The Streaming Wars

Netflix has become about as essential to everyday life as water, oxygen, and nicotine, emerging as a clear victor amongst competitors. [The Daily Peel... ]() December 15, 2023 | Peel #607 In this issue of the Peel: - As of their latest data, inflation in the ECB has fallen below 3%, clocking in at 2.9% in October and an estimated 2.4% in November. - Rivian and Moderna had a ripe day, while Adobe and Northrop Grumman suffered share price declines. - Netflix has become about as essential to everyday life as water, oxygen, and nicotine, emerging as a clear victor amongst competitors. Market Snapshot Happy Friday, apes. What a week that was, huh? We only hope your portfolio has had as much fun as you did amid all these economic reports and droning, monotone speeches by our economic overlords. It’s times like this that remind us why we can’t ever wait to receive that next “pls fix, thx” from your boss. But there wasn’t a whole lot to fix with equity markets yesterday. Stocks opened hella high on the day, only to trend lower for much of the intraday session while still finishing broadly higher. Small caps carried the boats this time, with the Russell 2k gaining 2.78% while the Nasdaq’s S&P brought up the rear at 0.19%. And given that mundane-*ss day the Nasdaq had, it finally gave our apes over at WSO Alpha the chance to outperform. The portfolio managed to gain 0.54%, and with a day that solid, I’m starting to understand why there were nonstop monkey calls going on over there all day. Treasury yields also largely kept the vibes cool for the day, too. They broadly continued their declines from yesterday or didn’t really move at all when we got shorter down the maturity spectrum. The 2-year settled right around 4.4% while the 10-year stayed chilling right around 3.9%. Let’s get into it. 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Banana Bits - Intel thinks it’s finally ready to compete with the big boys as the company released its [very own AI chip]() to compete with Nvidia and AMD. - We can’t figure out whether or not our Representatives should stop making themselves rich by robbing us blindly through insider trading, but they have no problem throwing [nearly $900bn]( at the military-industrial complex. - Retail sales were looking [strong in November](=), a good sign for the economy and your gifts under the tree. Macro Monkey Say Follow the Leader It turns out schoolyard games from the 90s and early 2000s also serve as instruction manuals for global central banks in their monetary policy decisions. At least, that seemed to be the case yesterday as others got right in line to Follow the Leader. Barely a few hours after Fed Chair JPow and the FOMC gang gave markets their Christmas present a little early this year, fellow central banks like the Bank of England (BOE) and European Central Bank (ECB) got in on the fun, too. For once, we can say this with all seriousness: it’s the moment we’ve been waiting for. Since about mid-2021, economies around the globe have been slapped in the face with more problems than your math final exam. High inflation has been a near-universal issue along with low GDP growth, but the U.S. managed to avoid the latter largely thanks to a strong labor market… and an addiction to spending money. Did I say spending money? Sorry, meant donating to the economy. But as of yesterday, global central banks like the ECB and the BOE, often described as the 2nd and 3rd most influential central banks after the Fed, are getting on board. "... economies around the globe have been slapped ... with more problems than your math final exam." The ECB, headed by Christine Lagarde, runs monetary policy across countries in the European Union, governing a total of 19 countries that use the euro known collectively as the “eurozone.” As of their latest data, inflation in the ECB has fallen below 3%, clocking in at 2.9% in October and an estimated 2.4% in November. Rates in the eurozone, which involves 3 key ECB rates that are way too convoluted and European for us to get into today, are set at 4.5%, 4.75%, and 4.0%, respectively. That might seem ridiculous compared to those inflation rates, but it’s good to know that headline inflation clocked in at 4.3% in September and averaged ~10.6% in 2022. [image] [Source]( "The U.K. experienced similar, terrifyingly high inflation, almost going as far as 12% ..." As you can see in the above chart mapping the ECB’s inflation rate over time, it seems like they have good reason to be a bit nervous. But, this year, headline inflation in the region is expected to settle ~5.4%, and 2024 is estimated to elevate prices by 2.7% on average. The U.K. experienced similar, terrifyingly high inflation, almost going as far as 12% in some months. But, the country’s most recent reading of 