Netflix Stock Crashes As Nasdaq Has Worst Week Since October 2020

The stock market fell on Friday as the sell-off in tech stocks intensified after Netflix posted lackluster earnings—with the Nasdaq Composite falling deeper into correction territory and posting its worst week since 2020.

The Dow Jones Industrial Average fell 1.3%, around 450 points, while the S&P 500 lost 1.9% and the tech-heavy Nasdaq Composite 2.7%.

The Nasdaq fell further into correction territory—over 10% from its record highs last November—and has plunged over 7% this week alone, its worst since October 2020.

Shares of streaming giant Netflix dragged down the index, plunging 22% on Friday after the company’s fourth-quarter earnings report showed a slowdown in subscriber growth.

Streaming rival Disney fell nearly 7%, while other big tech names like Tesla and Amazon lost over 5% and 6%, respectively.

Tech stocks have been getting hammered recently, largely thanks to a continuing surge in government bond yields this week, with the U.S. 10-year Treasury hitting a high of 1.9% on Wednesday.

Investors have remained laser focused on the Federal Reserve and how it will deal with surging inflation, with the central bank tightening its monetary policy and preparing to raise interest rates as soon as March.

Shares of Peloton rebounded 10% on Friday, a day after the stock plunged 24% on reports that the company would temporarily halt production of its at-home fitness products amid waning demand—but CEO John Foley later said the reports are false.

“Wall Street has gone from debating how aggressive one should rotate out of tech into cyclicals, to sell it all,” says Edward Moya, senior market analyst for Oanda. “U.S. stocks have been on a rollercoaster ride after abysmal results from Netflix.” With inflationary pressures “not going away anytime soon,” the Fed could potentially become “overly aggressive in tightening monetary policy,” he warns.

Stocks are off to a dismal start to 2022 so far. The Dow is down over 6% in January, the S&P 500 has dropped over 8% and the tech-heavy Nasdaq more than 12%. Markets have struggled to gain footing amid rising investor concerns around high inflation and tighter monetary policy from the Federal Reserve.

“Absent some kind of systemic shock, as long as earnings stay solid and interest rates remain in the range we have seen in the five years before the pandemic, stock prices are likely to have a solid foundation over time,” says Brad McMillan, chief investment officer for Commonwealth Financial Network. “That solid foundation also suggests that when those worries subside, valuations and stock prices can bounce back reasonably quickly, as we saw in 2020, 2018, and indeed after the financial crisis itself.”

Next week’s tech earnings, with companies like Apple, Microsoft and Tesla all reporting results.

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Source: Netflix Stock Crashes As Nasdaq Has Worst Week Since October 2020

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Despite clear signs that growth was slowing, Netflix executives spent most of last year arguing that the deceleration in subscriber growth was temporary. Management finally acknowledged the obvious in conjunction with the company’s Q4 earnings release.

Netflix reported 8.3 million paid net subscriber additions for the fourth quarter — slightly below its Q4 2020 performance and its forecast — and it expects to add just 2.5 million subscribers in the first quarter (down from 4 million a year ago). CFO Spence Neumann said that subscriber retention has been healthy but the pace of new member acquisitions hasn’t recovered to pre-pandemic levels.

Netflix stock plummets

Investors punished Netflix stock viciously for the subscriber miss. Barely more than two months ago, the shares hit an all-time high of $700.99. The stock had already retreated to just above $500 before Netflix’s earnings report, largely because of a broader sell-off in high-flying tech stocks. Netflix stock dropped another 22% after the earnings report, pushing the shares below $400 for the first time in almost two years.

The abrupt pullback is hardly surprising in light of Netflix’s recent results and forecast. For many years, Netflix has been valued as a growth stock. Now, investors have to reckon with the fact that Netflix may be close to saturating many of its markets. If the company’s Q1 guidance is any indication, subscriber growth could moderate again to roughly 6%-8% this year.

