Michael Kamerman, CEO of Skilling, shares his opinion on what stock you should watch this week.
Netflix
It’s fair to say that the fortunes of Netflix have taken a turn for the worse over the past few months; from reaching highs just shy of $700 at the end of 2021, Netflix is now trading below $200.
The sharp falls in trading price have followed two most recent poor earnings reports and disappointing guidance from senior executives. For now, the Netflix share price is consolidating in a range between $162 to $205.
However, a glimmer of hope emerged in the closing week of the 15th; Netflix stock achieved its best performance since January this year, rallying a little over 8% and closing at highs.
The most recent problems for Netflix seemed to arrive all at once. Concerns over peak subscriber growth in developed markets, increased competition from a growing number of streaming rivals, and a more discerning consumer feeling from the inflation pinch all adding to existing woes.
On the first quarter drawdown, billionaire Bill Ackman (Pershing) loaded up on Netflix stock, however, after earnings disappointed in the following quarter, Ackman bailed on the position and stated that "..in light of recent events, we have lost confidence in our ability to predict the company's future prospects with a sufficient degree of certainty."
Ackman’s Pershing realised a $400 million loss in the process, and the point stands that Netflix is undergoing a fundamental transformation. One of the major changes is the push for an ad-supported tier to drive an uptick in subscription rate, and markets will certainly be anticipating further details within Tuesday’s earnings report.
The streaming giant has also recently announced a partnership with Microsoft as their global advertising technology partner. On the surface, this is a win-win proposition. Netflix gains expertise and tech support from Microsoft, while Microsoft gains exclusive advertising access to the Netflix audience, which could boost their offering in the advertising industry in an attempt to close the gap between giants still leading the way, such as Google.
There is plenty to focus on following the most recent Netflix earnings report. Netflix had previously forecast the loss of a further two million subscribers in the second quarter of this year. Will this turn out to be the case, and are further subscriber losses likely to be expected?
Just how big the FX hit may be also remains to be seen. Netflix’s steadfast refusal to hedge its FX exposure has cost them over the years. The recent strength of the USD could mean these costs climb to new highs.
So, there remain plenty of questions as Netflix embarks on a new business trajectory. Will introducing an ad-supported tier signal the start of a necessary transition? Or do tougher challenges await?
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On a valuation spectrum between penny stocks and blue-chip stocks, growth stocks take a peculiar position. Although they are not as nearly as speculative and volatile as penny stocks, growth stocks are based on the expectation they will eventually assume the highest form - blue-chip stocks. After all, blue-chip companies are perceived to deliver both dependable dividends while also growing.
Netflix And Tesla: Two Sides Of The Growth Coin
On this expedited growth journey, some companies fumble while others take a category of their own. This process appears to be unfolding with Netflix and Tesla. Netflix's April earnings report tells a story of hitting the brick wall of expectations, while Tesla's valuation forecast seems to be boundless.
Netflix Stock Ousted From The Growth Club?
Netflix gained its momentum by naturally filling the niche of a dying breed, the video rental business spearheaded by Blockbuster. In fact, the CEO of Blockbuster, John Antioco, spectacularly failed to notice the new video-streaming trend on the horizon. Netflix founders approached him in early 2000 to sell Netflix for $50 million.
Fast forward to late 2021, and Netflix grew by 7,536%, from a $50 million deal offer to a $318 billion market cap. As growth tech companies go, replacing and cornering a specific market, one couldn't have asked for a better result. However, year-to-date, Netflix (NFLX) dropped to rock bottom in early 2022, returning to a December 2017 level market cap of $83.36 billion.
Did Netflix lose its growth stock status?
Not quite. The Covid-19 pandemic may have pumped Netflix's usage as the go-to content delivery platform, but Netflix’s valuation has been heavily reliant on subscriber numbers. It has been an open secret that Netflix has an account sharing problem, which the company tolerated to spur growth, openly admitting as such this April, in a letter to shareholders.
"Our relatively high household penetration - when including the large number of households sharing accounts - combined with competition, is creating revenue growth headwinds. The big COVID boost to streaming obscured the picture until recently."
