Friday Jan.20, 2023

🍿 Netflix’s sub-prise

Wednesdays are for streaming (Michael Tullberg/Getty Images)

Hey Snackers,

An unlikely source of home decor: Twitter had a fire sale of hundreds of items including conference tables, planters, and espresso machines from its San Francisco office. Oh, and a statue of Twitter’s bird logo sold for $100K.

Stocks fell for the third straight day after jobless claims dropped to their lowest level since September. Low unemployment is good but could have negative side effects: investors worry the steady job market means the Fed may keep hiking rates even as inflation slows.

Flix

Netflix crushes quarterly subscriber expectations thanks to fan faves like “Wednesday”

Autoplaying the next episode… just one more. Netflix shares surged 7% after the bell yesterday after it announced a subscription shocker: millions more subs than expected. The streaming OG added 7.7M paid subscribers last quarter — way better than the 4.5M forecast — as folks signed up to binge faves like “Emily in Paris.”

Top quarterly hits: “Wednesday” was Netflix’s third most popular series ever, while “Harry & Meghan” was its second most popular docuseries. “Glass Onion” got big views too.
Major plot twist: Netflix announced that its founder and longtime leader, Reed Hastings, would be stepping down from his position as co-CEO.
Anticlimax: Netflix experienced its slowest quarterly revenue growth of all time (sales up less than 2% from last year) and badly missed on profit expectations (think: $55M compared to $1.4B the previous quarter).

When the ad hits on a cliffhanger… This was Netflix’s first quarter that included revenue from its $7/month ad-supported offering, which launched in November. But the word “ads” was mentioned just three times in its earnings report (“advertising” got four mentions). Still, Netflix said it was “pleased with the early results, with still much more to do.” Analysts say they haven’t seen much demand for the cheaper ad tier, which accounted for only 9% of November sign-ups.

Netflix’s one-number era could be over… Despite disappointing earnings and sluggish revenue growth, investors boosted Netflix stock after hearing its headline subscriber number — which has historically been the focus. But going forward Netflix says it will no longer give subscriber forecasts as it prioritizes revenue growth in this saturated streaming market. Ads are part of the new strategy. Netflix is also launching paid sharing to crack down (and profit from) password mooching.

Swing

Saudi-backed LIV Golf signs its first TV deal with tween fave CW to tee off profits

Dustin Johnson heads to “Riverdale”… LIV Golf (finally) has a TV partner. Yesterday the Saudi-backed golf tour sealed a multiyear broadcast deal with the CW network. You might remember the CW for cult-fave teen dramas like “Gossip Girl” and “Vampire Diaries.” Starting next month, LIV will air 14 events on CW’s weekend broadcast and on its app. Before, you could stream LIV only online (think: YouTube).

Teed up: LIV has caused a stir since its debut last year. It spent billions to poach several top players and host flashy golf tournaments that look more like music festivals.
Gloves on: LIV is in a heated legal dispute with US rival PGA Tour (LIV accused the legacy golf group of monopolizing the sport).

Scrambling for screen time… LIV has struggled to secure key revenue streams like TV rights and sponsors. It’s burning cash, courtesy of billions in Saudi backing. Legacy sports broadcasters like CBS, Comcast’s NBC, and Disney’s ESPN have avoided working with LIV, because they also stream PGA events. The PGA earns about $600M/year through broadcast deals, and that revenue covers more than half its tournament purses.

Home is where the eyeballs are… and for LIV network TV could mean millions more viewers. CW is not the go-to broadcaster for golf, but its youthful audience and well-known brand could help LIV reel in old fans and fresh faces. And for CW, LIV’s top-tier players could attract new audiences. In a best-case scenario, LIV could earn up to $410M in broadcast rights by 2028 — but it’ll have to settle its PGA beef first.

