Pandemic winners are losing
The future path of the pandemic is uncertain, but investors may have already made up their minds about the prospects for companies that had prospered months earlier. Netflix and Peloton plunged late in the day yesterday, on signs that “stay at home” stocks, which were already under pressure, could take a turn for the worse as people begin to venture out again.
Netflix reported its fourth-quarter earnings after the market closed, and warned that subscriber growth was about to slow. This sent the streaming giant’s stock down 20 percent, erasing more than $40 billion in market cap. Ed Lee, a media watcher at The Times, says the report suggests that the company is more vulnerable to competition than its investors are comfortable with:
Rivals are eating into Netflix’s business. The company, which now has 222 million subscribers, forecast that it would gain only 2.5 million customers in the current quarter, far from analysts’ average estimate of just over 6 million. Competition from the likes of Disney+, Amazon Prime Video, HBO Max and others “has only intensified over the last 24 months,” Netflix said.
Other streamers have some advantages. Those services are attached to big studios, so they already own a ton of content. (Amazon is about to own a studio, if regulators approve its deal to buy MGM.) That gives them license to market their streaming efforts outside the U.S., where all the growth is. Netflix can’t do the same as easily. In order to compensate, Netflix last week announced a price increase for U.S. subscribers.
Investors may reconsider the multiple they pay to own Netflix’s stock. Until yesterday’s decline, investors were essentially paying double for each dollar of expected profit at Netflix, versus tech giants like Meta and Alphabet. But are Netflix’s growth prospects really that good? The answer, at least for now, is no.
Meanwhile, Peloton is similarly struggling, as the at-home exercise equipment maker grapples with waning demand for its bikes and treadmills. Its shares closed 24 percent lower yesterday — and are down some 80 percent over the past six months.
The company said it is weighing layoffs. “We now need to evaluate our organization structure and size of our team,” John Foley, Peloton’s C.E.O., wrote in an open letter to customers and employees.
Peloton expects to have lost as much as $270 million last quarter, it preannounced ahead of its scheduled earnings report next month.
The company denied that it would temporarily halt all production because of a glut in inventory, pushing back on a CNBC report that had sent its shares plunging. That said, Foley wrote that “we are resetting our production levels for sustainable growth.”
HERE’S WHAT’S HAPPENING
A bill to rein in Big Tech advances in the Senate. The Senate Judiciary Committee voted to move forward with legislation that would block companies like Amazon, Apple and Google from promoting their own products over rivals’. But like other similar bills, it faces uncertain odds for passage.
Intel plans to build a $20 billion manufacturing complex in Ohio. The site, near Columbus, would initially have two factories and employ 3,000 people. It is part of Intel’s effort to ramp up its production capabilities in the U.S. and reduce its reliance on foreign makers, an effort that might cost as much as $100 billion.
Jamie Dimon gets a big raise. The JPMorgan Chase chief was awarded $34.5 million in compensation last year, $3 million more than he took home in 2020. The bigger paycheck came after JPMorgan reported a record profit.
Eric Adams makes good on his cryptocurrency promise. The New York City mayor converted his first paycheck into Bitcoin and Ethereum, months after pledging to take his first three paydays in crypto. It is part of Adams’s pledge to make New York the global hub for digital currency.
Twitter shakes up its security team. Peiter Zatko, a veteran hacker known as “Mudge,” was terminated as the company’s head of security, while Rinki Sethi, its chief information security officer, will leave soon. The moves are the latest in a reshuffling of the social media platform’s senior ranks by Twitter’s new C.E.O., Parag Agrawal.
Do we need digital dollars?
The Fed released a long-awaited report yesterday about the pros and cons of a central bank digital currency, or CBDC. It is intended to start debate about a Fed-backed digital dollar, which is still far off, if it ever materializes. The Fed said it won’t proceed “without clear support from the executive branch and from Congress.”
The Fed has questions — and the public has 120 days to comment. After reading the report (or not), people can send their thoughts to the central bank here. As the Fed sees it, these are the main pros and cons of issuing a CBDC:
A digital dollar could provide “a safe, digital payment option” and may lead to faster cross-border payments.
It could also have uncertain effects on the financial sector, the cost and availability of credit and the safety and stability of the financial system.
Jay Powell is not in a hurry. The Fed chief has said it’s better to get it right than to be first. Other central banks are experimenting with CBDCs, fueling concerns among some policymakers that the Fed might fall behind.
Crypto champions approve of the slow roll. Stablecoins are privately issued cryptocurrencies pegged to the dollar or another stable asset, and issuers in the booming crypto industry are not eager to compete with the government. Dante Disparte, the global policy chief at Circle, which issues the stablecoin USDC, told DealBook that the Fed taking a “fast follower” approach is wise. He believes stablecoins and CBDCs can ultimately coexist.
