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Streaming King

What’s Going On Here?

Netflix announced a better-than-expected first-quarter update late on Tuesday, but stopped short of admitting Carole Baskin definitely did it.

What Does This Mean?

The streaming giant’s quarterly revenue was 28% higher than the same time last year. That’s roughly what investors were expecting, but it would’ve been higher if the strong US dollar hadn’t dragged down international earnings. The company’s success was down to the 16 million subscribers it added globally – 9 million more than it promised it would deliver. It seems that between pandemic-induced lockdowns and Blockbuster hits like Tiger King – which attracted 34 million viewers in 10 days – viewers were only too happy to switch on to switch off.

As for this quarter, the streaming giant plans to add another 7.5 million subscribers – almost double the 4.4 million investors predicted. Clearly, it’s hoping its newfound momentum will continue…

Why Should I Care?

For markets: Walt’s empire strikes back.
Netflix’s stock initially rose 5% after the update, possibly because of a growth estimate that – given the ongoing measures – may yet prove conservative. Goldman Sachs, for one, predicted that 8 million new subscribers this quarter seemed likely (though the bank hadn’t counted on just how successful last quarter would be). Then again, Netflix might now have harvested all the subscribers who were ripe for the picking, and could have a harder time winning over new customers – especially since Disney+ already has an estimated 50 million subscribers to Netflix’s 183 million.

The bigger picture: They’ve still got it.
US tech stocks have generally had a good year: Netflix’s stock had risen by 35% before Tuesday, Amazon’s by 30%, and Microsoft’s by 11%. That makes sense, seeing as analysts have identified those as winners (relatively speaking) from coronavirus (tweet this). But even shares of the ones that might lose out haven’t done too badly: Alphabet’s stock has “only” fallen by 5%, and Facebook’s by 12% – the same amount as the overall American stock market.

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What’s Going On Here?

Coca-Cola and Danone reported first-quarter updates on Tuesday that suggested coronavirus-intoxicated consumer staples customers are kicking their usual shopping habits.

What Does This Mean?

Coca-Cola told investors back in February that coronavirus would knock maybe one or two cents off its annual earnings per share. But by March, it had withdrawn its profit forecast altogether. That was probably a wise move: half of Coke’s revenue comes from the “away from home” channels – restaurants, bars, and so on – that have been nixed by global stay-at-home orders, slashing the amount of product it’s sold so far this month by 25%.

That’s not dissimilar to Danone: the French manufacturer of Actimel and Evian grew revenue last quarter thanks to consumers’ stockpiling of essentials, but a subsequent drop-off in shopping patterns led the firm to abandon its earnings forecast too.

Why Should I Care?

The bigger picture: Swings and roundabouts.
Procter & Gamble’s investors saw how swings in the value of currencies can impact earnings in its update on Friday, and Coca-Cola’s experienced it for themselves on Tuesday. The drinks company said a strong US dollar – which decreases the value of money earned abroad – lowered last quarter’s revenue by 2% and would lower this quarter’s by up to 6% more than it would’ve if currencies were stable. Danone, meanwhile, got off lightly: currency swings only trimmed its revenue by 0.9% last quarter, and this one probably won’t be much different.

For markets: Boring is good.
Coke and Danone’s share prices didn’t move much after either update, probably because there were no big surprises for investors. A company’s better off admitting it doesn’t know what’ll happen next than overpromising and underdelivering, which tends to cause its stock to fall dramatically. In fact, investors simply got what they should’ve been expecting from Danone and Coke’s “defensive” shares: they’ll likely have bought them up knowing that, even in the midst of a recession, people need to keep themselves fed and watered.

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