What else we’re Snackin’

Ceiling: The US hit its $31.4T debt limit yesterday, risking a scenario where the govt can’t pay its bills. Now the Treasury plans to use “extraordinary maneuvers” to prevent a default.
Wipe: Procter & Gamble’s revenue and profits fell as shoppers cut back on name-brand products like Tide, Charmin, and Crest. P&G’s price hikes didn’t manage to offset slowing sales.
Fruity: Food-tech company Evigence raised $18M for its sticker-sized smart sensor that shows the freshness of food in real time. FYI: “imperfect” (but still fresh) produce makes up nearly half of all food waste.
Shut: Amazon is discontinuing its charity-donation program, which has given away $450M since 2013, in its latest effort to cut costs. Amazon has laid off thousands of workers as sales slow.
Rack: Nordstrom shares fell 6.5% after the mall staple posted weak holiday sales and took a hit from hefty markdowns. The retailer slashed its guidance as Americans cut back on material splurges.

Friday

Earnings expected from Ericsson, Ally Financial, and State Street

Authors of this Snacks own shares: of Amazon, Disney and Google

ID: 2690677

Latest Stories

Millie Giles & David Crowther

12m

Cocoa hits $11,000

Cocoa prices are breaking records on an almost daily basis — with cocoa futures closing at (another) all-time high of $11,020 per metric ton yesterday.

That’s up 158% since the start of the year, and over 4x on the typical prices seen in 2022 — as crop production continues to fall short of demand.

Major cocoa-producing nations like the Ivory Coast and Ghana, which between them grow about two-thirds of the world’s cocoa, have seen excessive tree failure due to disease, changing weather patterns, and hot, dry conditions causing devastating droughts.

As such, consumers are starting to see the effects of the largest cocoa supply deficit in over 60 years: “shrinkflation” and reduced-cocoa recipes might soon hit your favorite chocolate bars, and Hershey stock was recently downgraded. Unfortunately, the worst may still be yet to come: the International Cocoa Organization expects production to lag behind demand by 374,000 tons for the 2023-24 season.

Why the World of Chocolate Is in Crisis

Governments and companies tackle the climate crisis as damage intensifies

Jack Morse

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Extreme weather has cost the US $2.6T, and the number keeps rising

Max Knoblauch

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The cost of waste: e-junk and emerging tech add to America’s pollution prob

Nia Warfield

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The biz of electric vehicles: the EV transition hits speed bumps

Bitcoin business will lose billions in the halving

Investors and miners have spent months prepping for the crypto-shattering event lying in bitcoin’s code. It’s finally arrived.

Friday, April 19th

What’s happening

Casey Newton

Platformer

11h

Meta’s new AI paves the way for social networks where nothing is what it seems

Five ways of thinking about Llama 3, its latest large language model

Screenshot of Meta’s AI image generator, frog in a bathrobe

Matt Phillips

15h

World out of balance: It costs the US 3¢ to make 1 penny

The cost of producing the US penny rose 13% in fiscal 2023 to 3.07 cents. Yes, that means that Uncle Sam loses more than two cents for every cent it produces. (And no, you can’t make it up on volume.)

For the record, that’s the 18th-straight year the penny’s face value has been below production costs, fueling calls for abolishing the lowest value denomination coin. Canada started to phase out the penny in 2013, joining Australia, Brazil, Finland, New Zealand, Norway, and Israel, according to Smithsonian Magazine.

3.07¢

Pop Quiz!

What’s the world’s busiest airport?

Don't be a sucka

Rani Molla

17h

Netflix is going to stop sharing subscriber numbers

After posting subscriber numbers that beat expectations today, Netflix says it’s no longer going to share those numbers starting in the first quarter of 2025. That’s a big deal since subscriber numbers have long been one of the main metrics that investors have looked at.

“In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential,” its shareholders letter read. “But now we’re generating very substantial profit and free cash flow.” The company said that it will focus on revenue and operating margin as its main financial metrics, while it will look at time spent on the platform to gauge customer satisfaction.

Another way to read this? They’ve hit market saturation and just aren’t going to be growing that much anymore, and they thought they’d end on a good note. Going forward they’re focusing on how to get more money out of the customers they do have.

They’re doing so by cracking down on password sharing and charging for extra members. They’re also pushing people to ad tiers, which are more profitable than non-ad tiers.

“Scaling ads to become a more meaningful contributor to our business in ‘25 and beyond,” Netflix said.

Netflix’s ads membership grew another 65% in Q1 over the previous one, after rising 70% the quarter before, and 40% of signups in ad markets continue to be for those ad plans.