To be fair, price increases should keep Netflix’s revenue growing at a double-digit rate in 2022. (Netflix is raising the prices of most plans by 10% to 11% in the U.S. and Canada this quarter.) But that was a small consolation to investors, as Netflix risks further handicapping its subscriber growth if it raises prices too much.

Could Netflix be a good value stock?

While Netflix is falling out of favor with growth-focused investors, it is starting to gain merit as a value stock. Despite its somewhat disappointing subscriber gain, Netflix posted earnings per share (EPS) of $1.33 last quarter, easily beating its guidance and the analyst consensus of $0.82. This brought its full-year EPS to $11.24.

Netflix expects its operating margin to retreat somewhat in 2022 — largely due to exchange rate pressures — following several years of extremely strong margin expansion. Still, margin expansion will likely resume in 2023. Even with slower subscriber growth, the operating leverage inherent in Netflix’s business model should enable the company to grow revenue faster than expenses for the foreseeable future.

Netflix stock’s recent plunge has left it trading for just 35 times the company’s 2021 earnings. While that still represents a premium to the market, it’s a far cry from a year ago, when the stock traded for over 80 times earnings.

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Will Inflation Last Into 2023? Global CEOs Say Yes, While Key Price Indicator Hits Record Level

Inflation is worrying chief executives globally, according to a survey released Thursday by the Conference Board, a business research group, and data shared by the U.S. Bureau of Labor Statistics on Thursday backs their concerns.

Key Facts

Some 55% of CEOs expect higher prices to last until mid-2023 or beyond next year, according to the survey.

Rising inflation is the second-most common external business worry for CEOs, trailing only disruptions caused by Covid-19, after being just the 22nd most cited concern in Conference Board’s 2021 poll.

Supply chain bottlenecks were the most common explanation for the rising prices among CEOs, and 82% of respondents said their businesses were impacted by rising input costs, such as raw materials or wages.

The poll was conducted between October and November of last year among 917 CEOs in the U.S., Asia, Europe and South America.

Big Number9.7%. That’s how much the Producer Price Index, a measure tracking the prices manufacturers pay for goods, rose in 2021, the highest year-over-year increase since the Bureau of Labor Statistics began calculating the statistic in 2010. The PPI is considered a forward-looking indicator for consumer prices, meaning that the highest inflation U.S. consumers have faced in four decades could climb even further.

Tangent

The Conference Board survey found that the U.S. has faced unique labor issues during the pandemic. Labor shortages were considered the top external threat to business by U.S. respondents as a record number of Americans quit their jobs, but were not higher than third on the list of CEOs from other countries.

A primarily remote workforce is also a mostly American phenomenon: More than half of American CEOs said that they expect 40% or more of their workforce to work remotely after the pandemic, compared with just 31% of CEOs from Europe and 17% of CEOs from Japan.

Further Reading

Inflation Surge Is on Many Executives’ List of 2022 Worries (Wall Street Journal)

Inflation Spiked Another 7% In December—Hitting New 39-Year High As Fed’s Price Concerns Rattle Markets (Forbes)

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Source: Will Inflation Last Into 2023? Global CEOs Say Yes, While Key Price Indicator Hits Record Level

The Critics:

The 48 professional forecasters surveyed by the National Association for Business Economics were asked when the so-called core inflation rate (which leaves out food and energy prices) might return to the 2% range that the Federal Reserve targets (and that was commonplace before the pandemic).1 Right now the rate—as measured by the year-over-year change in the Bureau of Labor Statistics’ Personal Consumption Expenditures price index—is 4.1%, the highest since 1991.23

Most respondents said it would take at least until the second half of 2023, including more than a third who forecast 2024 or later. Since the survey was conducted in mid-November—before the omicron variant of COVID-19 was identified—it doesn’t account for how that news might impact their outlook.

