US stock markets bounced back yesterday and the Nasdaq gained 2.5%. Netflix stock meanwhile continued to fall and is now nearing its 52-week lows. The previous week was quite brutal for investors and markets had their worst week since 2020. While the S&P 500 lost 5.8%, the Dow Jones and Nasdaq each shed 4.8%.
There was a bounce-back in all risk assets and cryptocurrencies also recovered. However, the total crypto market cap still remains below $1 trillion. The market peaked above $3 trillion last year. We also saw a spike in some of the beaten-down growth names. Loss-making growth names, which were once market favorites, have crashed badly amid the Federal Reserve’s rate hikes.
At its June meeting, the Fed raised rates by 75 basis points and left the door open for another hike of the same quantum at its next meeting. Since 1994, the US Central Bank had not raised rates by 75 basis points in one shot. However, the multi-decade high inflation, which hit a new pandemic high of 8.6% in May, forced the Fed to act fast and front load its rate hikes.
So far, the Fed has raised rates by 150 basis points this year and the dot plot calls for another 175 basis point rate hikes in the year.
Netflix Is in Talks with Alphabet for Ads
While tech stocks have crashed in 2022 and even the once formidable FAANG pack has looked weak. Netflix (NYSE: NFLX) is the worst-performing S&P 500 stock of the year. The company lost 200,000 subscribers in the first quarter of 2022, its first subscriber loss in a decade. It also warned that it could lose another half a million subscribers in the second quarter.
In order to revive its sagging growth, Netflix said that it would crack down on password sharing, adding that it estimates 100 million households globally watch its content on a shared password. The company is also reportedly looking to launch another season of its popular show Squid Games.
Also, while previously Netflix was against ad-supported versions, it sounded amenable to one during the Q1 2022 earnings call. Some of the streaming companies already offer an ad-supported version which helps lower the starting price for price-sensitive consumers.
Reportedly, Netflix executives have met representatives from Comcast, NBCUniversal, Google, and Roku for potential marketing partnerships. Previously, Netflix was also rumored to acquire Roku.
Alphabet Stock Rallies: Analysts See More Upside
Alphabet (NYSE: GOOG) stock gained 3.8% yesterday amid a broader market rally and reports of a potential partnership with Netflix. Notably, Alphabet was the best performing FAANG stock of 2021, and even this year, it is outperforming FAANG peers. Last year, a rise in ad revenues lifted Alphabet’s earnings. However, there has been some slowdown in global ad spending and Facebook-parent Meta Platforms also talked about the same in its first-quarter earnings call.
Alphabet also missed its first-quarter sales estimates due to lower YouTube revenues. However, the company’s cloud operations have continued to impress markets. Google’s strong position in the global ad market makes most analysts bullish on Alphabet stock and most brokerages covering it have a buy or equivalent rating.
Coming back to Netflix, brokerages have been turning bearish on the company and Needham believes that even the ad-supported version would not help the company much. The streaming war has been heating up and Disney has added millions of subscribers since it launched Disney+ in the second half of 2019. In the hindsight, the launch was timed well as streaming companies saw tremendous growth in 2020 because people were struck at homes due to the COVID-19 restrictions.
While Disney has continued to add subscribers, Netflix admitted to having peaked in several key markets. The company is also struggling in emerging markets like India despite lowering the entry price.
Meanwhile, US stock markets are looking weak today and futures point to a fall in markets today. Asian stocks also fell today, and so are their counterparts in Europe.
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