There are two key admissions here. The baseline for Netflix’s valuation is largely inaccurate because it relied on account sharing. Moreover, with the Covid-19 boost gone, the company is now forecasting a decline in subscribers by 2 million for Q2 2022. Hence, this is why Netflix suffered a valuation reset back to a late 2017 level, as Bank of America downgraded its ranking from "buy" to "underperform" in April.
With a new reset price, Netflix's explosive growth narrative is over, but it also serves as a new starting point. Yet, Netflix itself admits that it will take at least until 2024 until its password-sharing crackdown and ad-boosted subscription monetisation produce a major effect.
Bank of America analyst Nat Schindler said, "It will take a while for investors to believe Netflix can return to growth."
With that said, Netflix revenue for Q1 2022 is still up by 9.8% compared to the same quarter a year prior, at $7.8 billion. While that is not hyper-growth, it is growth nonetheless. When all is said and done, shouldn't it be the case that the removal of unsupported growth figures has the same valuation reset effect on another growth company?
Tesla Continues To Defy The Odds
Tesla's April earnings report showed that the company has 6.5x stronger sales than the year prior. The EVs generated $3.3 billion in Q1 profits, a 658% increase from Q1 2021. Moreover, Tesla reported an 81% increase in total revenue, to $18.8 billion. While these figures are positive, do they justify Tesla's enormous market cap of $797.7 billion?
In other words, is another valuation reset incoming? Over the last 5 years, Tesla's story was one of hyper-growth just like Netflix, gaining 1,137% appreciation. Year-to-date, Tesla (TSLA) stock too suffered a downturn, but not as nearly as much as Netflix (NFLX).
If anything, it seems that Tesla's downturn can only be attributed to the general equity market decline due to the Fed's interest rate hike. The Fed tapering increases borrowing costs, so investors tend to exit growth — and especially tech — assets into safer commodity harbours.
Yet, at face value, if any company is due for a valuation reset it would be Tesla. Elon Musk's baseline business model revolves around manufacturing and selling electric vehicles (EVs). Yet, it has done so at a considerable lower rate than traditional car companies.
Case in point, Ford sold 3.9 million cars in 2021, while Tesla sold less than one million, at 937,172, in the same year. Tesla's market valuation does not reflect this gap in the slightest. In fact, when compared to top car companies, one would think that Tesla is the largest vehicle manufacturer in the world. This leads many investors to classify TSLA as an overvalued stock.
What else is then in play for Tesla to maintain its hyper-growth valuation? Does it mean that Tesla's expectation is more valid than that of Netflix?
Before anything else, Tesla has the first-mover advantage in the area that counts the most. While there were plenty of EV companies before Tesla, it was the first company to pull out EVs from the cumbersome EV aesthetic. While Tesla had to push their EVs into the luxury vehicle category to make that happen, it successfully made their cars into status signalling devices.
Governments all over the world further boost this speculation by announcing the gradual ban of gas-operated vehicles. For this reason, there is now the expectation that most vehicles on the road by 2040 will be electric, with Tesla forging the way.
Consumer behaviour has become a factor as well. Despite car insurance rates being generally more expensive for EVs as opposed to traditional gas-powered vehicles, Tesla has taken strides to make their vehicles more affordable. Yet, they also tend to be used as a status signalling vehicle, which generally happens with luxury products.
Combined with Elon Musk's omnipresent online persona, with over 80 million Twitter followers, and SpaceX involvement, this creates a big cushion for Tesla. So much so that not even major supply disruptions can upset Tesla's gains.
With so much market upheaval, it bears remembering why the average stock market return for the last 100 years has remained steady at 10%. While it is anyone's guess if Tesla will keep this momentum going, it also bears keeping in mind that Tesla made it through while openly admitting past underperformance and future downturn.
"Our own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through the rest of 2022."
Given such contrast, it is safe to say that Tesla is in its own premium growth stock category, especially now when gas prices are soaring. Case in point, AAA research showed significant pressure to make the transition to EVs when gas prices are up.
At the same time, Netflix, as a software platform, is more of a "take it or leave it" proposition, with many people opting for the latter, viewing Netflix as a luxury item in times of economic distress. While Tesla may offer luxury EVs, abandoning its plan to enter the mid-range category, it appears that Elon Musk managed to fine-tune Tesla's elite brand to absorb negative pressures.
