Netflix’s Q2: 8M New Subs 📺, Revenue Needs a Plot Twist

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MARKETS

• The S&P 500 and Nasdaq couldn't shake off the tech blues today, with semiconductors dragging them deeper into the red.

• Meanwhile, even the Dow and Russell 2000, the stars of the recent rally, stumbled as investors pondered the implications of a market rotation.

• 10-year Treasury yields climbed from their recent dips as investors sifted through a week packed with Fed chatter.

• Gold and oil slipped a bit further but are still hovering close to their recent peaks.

STOCKS
Winners & Losers

What’s up 📈

• Chuy’s Holdings ($CHUY) surged an astonishing 47.76% following the announcement that Darden Restaurants is acquiring the company for $605 million. Conversely, Darden Restaurants ($DRI) slid 3.03% on the news.

• D.R. Horton ($DHI) jumped 10.01%. Initially dipping after a mixed earnings report, the stock rebounded with the announcement of a $4 billion buyback program.

• Cintas ($CTAS) climbed 5.44% on the back of a strong earnings report, with businesses maintaining their spending on uniforms regardless of the economic climate.

• Warner Bros Discovery ($WBD) spiked 2.40% following a Financial Times report that the company is gearing up for a potential breakup.

• TSMC ($TSM) inched up 0.39% despite surpassing earnings and revenue expectations last quarter, as the semiconductor sector continues to struggle.

What’s down 📉

• Domino’s Pizza ($DPZ) plunged 13.42% after missing earnings expectations last quarter and announcing it will open fewer stores for the remainder of 2024.

• Beyond Meat ($BYND) tumbled 10.32% on a Wall Street Journal report indicating management is negotiating to restructure the company’s debt.

• Nokia ($NOK) declined 7.05% after reporting its worst quarterly sales since 2015. It seems the demand for phones resembling bricks in shape and durability has waned.

• Eli Lilly ($LLY) fell another 6.24% as its selloff persists, spurred by news that competitor Roche Holdings is progressing in developing a weight-loss pill.

EARNINGS
Netflix’s Q2: 8M New Subs, Revenue Needs a Plot Twist

Netflix’s ($NFLX) Q2 earnings were a mixed bag for investors. Despite adding over 8 million new subscribers, the streaming giant’s revenue forecast for the next quarter missed the mark, sending the stock on a brief nosedive. But fear not, Netflix fans: shares bounced back as investors appreciated the silver linings in the report.

Key Highlights:

• Revenue: $9.56 billion, up 16.8% from last year, edging past the $9.53 billion forecast.

• EPS: $4.88, comfortably beating the expected $4.74 and last year’s $3.29. Seems like those Bridgerton fans are worth their weight in gold.

• Subscribers: A whopping 8.05 million new users, far exceeding the expected 4.7 million.

• Q3 Revenue Guidance: $9.73 billion, falling short of the $9.83 billion consensus.

Netflix is playing a clever game, betting on top-line initiatives like cracking down on password sharing and expanding its ad-supported tier, which saw a 34% membership surge. However, in a move that’s likely to ruffle a few feathers, Netflix is phasing out its basic ad-free plan in the US and France, nudging users toward its ad-supported options.

Looking ahead, Netflix upgraded its full-year revenue growth projection to 14%-15%, up from 13%-15%, with operating margins expected to hit a cushy 26%. The company is making steady strides in its ad business and is optimistic about reaching critical ad subscriber scale by 2025.

Despite the revenue outlook miss, Netflix’s impressive subscriber growth and strategic pivots ensure it remains a heavyweight in the streaming wars. Looks like Netflix is still the reigning king of your living room binge sessions.

NEWS
Market Movements

• Ford ($F) is investing $3 billion to expand large truck production at a plant originally designated for EVs

• Netflix ($NFLX) adds 8 million subscribers, disappoints on revenue outlook

• Tesla’s ($TSLA) California registrations fell by 24% in the second quarter, according to dealer data

• Amazon ($AMZN) is reportedly monitoring employees’ in-office hours to eliminate “coffee badging”

• Essilor Luxottica, the parent company of Ray-Ban, is venturing outside the eyewear industry by acquiring Supreme for $1.5 billion

• U.S. weekly jobless claims have reached their highest level since August

• USPS disclosed customer postal addresses to Meta, LinkedIn, and Snap

• The Biden administration has canceled an additional $1.2 billion in student loans for public service workers

• OpenAI CEO Sam Altman is suing the developers of his $27 million San Francisco mansion over alleged defects, including a leaking infinity pool

• Citadel’s Ken Griffin set a new record at Sotheby’s by purchasing a stegosaurus skeleton for $45 million

CRYPTO
Spot Ethereum ETFs — The Next Big Thing in Crypto Investing?

If you’ve managed to dodge the crypto Twitter vortex, you might be puzzled over this “spot ethereum ETF” chatter. Is it the next big thing or just more crypto hype?