In other news, Makan Delrahim, the former antitrust chief at the Justice Department, argued in The Wall Street Journal that crypto regulation should be designed so that “incumbent businesses susceptible to disruption don’t stop or co-opt the innovators.” In the markets, crypto prices are plunging, with Bitcoin dropping to its lowest level since August.
“What good is it to have the first Black female director, if she is confirmed, when you have all of these people who have these behaviors and mind-sets undermining her at every turn?”
— Rhonda Sapp, the president of the union at the U.S. Mint, who said the agency has not addressed issues that make minority workers feel threatened, marginalized and professionally disadvantaged. The racial tumult was detailed in an internal report that was obtained by The Times. President Biden recently nominated Ventris Gibson to lead the agency. If confirmed, she would serve as its first Black director.
Questions about inflation are rising
Prices are rising faster than they have in 40 years, taxing consumers’ wallets and befuddling policymakers. It’s not clear if this is because of temporary disruptions in supply and demand during the pandemic, or the result of some long-dormant force that will push prices higher for longer.
The Times asked readers for their questions about inflation, and received hundreds of responses. Jeanna Smialek, who covers the Fed, put the queries to economists and other experts for answers. Here are a few:
► Why isn’t competition keeping prices in check?
Uncertainty. Competition should keep prices in check. But Matthew Luzzetti, the chief U.S. economist at Deutsche Bank, said the problem is uncertainty. It’s a risky time to jump into any market, or ramp up supply to take advantage of higher prices that might be temporary.
A Guide to Cryptocurrency
Even if companies wanted to produce new or more products, supply-chain issues are a barrier. Until new competitors can produce and transport enough of a given product to go around, incumbents will be able to raise prices without much risk of losing customers to a rival.
► Won’t inflation lift wages?
It used to. Wages increased sharply alongside inflation in the 1970s and 1980s, but in the decades since, pay has struggled to keep pace with price increases. Nonetheless, intensifying competition in lower-wage service industries in recent months has led to higher pay for workers. Factors like unionization, worker bargaining power and the state of the labor market all affect whether companies pay more.
► Can price controls keep inflation in check?
Probably not, but some think it’s worth a shot. Richard Nixon was the last president to embrace price controls. His efforts worked for a time, but prices rocketed up when they were lifted, and the move got a bad rap among economists. But some think they should be tried again: A vocal minority of economists say the 1970s experience unfairly tarnished the idea and that it might be worthwhile to reopen the debate.
Remembering Peter Henning
We must sadly report the death of Peter Henning, the Wayne State University law professor who for years wrote DealBook’s White Collar Watch column, at the age of 65. A former federal prosecutor at the S.E.C. and the Justice Department, Peter used his columns to clearly and succinctly dissect complex securities law for those of us who didn’t pass the bar.
Over the years, Peter covered a range of subjects, from the college admissions scandal to international trade to Elon Musk and Tesla, explaining both technical details and broader implications with sophistication. His most-covered topic, of course, was insider trading, and he found plenty of opportunities to write about it during the surge in prosecutions following the 2008 financial crisis.
Beyond that, Peter was a pleasure to work with, quick with a joke (often about baseball or the TV show “Entourage”) and generous with his time. Our condolences to his wife, Karen, and his family.
THE SPEED READ
Last year set records for I.P.O.s — but was terrible for I.P.O. performance. (CNBC)
The private equity firm CVC has reportedly hired Goldman Sachs, JPMorgan Chase and Morgan Stanley to lead its I.P.O., which could value it at $20 billion. (Bloomberg)
PetSmart, the pet supply retailer owned by BC Partners, is said to be in talks to go public by merging with a blank-check fund run by KKR. (Bloomberg)
TotalEnergies, the French energy producer, said it is withdrawing from Myanmar amid investor pressure to stop cooperating with the country’s ruling military junta. (WSJ)
Democrats are debating which parts of President Biden’s $2 trillion social-spending plan to salvage as the legislation stalls. (NYT)
Two Democratic senators, Jon Ossoff of Georgia and Mark Kelly of Arizona, plan to introduce legislation to ban corporate political action committees. (Axios)
Financial moguls like Steve Schwarzman of Blackstone and Ken Griffin of Citadel are raising money for the Senate campaign of David McCormick, the former Bridgewater C.E.O. (WSJ)
Best of the rest
Forget the idea of a post-Covid world, writes the tech mogul Michael Dell: What we’ve been calling the new normal “should now be considered as simply normal.” (CNBC)
Case in point: NBC’s play-by-play coverage of the Winter Olympics in Beijing will be done mostly remotely. (NYT)
Mustafa Suleyman, a founder of the A.I. research lab DeepMind, is leaving Google, months after being accused of bullying subordinates. (NYT)
“Predictions Favored Solar Over Wind Power. What Happened?” (NYT)
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https://www.nytimes.com/2022/01/21/business/dealbook/netflix-peloton-stocks.html Netflix and Peloton Shares Tumble as Demand Slows