🍿 Netflix’s big pivot

Netflix is down... in more ways than one. On Friday, the struggling streamer was briefly down for some users — putting shows like "The Umbrella Academy" and "How to Build a Sex Room" out of reach. But downtime isn't the Flix's only problem: the stock's down 70% this year as subscriptions sag and revenue growth slows.

• Skip intro: Probably what Netflix wishes it could do with quarterly earnings, which it reports tomorrow. If first-quarter results are any indication, things aren't going well.
• Sub-pocalypse: Netflix lost 200K subscribers when it was expected to add 2.5M. Blame post-lockdown #subscripturation.
• Next episode: Netflix said it expected to lose 2M subscribers in the second quarter (aka: the one it reports tomorrow). This year it’s cut 450 jobs.

Stranger things’ve happened... In 2019, Netflix CEO Reed Hastings said his streamer would never do ads, “period.” Now: Netflix is doing ads. In April, it announced it would launch a cheaper ad tier. The goal: attract and retain subs. High prices (#flation) + subscription overload (#subscripuration) have made it harder for consumers to afford multiple streamers.

• Soft landing: Last week Netflix said it was partnering with Microsoft to build out ads. Microsoft's ad biz isn't as big as that of its rivals, like Google and Comcast, but it's one of the few big techies without streaming ties.
• Hard pivot: This year Netflix has hiked prices to make up for sagging growth and support its original content spend, which ballooned to $13B+ last year (“Stranger Things” season four reportedly cost $30M per episode).

$2 croissant… keep the exchange. One euro was worth one US dollar last week (and briefly less) for the first time in decades. Investors have ditched euros as comparatively higher US interest rates strengthen the $, while Russia’s war on Ukraine darkens Europe’s growth outlook. It’s good for American tourists (think: cheaper paella and prosecco): 7X more Americans are taking Eurotrips this year. But a strong dollar makes US exports more expensive (think: pricier Pop-Tarts), which could dampen spending and investing from abroad.

Crypto regulators... mount up. After Celsius' collapse and TerraUSD's implosion, regulators are speaking up. The Fed's vice chair said it's time to establish clear rules for what's permitted in crypto, and both the European Central Bank and the Financial Stability Board (a global regulator) called for stablecoin regs. Meanwhile, the US Treasury's asking for public comment on crypto's risks as it preps a report for President Biden. And as retail investors continue to feel crypto winter's chill, regulatory pressure will likely keep heating up.

Running on E… Tesla reports on Wednesday, but we already know that its record delivery streak is over. Last quarter, Tesla deliveries fell for the first time in over two years (blame: China’s Covid lockdown). To ramp up output, Tesla’s upgrading its Berlin and Shanghai factories — but that’ll halt production at the major plants for weeks. Elon’s “super bad feeling” about the economy led to 200+ layoffs in June and (another) set of Tesla price hikes. Still, Tesla demand is hot. Its Model Y was China's best-selling SUV in June.

A shot in the arm... Johnson & Johnson drops quarterly earnings tomorrow, and investors have good vibes (the stock’s up this year, and that’s saying a lot). Analysts expect quarter-over-quarter sales growth for the 136-year-old company, which has become more associated with vaccines than Tylenol and Band-Aids. J&J had forecast up to $3.5B in vax sales this year, but walked that back as demand for shots sagged. Now health officials are pushing booster shots to combat the "worst version" of the virus, and US Covid hospitalizations are on the rise — nearing 6K a day.

• Spin: Former pandemic darling Peloton will stop making its own bikes and treads and start outsourcing all manufacturing. Peloton spent hundreds of millions to build up its hardware production capacity, but is now focusing on subscription revenue.
• NVM: Elon Musk is trying to back out of buying Twitter for $44B (a 38% premium to Twitter’s value when he sealed the deal). Musk blames bots but Twitter’s suing him to close the deal, saying he blew off meetings.
• Gulp: From gas and rent to dental care and airfare, US consumer prices spiked 9.1% last month from a year earlier. It was the fastest inflation pace since 1981, and the Fed might get even more aggro with its rate hikes.

• Lipstuck: These ugly market conditions could give Sephora and Estée Lauder a glow-up: lipstick sales often rise during downturns as shoppers splurge on tiny pleasures. Right now the “lipstick index” is rising.
• Bottom: Economists are watching for “capitulation,” the final big stock selloff that marks the end of a downturn. But it’s hard to spot in real time, and analysts say this one may last months (or years).
• Cheugy: Zuck’s era of social dominance may be over: TikTok recently became the first app not owned by Meta to hit 3.5B downloads. Since 2018, the Tok’s been downloaded more than any other app.

• Monday: Earnings expected from Bank of America, IBM, Goldman Sachs, Prologis, and JB Hunt
• Tuesday: Earnings expected from Johnson & Johnson, Novartis, Netflix, Hasbro, and Halliburton
• Wednesday: Earnings expected from Tesla, Abbott Labs, and Nasdaq
• Thursday: Jobless claims. Earnings expected from Domino's, AT&T, Quest Diagnostics, Boston Beer Co., Philip Morris International, Tractor Supply Co., Capital One Financial, Union Pacific, SAP, Equifax, AutoNation, and Dow
• Friday: Earnings expected from Verizon, NextEra Energy, and American Express

Authors of this Snacks own: shares of Netflix, Twitter, Tesla, Comcast, Microsoft, and Google

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