Netflix Is the Top Streaming Service, but Headwinds Are Coming

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In today’s big story, we’re looking at what to expect ahead of Netflix’s big earnings report.

What’s on deck:

But first, Netflix and chill?

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The big story

The king of streaming

Netflix’s ups and downs over the past two years resemble the drama you’d expect in one of its shows.

The streamer’s stock hit a record high in the fall of 2021 amid the pandemic boom. But it bled subscribers in the first half of 2022, causing its share price to crater roughly 70%.

It’s battled back, partly thanks to a successful password-sharing ban. And as other streamers scramble to figure out long-term business plans, Netflix has been crowned the winner of the streaming wars thus far.

But Monday marked another shocking plot twist for the streamer with the departure of Scott Stuber, the chairman of Netflix Films. Stuber, who reportedly plans to start his own production company, was behind the streamer’s high-profile push into producing films.

Most analysts are bullish on Netflix ahead of its fourth-quarter earnings report, which will drop after today’s market close. More than 63% maintain a “buy” rating on the stock for the upcoming 12 months, while another 28% recommend a “hold,” according to data from Bloomberg’s terminal.

But the good times might not last forever, Business Insider’s Lucia Moses reports. Netflix’s ads business still has a ways to go after a leadership shake-up. That’ll be key, as advertising is positioned to be a big focus of streamers this year.

The competition isn’t letting up, either. From Disney to TikTok, there’s no shortage of places to be entertained. And if dealmaking picks up, one tie-up could tip the fortune toward one of Netflix’s rivals.

Netflix’s success isn’t just in the size of its audience — nearly 250 million total subscribers — but its stickiness.

The streamer’s churn rate, or ratio of people who cancel their subscriptions compared to those who stay, is roughly 2%, well below the rest of the industry, Business Insider’s Peter Kafka writes.

Churn is a particularly relevant statistic these days, Peter reports, as more users are canceling subscriptions following a spate of price hikes.

So what’s Netflix doing to keep people around?

I previously wrote about what makes the big streamers stand out. For Netflix, there’s an element of first-mover advantage. It was many people’s introduction to streaming subscription services.

The size of the library also helps. Netflix is so big it even has shows from other streamers, a sign of how ubiquitous it has become.

For me, however, Netflix’s secret sauce is its consistency.

A lot of the best things I saw last year — from “Saltburn” to “Succession” to “The Bear” — were on rival streamers. But when looking for something to watch, I instinctually start with Netflix. It’s usually good for something interesting at least every few weeks. These days, it’s “American Nightmare.”

That keeps me — and my credit card — secured. (At least for now.)

3 things in markets

1. The downsides to all-time highs. The market is booming, but UBS sees a scenario, potentially due to inflation or geopolitical turmoil, that could send the S&P 500 plummeting 23%. One market vet outlined how everything going so well could lead to a melt-up situation where inflated valuations burst.

2. One hedge fund to rule them all. Ken Griffin’s Citadel generated $8.1 billion in gains for investors in 2023, helping to extend its lead as the world’s most profitable hedge fund, according to data from LCH Investments. The firm’s $74 billion in all-time gains is nearly $20 billion more than the funds tied for second all-time (D.E. Shaw and Millennium). Here’s the memo Griffin sent to his team about the news.

3. BlackRock says investors need a whole new playbook these days. A note from the world’s largest money manager said geopolitical volatility is here to stay. The new landscape is riskier and less predictable.

3 things in tech

1. The Los Angeles tech scene is falling further behind NYC, Boston, and other areas. LA’s tech scene surged during the Covid era. But investors have recently been enamored by generative AI — which isn’t LA’s strong suit.

2. How much do TikTok employees make? Data shows just how much TikTok workers can earn in different jobs: data scientists, software engineers, and more. They make anywhere from $29 an hour to $455,600 a year.

3. The EV industry needs to tread carefully. Morgan Stanley just issued seven reasons Tesla should be worried. Plus, Stellantis’ CEO — the parent of Peugeot, Chrysler, Dodge, and other major automakers — warned of an industry-wide “bloodbath” if companies engage in Tesla’s price war.

3 things in business

1. Young people are rapidly growing more and more divided by gender. It’s a strange phenomenon that suggests something more significant is going on. Young women are steadily becoming much more liberal, while young men are not.

2. CHARTS: These charts show how much traffic has plunged in the Suez and Panama canals and its economic impact. Freight costs are going up now that vessels are rerouting and taking longer journeys. The charts also illustrate the shipping routes’ potential impact on inflation.

3. Building an AI equivalent of a senior analyst. Balyasny Asset Management is building a series of AI-based bots that can proactively do the work of senior analysts. They’re designed to help investment teams work more efficiently by automating grunt work.

In other news

What’s happening today

• Oscar nominations come out today. Zazie Beetz and Jack Quaid will announce them live.

• National Baseball Hall of Fame election results will be shared. They’ll be announced on the MLB Network.

• Earnings today: Netflix, Procter & Gamble, General Electric, Verizon, and other companies.

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Dan DeFrancesco, deputy editor and anchor, in New York. Diamond Naga Siu, senior reporter, in San Diego. Hallam Bullock, editor, in London. Jordan Parker Erb, editor, in New York. Hayley Hudson, director, in Edinburgh. Lisa Ryan, executive editor, in New York.

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