The Federal Reserve has determined that roughly 2% is a healthy middle ground for inflation, one that enables a strong economy without hurting people’s buying power too much. The longer inflation stays hotter than that, the more likely the Fed is to do things to put a lid on it,4 like raise the benchmark federal funds rate. That rate influences all kinds of other interest rates, impacting the cost of borrowing on credit cards, mortgages, and other loans.5

Inflation has been double that 2% sweet spot because of the pandemic’s disruptions to supplies and the labor market. It’s hard for businesses to manufacture and transport enough goods to satisfy consumers’ unusually voracious demand for stuff.

Personal income grew 0.5% in October compared with the month before, as wage increases more than made up for declines in unemployment benefits from the government following the expiration of pandemic-era relief programs, the Bureau of Economic Analysis said Wednesday in its monthly report on income and spending.1

People were inclined to spend the extra pocket money, as inflation-adjusted spending accelerated for a third month, rising 0.7%. They also saved less of their disposable income—7.3%, compared with 8.2% in September—staying within pre-pandemic norms and a far cry from April 2020, when the saving rate hit 33.8%.23

All that extra money didn’t go as far as it might have, though. The report also showed core inflation (not including food and energy) rising to 4.1% from a year ago, compared with 3.7% in September, hitting its highest level since 1991. That was in line with what forecasters at Moody’s Analytics had expected, possibly signaling that elevated inflation isn’t going away anytime soon.

“Inflation is no doubt a headwind, but in October at least, it was not enough to stop consumers from spending,” economists at Wells Fargo Securities said in a commentary.

Asian ُStocks Firm After Wall Street Rout, But Omicron Risks Loom

Asian shares advanced on Tuesday, shrugging off a bruising Wall Street session, as Chinese markets cheered Beijing’s move to help troubled property firms, although surging cases of the Omicron coronavirus variant remain a worry for investors.

U.S. stock indexes retreated more than 1% as positive COVID-19 case counts rose and President Joe Biden’s social spending and climate bill hit a significant setback. read more

The negative mood brightened somewhat in Asian hours with European and U.S. stock futures up and some assets battered in Monday’s selling finding buyers, although volumes were thin heading into year-end holidays.

European markets appeared set for a higher open with the pan-region Euro Stoxx 50 futures up 1.1%. German DAX futures rose 0.93% while London’s FTSE futures added 1.02%. U.S. stock futures, the S&P 500 e-minis , were up 0.72%.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) climbed 0.81% after declining on Monday to the lowest in a year. Japan’s Nikkei (.N225) rose 2% after two sessions of decline with chip-related Tokyo Electron (8035.T) and Advantest leading the pack, as investors bought into Monday’s heavy selloff. Australian stocks (.AXJO) were up 0.9%.

While the widespread selling in global shares appeared to have eased, investors are still concerned about Omicron risks. “COVID remains a threat to the global economy. Initial evidence suggests the Omicron variant is more transmissible but results in less severe illness compared to previous variants,” economists at CBA wrote in a note.

Elsewhere in Asia, China and Hong Kong equities rose on Tuesday, with real estate stocks extending their rebound. China’s blue-chip CSI300 index (.CSI300) was 0.45% higher while the Shanghai Composite Index (.SSEC) rose 0.67%. Hong Kong’s Hang Seng index (.HIS) added 0.58%.

The moves higher come as Beijing reportedly urged large private and state-owned property companies to acquire real estate projects from troubled developers to reduce risks that mounting debt piles will destabilise the economy. read more

“Chinese regulators’ encouragement for such acquisitions would help troubled developers ease their debt pressure and improve the current operating conditions of the whole real estate industry,” said Zhang Zihua, chief investment officer at Beijing Yunyi Asset Management.

“Thanks to the latest signs of government support, sentiment in the sector has been boosted. That’s why we are seeing real estate companies and other relevant sectors rising in mainland China and Hong Kong today.”