4.7% suggests they’re moving in the right direction too, just at a slower rate, which we can’t be surprised by when talking about the U.K. Yesterday, the U.K. had the chance to move interest rates as well, but fortunately, they put down the pint for once and kept rates steady, too. Big W for equity investors over there… if there are any of them left. However, the big difference between these sister central banks and the U.S. Fed is that the Fed didn’t have the issue of slow economic growth on its hands. The eurozone is expected to see GDP growth of 0.6% in aggregate, according to yesterday’s estimates, while the U.K. economy is expected to grow even slower (if that’s possible) at 0.5%, according to IMF projections. So, England and the eurozone countries, on average, saw higher inflation and lower economic growth—actually experiencing that “stagflation” effect we across the pond have been so afraid of. But, seeing the world’s three most influential central banks move together (or, in this case, not move at all) certainly signals that this whole inflation is starting to look a lot like cable TV—it’s still around for now, but we know it won’t be for long. What's Ripe Rivian (RIVN) $22.43 (↑ 13.97% ↑) - I think we can all remember our middle school gym teacher yelling at us to “Go big or go home!” during Capture The Flag like it was the damn Olympic finals. Apparently, Rivian took that to heart. - And that’s because this company isn’t satisfied selling just one or two cars, no—they need deals worth thousands of them. They already got one from Amazon, but they can add AT&T to the list after yesterday. - The mini-Tesla didn’t release exact details, but they inked a deal with AT&T yesterday where the cell and internet provider will start using Rivian vans—much like those used by Amazon—for its fleet of customer service vehicles. - Not only is the dollar value of this deal probably huge, but the key is that Rivian and Amazon’s deal was, at first, exclusive to Amazon. Despite being an early investor in Rivian, Amazon didn’t wanna share their new toys with anyone else, but now, it’s clear that philosophy has changed its tune. Moderna (MRNA) $85.87 (↑ 9.25% ↑) - When it comes to saving the world, Moderna’s already been there and done that. Like Tom Brady after his 6th Super Bowl ring, however, they apparently can’t help but think, “Ehh, let’s do it one more time.” - But this time, Moderna is going up against a much more serious challenger than old C-19: cancer. These big dreamers at the Cambridge, MA-based biotech are working to develop a vaccine meant to reduce the risk of death associated with the world’s most horrific disease. - I mean, f*ck cancer, right? That’s something we can all get behind unless you’re the Unabomber or some sh*t, so even if it’s a long shot, we love to see the effort. Wall Street did, too, as early data shows that, when combined with Merck’s anti-cancer drug Keytruda, the treatment reduces the risk of death and relapse in skin cancer patients after 3 years. - This, apes, is when the American medical system works. It might be grossly expensive, but the U.S. medical complex cures the sh*t out of diseases like nobody’s business. What's Rotten Adobe (ADBE) $584.64 (↓ 6.35% ↓) - While the rest of the market was poppin’ bottles and having a blast thanks to JPow, Adobe over here was the vibe killer of the day. They can thank their earnings report for that. - The software giant actually didn’t have too bad of a quarter… at all. They reported $4.27/sh on $5.05bn vs expectations for $4.14/sh on $5.03bn, a solid beat on both ends. But, much like someone who just turned 30, they know their future is bound to get uglier. - Analysts were looking for 2024 full-year guidance of ~$21.7bn in sales, with $18/sh raked in off of that. Adobe, on the other hand, is gearing up for just barely scratching $18/sh, giving an EPS range of $17.60/sh-$18/sh while sales will only go as high as $21.5bn. Northrop Grumman (NOC) $463.66 (↓ 4.40% ↓) - In 2023, you’d be hard-pressed to find any person or investment analyst who’s not hyper-bullish on war. Well, we got one… - Hey, we did say “hard pressed,” not “impossible.” Analysts at Wolfe Research downgraded the stock to “underperform” from its previous rating of “peer perform,” meaning they expect this thing to underperform even its fellow combat companies. - Basically, the Wolfe team argues that Northrop Grumman is sitting on an “unsustainably high” valuation multiple, which they expect to only narrow. At a P/E of 15x vs Lockheed’s 16x and Raytheon’s 38x, some may disagree, but hey, isn’t that what makes a market? Thought Banana Drop Your Weapons Like the Paris Peace Treaties that brought an end to World War II, another years-long battle raging across the world appears to finally have a winner. And we