About the author: Shane Neagle is Editor In Chief at The Tokenist.
Netflix’s share price initially dropped close to 20% on the news that it had lost 200,000 subscribers globally during the first quarter. Wall Street had predicted the company would gain 2.5 million subscribers over the period. In the current quarter, Netflix believes it will lose 2 million global subscribers.
Netflix has blamed its sudden drop in subscribers on a range of factors, including increased competition, the cost of living crisis which is leaving households with less disposable income, and the ongoing conflict in Ukraine.
In a statement to investors, the streaming giant said: “Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds.”
Good tech firms rise because they create new value. 15 years ago, Amazon was a mystery – what was the point in a delivery company not making any money? Apple was building a niche with new gizmos like the iPod, while Facebook was one of many banal social media sites we could hook up on. Uber and AirBnB didn’t exist. If you wanted to watch a film before the video was released, you went to Blockbuster.
Now, these same tech firms are worth trillions – because they created entirely new markets and new revenue streams. They carry substantial growth premia: Facebook consumed its rivals while its targeted advertising becomes more sophisticated allowing it to rake in money. Apple has become the most valuable company on the planet – by creating an ecosystem of IOS addicts to buy its constantly upgraded models that haven’t innovated anything fundamentally new in 10 years. Amazon is indispensable as the place stuff comes from. Google is successfully monetising every aspect of our lives. And Netflix…Netflix is an outlier. It’s great. My family couldn’t live without it – anything is better than watching the BBC news. Although Netflix invented the concept of a streaming service, it’s now just one among many. When Disney launched its streaming service in 2019, it was able to attract more subscribers faster – because streaming demands great content. If you want great content, Disney has it in spades. Netflix invented streaming, but Disney will dominate.
Generally, the success of companies that innovate new markets underlies their initial success. It also causes hype – when every investor thinks every new exciting tech launch is going to replicate the success of Amazon or Apple, it’s wise to remember tulip markets and step back and consider. This year’s big story has been ZOOM – worth billions because everyone on the planet suddenly learnt it exists and started using videoconferencing.
Or how about the blowout record-making IPO success of Snowflake – the cloud-computing solutions provider? Snowflake competes in a very crowded market. Its rivals have been making very healthy billion-dollar profits for a number of years. One firm, 40-year old Teradata, makes $2 bn revenues from its cloud activities and is valued at $2.5 bn. But brand-new Snowflake makes $250 million revenues, runs at a loss and is worth $80 billion – despite doing essentially the same thing as profitable Teradata. But Snowflake is new – and investors seem to be believing the old market lie: “this one is different”.
Tesla is a bubble. But it's one that, thus far, hasn’t popped.
Nothing illustrates the hopes and expectations that drive tech stocks as well as Tesla. It’s a fascinating company. It has created an entirely new market in electric vehicles, and it also dominates the battery tech. It is successfully making and selling cars and setting the market’s agenda.
There are two different views on Tesla:
There is the “you don’t understand” perspective favoured by the Tesla fan-club. They have some good points. They stress Tesla is a long-term play on the future not just of cars, but everything about capacitance (batteries), personal transport and power. It’s created and taken leadership of the expanding non-ICE (Internal Combustion Engine) market. It’s got proven battery technology and it’s collected massive amounts of data that will enable to lead autonomous driving – enabling Tesla owners to run their precious cars as self-driving taxis when they aren’t using them. The Tesla fans say the traditional financial markets don’t understand what massive future value the firm has created.
The market clearly believes in Tesla. It’s worth over $400 bn dollars despite making less than $1 bn profit in the last 12 months (the first time it’s ever posted an annual profit). While most car companies trade on modest single-digit multiples, the market clearly believes in Tesla’s exceptionalism at a plus 400 multiple.
Even though it produces less than 0.5% of global auto sales, Tesla is worth 2.5 times as much as Toyota which builds over 10% of the world’s cars, each year posting healthy profits of $23 bn on 10 times multiple. The big three US auto companies make 18 million cars per annum and post profits most years.