However, China’s video and live-streaming platforms listed in Hong Kong such as Bilibili (9626.HK) and Kuaishou Technology (1024.HK) slumped, after Beijing fined China’s “queen of livestreaming” Viya for tax evasion, stoking fears of fresh crackdowns. read more

On Monday, the Dow Jones Industrial Average (.DJI) fell 1.23%, the S&P 500 <.SPX lost> 1.14% and the Nasdaq Composite (.IXIC) dropped 1.24%.

Europe’s main indexes also sold off after British Prime Minister Boris Johnson said he would tighten coronavirus curbs if needed, after the Netherlands began a fourth lockdown and others in the region considered Christmas restrictions. read more

The dollar index , which tracks the greenback against a basket of currencies of other major trading partners, was down at 96.493. The yield on benchmark 10-year Treasury notes rose to 1.4259% compared with its U.S. close of 1.419% on Monday. The two-year yield , which rises with traders’ expectations of higher Fed fund rates, touched 0.636% compared with a U.S. close of 0.63%.Oil prices started to recover from concerns the spread of the Omicron variant would crimp demand for fuel and signs of improving supply. U.S. crude ticked up 1.31% to $69.51 a barrel. Brent crude rose to $72.25 per barrel. Gold was slightly higher. Spot gold was traded at $1,792.01 per ounce.

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Source: Asian stocks firm after Wall Street rout, but Omicron risks loom | Reuters

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Merry Christmas, Wall Street! But There’s No New Year’s Day Holiday For The Stock Market This Year—Here’s Why

1Blame it on an obscure rule. For the first time in a decade, there will be no stock market closure in observance of New Year’s Day. U.S. markets will be closed on Christmas eve on Friday because the holiday falls on a Saturday but equity markets will be open on Dec. 31, or New Year’s Eve, and operators of the New York Stock Exchange aren’t designating Jan. 3, the first Monday in 2022 as New Year’s Eve observed.

The last time this sort of calendar event transpired was New Year’s Eve Dec. 31, 2010. How rare is this calendar event. Assuming that it was applied since 1928, it would have occurred 13 times from 1928.

Dow Jones Market Data

The lack of a New Year’s Day respite for stock trades is the result of NYSE Rule 7.2, which stipulates that the exchange will be closed either Friday or the following Monday if the holiday falls on a weekend, unless “unusual business conditions exist, such as the ending of a monthly or yearly accounting period.”

In this case, the last day of December is a trifecta of accounting dates, including month-end, quarter and year-end dates and comes after markets have experienced a bout of volatility in recent days.

On Monday, the Dow Jones Industrial Average DJIA, +0.64% sank 433 points, while the S&P 500 SPX, +0.82% and the Nasdaq Composite COMP, +0.85% indexes both registered sharp declines and their third straight drop on the back of omicron-fueled uneasiness and concerns about global economic expansion in the coming year.

By Tuesday afternoon, however, markets had made up for those losses and then some and the 10-year Treasury note yield TMUBMUSD10Y, 1.458%, was hanging near 1.50% after putting in a 3 p.m. Eastern Time finish at 1.418%, according to Dow Jones Market Data.

It is worth noting though that, the U.S. Securities Industry and Financial Markets Association, a trade group, recommends a 2 p.m. ET close for trading in Treasurys on Dec. 31. The holiday schedule for markets isn’t likely to alter the mood on Wall Street, however.

“I don’t see it mattering in a meaningful way,” Baird market strategist Michael Antonelli, told MarketWatch. “The final few sessions of the year have traditionally been very quiet, and the fact that we don’t have a specific holiday for New Year’s likely won’t change that at all,” he said.genesis3-2-1-1-1-1-1-2-1-1-1-1-1-1-2-1-1-1-1-1-2-1-1-1-1-1-1-1-2-1-1-1-1-1-1-1-1-1-1-1-1-1

For Christmas, the bond market will close early on Dec. 23 and remain closed on Friday, Dec. 24, Christmas Eve. Meanwhile, the New York Stock Exchange and Nasdaq will observe regular hours on Thursday Dec 23, closing at 4 p.m. Eastern Time and remain closed on Christmas Eve, Dec 24.