17h

Frozen Dead Guys

The audacious and expensive world of cryogenics

By one measure, stocks haven't looked this bad in decades

Earnings are important, but they aren't everything in the stock market.

Dow Jones Industrials Average Closes Day 477 Points Up

Rani Molla

19h

Meta’s not telling where it got its AI training data

Today Meta unleashed its ChatGPT competitor, Meta AI, across its apps and as a standalone. The company boasts that it is running on its latest, greatest AI model, Llama 3, which was trained on “data of the highest quality”! A dataset seven times larger than Llama2! And includes 4 times more code!

What is that training data? There the company is less loquacious.

Meta said the 15 trillion tokens on which its trained came from “publicly available sources.” Which sources? Meta told The Verge’s Alex Heath that it didn’t include Meta user data, but didn’t give much more in the way of specifics.

It did mention that it includes AI-generated data, or synthetic data: “we used Llama 2 to generate the training data for the text-quality classifiers that are powering Llama 3.” There are plenty of known issues with synthetic or AI-created data, foremost of which is that it can exacerbate existing issues with AI, because it’s liable to spit out a more concentrated version of any garbage it is ingesting.

AI companies are turning to such data because there’s not enough good, public data on the entire internet to train their increasingly greedy AI models. (Meta had reportedly floated buying a publisher like Simon & Schuster to satisfy its insatiable data needs.)

Meta, of course, isn’t the only company that’s tight-lipped about where its AI data is coming from. In a now infamous interview with WSJ’s Johanna Stern, OpenAI’s chief technology officer Mira Murati was unable to answer questions about what Sora, OpenAI’s video generating app, was trained on. YouTube? Facebook? Instagram — she said she wasn’t sure.

Meta’s battle with ChatGPT begins now

What is that training data? There the company is less loquacious.

Matt Phillips

20h

Today’s earnings: Who’s making money edition

Here are some some notable numbers out this morning, as earnings season gathers steam. Thursday’s main event will be Netflix after the close of trading. (Keep an eye on its advertising business.) But until then...

Parts distributor Genuine Parts beat, offsetting weak sales with cost control.
Credit card company Discover jumps, as delinquencies stabilize.
Builder D.R. Horton benefitted from the fact that there’s still no houses to buy.
Credit score giant Equifax was hurt by the fact that nobody wants mortgages.
KeyCorp, Comerica latest banks bummed by depositors demanding higher rates .
Insurance Marsh & McLennan did well by investing cash at high short-term rates.
Private equity giant Blackstone’s results were meh, due, in part, to lack of exits.

7.13%

The 30-year fixed rate mortgage is back above 7%, according to weekly numbers from the Mortgage Bankers Association, the highest level in four months. High borrowing costs are creating havoc for would-be buyers, as affordability lingers at the low levels not seen consistently since the late 1980s.

Rani Molla

4/18/24

Amazon’s spy ops on rivals: shell companies, printed docs, and a fake Japanese streetwear brand

Some companies check out rivals’ websites, stores and public filings to stay abreast of the competition. Amazon made its own fake shell company and brands, transacted hundreds of thousands of dollars per year undercover on competitors’ platforms, and kept its intel operation a secret for nearly a decade even from others at Amazon, according to a fascinating investigation by the Wall Street Journal.

Working as a seller called Big River, a secret group of Amazon employees gained access to rival platforms, including Walmart, FedEx, and Alibaba. They used Big River email addresses and went to seller conferences as Big River employees. They even stayed hidden within Amazon itself. These employees would take screenshots of competitors’ systems that they would then show others at Amazon in person to avoid an email paper trail.

Perhaps most strange of all, the company created a fake Japanese streetwear brand called “Not So Ape” (clearly a play on A Bathing Ape) and continues to sell products from the brand on a Shopify store, presumably as an attempt to learn the inner workings of the shopping platform. Of course, copying is old hat for Amazon.

In meetings where they’d use this clandestine information to inform Amazon’s own business practices, the group resorted to literal paper. “[T]he team avoided distributing presentations electronically to Amazon executives. Instead, they printed the presentations and numbered the documents. Executives could look at the reports and take notes, but at the end of the meeting, team members collected the papers to ensure that they had all copies."