think they’re more than ready to take The Crown. For the better part of the last decade, young upstarts and old industry titans have tried their damnest to steal every last second of our attention that we don’t give to work, school, or whatever social media app you’re addicted to. That’s right, apes, the Streaming Wars finally has a winner. And, largely to no surprise whatsoever, the big winner was the OG themselves, the belligerent who arguably started this whole battle, Netflix. "The big red streaming giant has become about as essential to everyday life as water, oxygen, and nicotine." The big red streaming giant has become about as essential to everyday life as water, oxygen, and nicotine. And according to industry experts like Matthew Belloni, founder of Puck News, Netflix clearly dominates just about every other service. I mean, the firm’s stat line compared to everyone else reads like an F1 race with Max Verstappen—the guy just wins everything. For some examples, Netflix has: - Easily the most subscribers globally, clocking in at ~247mn compared to Prime at the #2 spot with ~200mn. - Raked in $4.5bn in 2022 and remains the only consistently, verifiably profitable streaming service. - Although declining, the firm’s market share in the video-on-demand industry (excluding YouTube) sat at 44.2%. - Gifted us with nearly 100bn hours of content viewed over the last 6 months alone. I think we all get the point by now. But, other measures much more challenging than this quantity add fuel to the fire of Netflix’s dominance. The “Netflix Effect” has become an all-too-well-known term in Hollywood for anyone who doesn’t work for the namesake firm. Described as “the ability to make anything popular,” we can see this effect come into play with shows like Suits. A phenomenal show, no doubt that lasted nine seasons on its own from 2011-2019, the show hit its peak in early 2023 as it became a “[mass cultural event](=),” according to A.A. Dowd at The Ringer. Earlier examples exist, too, like Breaking Bad, which saw a 4x increase in viewership when Netflix added and started pushing the series. "Anything the big red giant publishes seems to go viral if/when it gets placed ..." Other studios have started to license their content to Netflix in order to take advantage of their rival’s popularity. Anything the big red giant publishes seems to go viral if/when it gets placed on that sweet, dark home page or, even more so, on the iconic “Most Watched” list. So, given that: - Netflix has the most subscribers - Netflix is the only one able to make consistent profits, and - Other services rely on Netflix for their own popularity… We think it’s safe to finally crown them king. Keep in mind it’s not just Hollywood studios the firm is going up against—Apple TV+ and Amazon Prime’s services are lubricated by the obscene popularity of those companies. And even with Prime Video coming free with a Prime subscription, something that’s now about as mandatory each year as paying your taxes, Netflix was still able to stay on top. It's absolutely wild, but we have seen Stranger Things in the business world. Shares are still off well over 30% from their all-time peak as well, so apes, instead of getting mad about no longer being able to mooch off your parents' subscription, get in on the gains instead… if you think the king can keep their crown. The Big Question: Will Netflix continue to dominate the industry in the long term as well? Will having a Netflix subscription be enough, or will I still need every subscription under the sun just to watch one movie? Are you buying Netflix stock? Banana Brain Teaser Yesterday — Jessica is 11 years older than Joe. Joe is two years younger than Tina. Tina is 8 years old. Angela is half as old as Jessica, but George is 3 times as old as Angela. How old is George? Answer 25.5 Today — A man was going on a one-way bus trip. He intended to ride for a certain distance, get off the bus, and walk back to town. If the bus travels at a rate of nine miles per hour and he was to jog back to town at a rate of three miles per hour, how far would he ride so that he'd be back in eight hours, considering that he plans to travel the same distance while riding a bus and walking? Shoot us your guesses at vyomesh@wallstreetoasis.com Wise Investor Says “The key is not the will to win... everybody has that. It is the will to prepare to win that is important.” — Bobby Knight How would you rate today’s Peel? [All the bananas](=) [Decent](=) [Rotten AF](=) Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? [Be smart like your friend](=). [ADVERTISE](=) // [WSO ALPHA]( // [COURSES]( // [LEGAL]( Don't want The Daily Peel? [Unsubscribe here](). Click to [Unsubscribe]( from ALL WSO content IB Oasis Corp. 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