of Americans now live in states with some form of legalized weed.
  • 520K workers are now employed in the US cannabis industry.

Put that in your pipe and vote on it… This month the House passed legislation to legalize cannabis nationwide. But the bill’s stuck in the Senate, where it’s unlikely to pass because of partisan gridlock — even though it has support from nearly 70% of voters. The absence of a federal law has been a buzzkill for cannabis companies as they try to expand nationally:

  • Green stocks turn red: Shares of billion-dollar cannabis giants Tilray and Canopy Growth have fallen to five-year lows as legalization efforts have stalled. Many canna-businesses have chosen to sell in only one state to avoid complex interstate commerce laws.
  • Nowhere to put the green: Banks like Chase and Citi and payment processors like Visa won’t handle cannabis $$ for liability reasons — even where it's legal. But small banks and credit unions are embracing the industry and could open the door to “cannabis banking.”
THE TAKEAWAY

High demand doesn’t always assure fast growth… Sometimes it’s in the hands of politicians. President Biden hasn’t pushed for pot legalization, which makes it unlikely the Dem-controlled Senate approves the current bill. But analysts think lawmakers may greenlight canna-banking this year, which could help cannabis companies expand to multiple states even without full legalization.

What else we’re Snackin’

  • Reverse: Uber and Lyft both dropped their mask requirements for riders and drivers, a day after the mandate for transit was voided in court. In a shift, Biden said it's up to individual travelers if they want to keep masking.
  • Jab: Johnson & Johnson said it would stop giving sales outlooks for its “one and done” Covid vaccine, months after saying the shot could bring in $3B+. Demand for vaccines and boosters has been cooling in the US.
  • Range: Mercedes unveiled its first electric SUV for the US, a seven-seater dubbed “EQS.” Expected to price north of $100K, the EQS will compete with luxury rivals (like Tesla and BMW) when it goes on sale later this year.
  • Cha-ching: Verizon hiked the minimum wage for all its US employees to $20/hr, one of the most competitive pay raises in recent months. Verizon is outdoing recent wage bumps at Amazon, Walgreens, and Walmart.
  • Green: Walmart will run its forklifts on hydrogen power after signing a deal with fuel-cell company Plug Power. It’s one of the biggest corporate uses yet for hydrogen, as Walmart pledges to go net-zero by 2040.

Snack Fact of the Day

The term “4/20” was apparently coined by a group of California teenagers in 1971.

Wednesday

  • Earnings expected from: Tesla, Procter & Gamble, Abbott Labs, Equifax, ASML, Anthem, CSX, M&T Bank, Baker Hughes, Whirlpool, Lithia Motors, Churchill Downs, and United Airlines

Authors of this Snacks own shares of Netflix, Canopy Growth, Disney, Uber, Walmart, Amazon, and Tesla

ID: 2159233