The unbelievers say Tesla’s minuscule profits after 10 years of developing their car model means it’s just a small niche player. They say it’s too reliant on selling carbon-regulatory certificates – every car it sells is sold at a loss. Ferrari makes 23% margin on each car while Tesla loses money. Naysayers don’t believe the hype around batteries – pointing our newer, cleaner battery tech, which can charge in seconds, will make every Tesla obsolete overnight; sometime in the future. They say Tesla’s batteries, actually made by Panasonic, won’t set the industry standard. The Chinese are saying they already have million-mile batteries, and although Tesla got a Chinese factory up and running in record time, the Chinese are outselling it.
Even sceptical financial analysts accept that Tesla makes good cars, but they believe that it needs to massively increase its margin per car and increase production at least 10 times to justify a stock price even half of its current value. In short - Tesla is a bubble. But it's one that, thus far, hasn’t popped.
But it will.
What’s driven Tesla to such stratospheric values is a result of some extraordinary factors. Founder Elon Musk is regarded by fans as a far-sighted prophet of genius. To detractors, he’s an arrogant market manipulator, hypester and snake-oil purveyor. Musk attracts the hopes and dreams of retail investors who are jumping on board the Tesla party bus. Good luck to them.
The main issue Tesla fans are missing is the same thing that is going to test Netflix and a host of other overpriced tech stocks: Competition.
Every other automaker gets what Tesla is doing. So far no one is doing it better. Someday, very soon, someone is going to launch something better. It might not be anything like Tesla, or it might just be much, much less hyped.
Nigel Green, Founder and CEO of deVere Group, has warned that coronavirus, paired with the heightening geopolitical and trade tensions, could drive the world to the brink of a global recession this year. He said: “Investors have largely been caught off-guard by the serious and far-reaching economic consequence of the coronavirus. This, despite major multinational organisations already lowering their profit guidances, and many more likely to do so in coming weeks. Clearly, this will hit global supply chains, economies across the world and ultimately government coffers too.
“However, it does seem that the world is waking up to the reality of the situation as the containment of coronavirus hasn’t yet materialised and confirmed cases soar in different countries. Until such time as governments pump liquidity into the markets and coronavirus cases peak, markets will be jittery triggering sell-offs”, Mr Green notes.
Investors around the world must take action if they want to safeguard their wealth in the current volatile environment and they must take precaution about the stocks they want to put their money in as the coronavirus outbreak is disrupting the supply chains of many companies.
Here is Finance Monthly’s list of the top 5 stocks that are likely to weather the storm, which will hopefully help you with handling your portfolio in light of the coronavirus news.
McDonald’s
You can find McDonald’s signature golden arches in over 100 countries across five continents. It is one of the biggest and most recognisable fast-food chains in the world. Thanks to its unique franchising structure and low prices, McDonald’s is one of these companies that will thrive in any economic condition.
With over four decades of consecutive annual dividend increases, McDonald's is a Dividend Aristocrat[1] - it has issued dividends every year since 1976. In the last few years, it has repurchased the shares at a meaningful rate which has boosted the earnings per share and has supported the stock price.
Although the fast-food chain had to temporarily shut over 300 restaurants in China in January (which is only about 1% of its China stores), due to fears about the coronavirus outbreak, China accounts for only 2% of McDonald’s earnings. McDonald’s stock has doubled since 2015 and has shown no signs of slowing down, even with the coronavirus out there.
Facebook is one of the best and most safe stocks to buy on coronavirus fears. Although shares have taken a hit, investors should remain focused on the long term, valuing stocks based on fundamentals.
Facebook is one of the few companies that have no exposure in China, where the outbreak is the worst, as the social media platform is blocked there. On top of this, there are no signs that minimal outbreak in other countries has resulted in weaker digital ad spending, however, investors should keep an eye out for any commentary from Facebook’s management on whether or not the virus is having a material impact on the social network.
When taking the current low-interest-rate environment, it is also worth noting that Facebook is a growth stock, and growth stocks tend to perform very well in low-interest-rate environments.
The stock was also cheap before the coronavirus selloff, so all in all, FB stock could provide investors with a high-quality, big-growth company with minimal coronavirus exposure.
