TheQuartering [6/13/2022]
Dismal monthly inflation data hit stocks Friday with tech, internet and media taking a beating and Goldman Sachs slapping rare ‘sell’ rating on Netflix and a few others.
The bank downgraded the streamer from ‘neutral’ on economic and competitive jitters and cut its price target to $186 from $265 – the lowest on the Street.
“We have concerns around the impact of a consumer recession as well as heightened levels of competition on demand trends, both in the form of gross adds and churn, margin expansion and levels of content spend,” said Goldman analyst Eric Sheridan in a note to clients.
Netflix shares closed down 5.1% at $182.94. That’s a long way down from its 52-week high of over $700. Year to date, it’s lost almost 70% after missing on its subscriber numbers and outlook last quarter.
Analysts and economists worry about slower consumer spending as inflation tightens its grip and prices surge from gas to food to housing. The U.S. Bureau of Labor Statistics reported this morning that annual inflation in May hit a new 40-year high at 8.6%. That’s how much prices have risen year over year. The Federal Reserve has been hiking interest rates to try to cool of the economy and dampen prices but that has its own pitfalls, including the risk of recession.
Netflix is now a “show me story,” Goldman said, citing rivals Disney and Amazon whose stocks are also being pummeled today amid the downdraft (off, respectively, 3.7%% and 5.6%).
Apple fell 3.8%.
The Nasdaq lost 3.52% at the close. The DJIA dropped 2.73% — off 880 points. The S&P 500 was down 2.91%.
Wall Streeters are fretting that there are too many streaming services in an environment where consumers have to cut back to account for sky high fuel, food and rent prices. President Biden today attacked oil companies led by Exxon Mobil for profiteering.
Other losers include Spotify, down 8.7% and Snap, off 5.8%. Meta is down 4.6%.
Paramount fell 3.6%. Warner Bros Discovery dropped 4.9%. While Netflix stock is still above the low it sank to in April after a bleak earnings report and a forecast for up to 2 million subscriber losses in the current quarter, it is still at the lowest point since 2018. Overall bearish sentiment on technology has compounded the executional issues for Netflix, with the sector’s stocks hitting their worst stretch in 20 years. For streaming providers, inflation is the prevailing concern among many analysts. Netflix has recently become the priciest general entertainment service on the market, and Co-CEO Reed Hastings has signaled that the company would move quickly to add a lower-priced, ad-supported tier, matching Disney+, Hulu, Peacock, HBO Max and other rivals. Netflix execs have cited macroeconomic pressures, primarily tangles in the global supply chain, as a drag on the company’s financials. But they say they still have leverage to increase prices, given their industry-leading 222 million subscribers and enviably low churn. In recent months, the company has acknowledged the need to boost the caliber of its original programming, which now accounts for more than half of the titles on the platform. It is also pushing into gaming and interactive storytelling, with the goal of those additional offerings luring new subscribers and helping to persuade existing ones not to cancel.