Quick Important Update: Be cautious this earnings season. Netflix served as a warning shot. What we discussed about NFLX before this quarter happened.
Earnings Season is upon us, and Netflix signals a warning on their subscriber figures
Dear Public Investment Community,
I usually don’t comment on post-earnings outcomes because after market selloffs can become rallies in the following session. Focusing on price action post-earnings can sometimes be less than productive. Also, I am primarily interested in the general market direction and the macro themes that signal whether we keep advancing or must brace for declines.
I wish to lightly touch on Netflix’s comment on losing subscribers, and what that means about the macro environment. This email note is not about the nitty gritty details surrounding their latest quarter.
Inside our Patreon Investment Community, here’s what we discussed in March in our Monthly Investment Deck update (images below).
I had decided to cut my position in Netflix at a loss after earnings earlier this year (Q1) because I was against their strategy to raise prices in an environment where the economy was starting to re-open and people were looking to spend more money/time on experiences in real-life (rather than on Netflix).
Source: Patreon Investment Slide Deck - General Summary (March)
Source: Patreon Investment Slide Deck - My positioning (March)
In my research notes to my investment community, I discussed taking the L and moving on when NFLX cratered from 500 to 400.
Now it’s at 260 (post-market).
Surviving this market isn’t easy, but my research can help you.
Reading this article in early April was enough to help me understand the mood internally at Netflix. Just look at Reed Hastings in this photo - a picture tells a thousand words.
What I’m paying attention to now is what Netflix’s earnings outcome mean for the health of the general consumer as well as the corporate mood at NFLX.
Some preliminary conclusions that I have so far are the following:
My opinion is that looming layoffs are inevitable at Netflix in the foreseeable future as lower stock prices will force management to reduce costs
Netflix’s earnings are a signal to other companies at the Fortune 500 that their business results may come under shocks as the macro environment slows down
In the intermediate-term, layoffs are a powerful force in stopping wage expectations from rising, which will in turn slow inflation. Employee wages serve as one of the stickiest forms of inflation. Once you raise wages, you can’t go back and lower them (or at least it would be very difficult).
People who are in high-paying jobs need to continue to add value to their workplace and not take their positions for granted. Things could materially deteriorate in the real-economy in the coming quarters. (This is why I make videos on Youtube about having the right perspective and being ready for any surprises in life)
While I am rather downbeat on the real economy, I continue to be cautiously optimistic on certain selective pockets of the stock market AT the right price point.
There is still opportunity out there - didn’t I say that Semiconductors would be due for a bounce? And so it did today, however short lived that may be. Made that note to everyone here when NVDA was at 212 (Now at 222) and SOXX was at 418 (now at 430+).
Netflix might have spoiled the mood to get the tech rally back. So the advance we saw in Semis today will probably be retraced. Maybe Tesla (not yet in my coverage universe) can save the bulls in their ER tomorrow.
If you like the style of research here, and want deeper insights to navigate this market with grace, my Patreon community could be a great learning place for you.
❤️ this email if you enjoyed the read. See you in my next Youtube Video.
$ES target 4315 Larry, probable it fails below March lows very shortly. The high is in on $ES for the year. $BABA destruction to $20