What’s a Spot Ethereum ETF Anyway?

• The SEC has given the green light to spot ethereum ETFs, which could hit the market any moment now. Unlike futures-based ETFs—approved by the SEC for bitcoin in 2021 and for ether last year—spot ETFs are actually backed by the physical cryptocurrency tokens. This means investing in a spot ETF is as close as it gets to holding the real thing without the hassle of a crypto wallet.

• For those playing catch-up, ether (ETH) is the second-largest cryptocurrency, right behind bitcoin. It runs on the ethereum blockchain, a platform designed for decentralized applications. Investors scoop up ether not just as a store of value but also for its tech potential.

Why the ETF Buzz?

While buying cryptocurrencies like bitcoin and ether on exchanges like Coinbase is old news, many investors—especially institutional ones—prefer the regulated environment of an ETF. ETFs provide a safer investment vehicle, making them more appealing to cautious entities like pension funds and endowments. Financial advisors, who often shy away from recommending crypto, might feel more comfortable suggesting ETFs to their clients.

Remember the Winklevoss twins? They first tried to get a spot bitcoin ETF approved in 2013. The SEC has been hesitant, mainly due to concerns about market manipulation and investor protection (and who can blame them, considering the rollercoaster that is crypto). But in a groundbreaking move, the SEC approved a batch of spot bitcoin ETFs this January. The kicker? It wasn’t just crypto-native firms that got the nod. Big names like BlackRock, Franklin Templeton, and Fidelity jumped into the mix, lending a hefty dose of credibility to the crypto world.

These bitcoin ETFs now manage around $60 billion in assets—a pretty hefty sum for a newcomer on the investment scene. This approval has set the stage for ethereum to follow. While ethereum futures ETFs, launched last October, didn’t exactly light up the charts, experts believe spot ethereum ETFs could see a warmer reception.

Should You Invest in Spot Ethereum ETFs?

Crypto investments are infamous for their volatility. Most financial advisors still give digital currencies the cold shoulder, ETFs included. But if you’re curious and want to test the waters, the rule of thumb is to keep your crypto investments to under 5% of your portfolio. Even with the regulatory safety net of an ETF, remember that ethereum remains a high-risk asset. Diversification is your best friend—don’t go all-in on a single emerging tech.

EARNINGS
AI-Powered Growth: TSMC Raises Forecast

TSMC ($TSM), the world’s largest contract chipmaker and a key supplier for Apple and Nvidia, has upped its revenue forecast for 2024, thanks to skyrocketing demand for AI chips. The company now expects revenue growth in the mid-to-high 20% range, up from its previous estimate of low-to-mid 20%. CEO C.C. Wei noted that “AI is so hot; all my customers want to put AI functionality into their devices.”

Financial Highlights:

• Revenue: Q2 revenue rose 33% to $20.8 billion, beating expectations.

• Net Profit: Climbed to $7.6 billion, surpassing analyst estimates.

• Q3 Revenue Forecast: Expected to be between $22.4 billion and $23.2 billion.

No Joint Venture in the US

Despite the rosy outlook, TSMC isn’t planning a joint venture factory in the US. Wei stated, “We continue to expand in Arizona and other locations but no change in our strategy.” This comes after political comments stirred the market, leading to a brief dip in TSMC’s Taiwan-listed shares.

Capacity Crunch

The chip giant is hustling to meet demand, particularly for its leading-edge 3nm and 5nm technologies. CFO Wendell Huang mentioned that supply will remain “very, very tight” through next year. TSMC is also adjusting its capital expenditure plans, now set between $30 billion and $32 billion, focusing heavily on advanced tech.

Riding the AI Boom

• AI-driven demand has been a game-changer for TSMC, boosting its Taiwan-listed shares by nearly 70% this year. The company’s advanced chip processes are in high demand, and TSMC plans to double its 3nm capacity by 2024.

• Despite global challenges and competitive pressure, TSMC’s strategic focus on AI and advanced chip production keeps it at the forefront of the semiconductor industry.

Calendar
On The Horizon

Tomorrow

After a hectic week of earnings reports, the market will take a breather on Friday as we head into the weekend.

Before Market Open:

• American Express ($AXP): AXP has had an impressive 2024, with its stock nearing record highs and exceeding Wall Street’s average price target by about 4%. While this might suggest a potential pullback, strong revenue growth and lower credit card delinquency rates compared to competitors could keep the momentum going. Forecast: $3.25 EPS, $16.61 billion in revenue.

• Halliburton ($HAL): Despite a strong energy sector, Halliburton's stock has been stagnant in 2024 due to reduced demand for its services. However, analysts remain optimistic, with all 14 covering the stock rating it a “buy” and an average price target 18% above the current level. Forecast: $0.80 EPS, $5.96 billion in revenue.