Our call of the day says investors have much to get excited about in 2022. Put growth stocks at the top of that list.

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By: Mark DeCambre

Mark DeCambre is MarketWatch’s markets editor. He is based in New York. Follow him on Twitter @mdecambre.

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Reddit, TPG And Gopuff Join The IPO Pipeline

Reddit revealed on Wednesday night that it has filed for an IPO, news that comes a few months after Reuters reported the company was planning a Wall Street debut at a potential $15 billion valuation.

The filing will remain confidential for now, and details on the planned listing are scarce. But we don’t need the details to know that this will be a closely watched and long-awaited debut for a company that’s been a fixture in venture capital circles since the second Bush administration.

After 16 years and more than $1.3 billion in funding as a private company, Reddit will finally join fellow social media giants like Twitter, Snap and Pinterest as a public one. And after a year in which the /r/WallStreetBets subreddit became a phenomenon and helped spur a frenzy of retail trading, Reddit will soon join that frenzy itself.

There won’t be many notable IPOs between now and the end of the year. But the pipeline for 2022 is looking packed. And it filled up even more this week, as Reddit wasn’t the only major name to make moves toward the public market.

Famed private equity firm TPG also filed for an IPO, this time with a prospectus that’s publicly available. The document shows how the firm has continued to build on an already impressive base in recent years, growing its assets under management from $60 billion in 2016 to $109 billion at the end of this September.

It now has five distinct investment platforms with at least $10 billion in AUM, including $52.6 billion in its flagship TPG Capital buyout business, an array of offerings that demonstrates how the private equity industry has matured since TPG got its start in 1992.

Speculation has swirled for years that TPG might make the move from private firm to public entity, following in the footsteps of rivals like Blackstone (which went public in 2007), KKR (2010) and The Carlyle Group (2012). The recent performance of those firms is surely one reason TPG decided to take the leap. Private equity stocks have soared this year, with a huge volume of deals driving huge profits. Carlyle stock is up 67% since the beginning of January, while KKR is up 81%.

It’s a trend that’s already caused a few different private equity investors to go public on the other side of the Atlantic. The U.K.’s Bridgepoint and France’s Antin Infrastructure Partners both conducted IPOs earlier this year. Goldman Sachs, meanwhile, conducted a listing in London for its Petershill Partners unit, which holds minority GP stakes in more than a dozen other private equity firms.TPG appears to be next in line.

This one might be farther in the distance, but delivery startup Gopuff has begun planning an IPO of its own that could occur in the second half of 2022, according to Bloomberg. To call the company’s recent growth explosive would be to undersell it: Gopuff was valued at $190 million in 2017, $1 billion in 2018, $2.2 billion in 2019, $3.9 billion in 2020 and $15 billion with a new round of funding this July, per PitchBook.

And that number could continue to shoot up. Axios reported this week that Gopuff issued a $1.5 billion convertible note led by Guggenheim Partners that could value the company at as much as $40 billion.

Based in Philadelphia, Gopuff is a different kind of delivery company than the likes of DoorDash and Instacart, relying on a network of hundreds of its own small fulfillment centers to house goods rather than buying from other restaurants and grocery stores. But Gopuff has benefited from changing consumer tastes amid the pandemic in the same ways that DoorDash and Instacart have—which goes a long way toward explaining its new status as one of America’s most valuable startups.

The broader IPO market has cooled down in recent weeks from its prior incendiary state, with fewer listings going off and fewer enormous first-week gains. But dealmakers across the financial industry expect things to heat back up in 2022. And the planned listings of Reddit, TPG and Gopuff will only add fuel to the fire.

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Source: Reddit, TPG And Gopuff Join The IPO Pipeline

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