Another Bubble Breaks, Customers Flee, Stock Traders Panic

Michael Hedges April 25, 2022 Follow on Twitter

Business is rarely a linear function. There are bumps along the way. Customer-facing enterprises, unlike cruise missile makers, must manage an endless stream of unfolding circumstances. Pleasing consumers is, normally, first. After all, they pay for those products and services. Their decisions, usually, are quite rational. Employees also figure into the decision making as they, too, have direct impact on the business. Over the course of the last several decades, certain others have demanded consideration; board members, investors, analysts, stock traders, hedge fund managers and the reporters they feed. Their interests are, as we say, a separate reality.

Last week streaming video on demand (SVoD) company Netflix released first quarter 2022 paid subscriber data. Previously, executives had warned of softer subscriber and revenue results. And those figures were, indeed, softer. Paid subscriptions worldwide dropped to 221.64 million from 221.84 million in the previous quarter, a loss of 200,000. North America subscriptions fell by 640,000, Europe, Middle East, Africa by 300,000, Latin America by 350,000 while Asia Pacific gained 1.09 million. “A rare turn of events,” observed ScreenDaily (April 19).

“Covid clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our slowing growth in 2021 was due to the Covid pull forward,” said the Netflix statement. “Now, we believe there are four main inter-related factors at work.” Competition is certainly number one: “Over the last three years, as traditional entertainment companies realized streaming is the future, many new streaming services have also launched.” Across the globe there are more than 200 SVoD platforms available. (See more about streaming media here)

That was sufficient to set-off Wall Street stock traders and hedge fund managers. Netflix shares traded 36% lower immediately and did not recover through the trading week, erasing US$50 billion in book value. Traders ditched shares in other streaming video companies. Warner Bros Discovery shares, very exposed by its streaming businesses, fell 16%. Walt Disney Company shares dropped 9% from April 19th but it’s in a “culture war” with the far-right Florida governor. Amazon slid only about 5%; far more of its revenue coming from places other than Amazon Prime Video. Comcast, owner of NBCUniversal, also fell about 5%. Paramount Group dropped about 2%.

Most people understand that stock market prices are indicative only of avarice and greed. Stock traders are, correctly, portrayed as holding a RedBull can in one hand and panic button in the other while glued to multiple bright and flashing screens. Hedge fund managers are even more extreme; happily scanning the terrain for potential explosions. Reinforcing the post-Covid theme, shares in Dutch company Just Eat Takeaway fell a bit more than 10%. (See more about Media and the Virus here)

Consumer behavior is always worth watching. A survey of UK households by Kantar, released April 19, showed streaming service cancellations in the first quarter exceeding new subscriptions slightly but noticeably. “British households are now proactively looking for ways to save, and the SVoD market is already seeing the effects of this,” said Global Insight Director Dominic Sunnebo in a statement. Netflix subscription prices have steadily risen in some localities and moves to forbid password sharing, common with all paywall users, could impact consumer choice and brand loyalty.

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