According to Jeremy Bowman:[2] “Facebook is also highly profitable and sitting on $54 billion in cash and equivalents, giving the company plenty of resilience against an extended disruption. The stock is trading at a P/E ratio of 21 based on adjusted earnings and backing out its cash sum. Considering its growth rate, the stock already looks like a bargain. If shares keep falling, it will be a downright steal.”
Even people who haven’t been affected by the coronavirus are becoming more and more health-conscious, trying to take precautionary measures through buying products like hand-wash, wipes, sanitisers, disinfectants, etc.
Johnson & Johnson
Currently in its tenth year of economic expansion, Johnson & Johnson’s stock has a reputation as a safe haven. Despite a slight dip in the stock however, it seems like its future will be bright.
Professor Kass from the University of Maryland[3] is bullish on healthcare stocks due to the amount of money that people are expected to spend on healthcare in the upcoming months, thanks to the coronavirus outbreak.
Kass commented: “… several stocks that are currently under the radar for this possible epidemic should do very well as healthcare spending in the years ahead is likely to increase substantially”.
The rationale behind this is super straightforward – Johnson & Johnson sells a wide range of everyday healthcare products to millions of people across the globe. Even people who haven’t been affected by the coronavirus are becoming more and more health-conscious, trying to take precautionary measures through buying products like hand-wash, wipes, sanitisers, disinfectants, etc. At the time of writing this, pharmacies and drug stores in the UK have run out of hand sanitisers due to popular demand. Johnson & Johnson is therefore expected to “continue experiencing rapid growth in revenues and earnings in the foreseeable future,” says Professor Kass.
Thus if anything, the virus’ outbreak could create a long-term positive effect on the Johnson & Johnson stock.
Apple
Thanks to the coronavirus outbreak, global technology giant Apple has been hit hard from multiple angles, with having to temporarily close all corporate offices, stores and contact centres in Mainland China, and suppliers being ordered to reduce or halt production. This was all followed by a 5% drop in Apple’s stock on 31st January, however, Apple will be perfectly fine and remains a stock worth investing in. Yahoo Finance believes that[4] the App Store will get a big boost during the outbreak due to the hundreds of millions of Chinese consumers being stuck at home right now, who will be looking for ways to entertain themselves. Additionally, February doesn’t tend to be a big month for iPhone sales as it is. The company relies heavily on its new iPhone launch in September and by then, coronavirus will be in the past (hopefully).
Apple’s stock remains loved by most investors and will undoubtedly weather the coronavirus storm. Once that’s over, with the release of its 5G iPhone, the tech giant is expected to see huge growth in the last few months of the year.
More and more people choose to not leave their houses amid coronavirus fears across the globe, which means that technology companies that serve consumers at home, such as Netflix, could come out as a winner from the coronavirus outbreak.
Netflix
Despite the tumble in the broader market averages, Netflix stock, along with other home entertainment stocks have been less affected. Netflix stock has made somewhat of a comeback after a solid run in 2018 – it has seen an increase in stock value of some 40% since September. On the stock market [5] on Thursday 27th February, the video streaming provider fell 2% to 371.71 after spending most of the session in positive territory.
Raymond James analyst Justin Patterson commented[6]: "We believe Netflix is in a unique position to benefit from 1) a solid content lineup; 2) normalisation of competitive landscape; 3) increased consumer time spent indoors". It makes perfect senses - more and more people choose to not leave their houses amid coronavirus fears across the globe, which means that technology companies that serve consumers at home, such as Netflix, could come out as a winner from the coronavirus outbreak.
Netflix stock ranks number 15 on the IBD 50 list[7] of top-performing growth stocks.
[1] https://www.fool.com/investing/2019/11/19/why-its-time-to-buy-mcdonalds-stock.aspx
[2] https://www.fool.com/investing/2020/02/25/3-stocks-im-buying-if-the-coronavirus-selloff-gets.aspx
[3] https://finance.yahoo.com/news/7-u-stocks-buy-coronavirus-195612724.html
[4] https://finance.yahoo.com/news/7-u-stocks-buy-coronavirus-195612724.html
[5] https://www.investors.com/market-trend/stock-market-today/stock-market-today-market-trends-best-stocks-buy-watch/
[6] https://www.investors.com/news/technology/click/netflix-stock-home-entertainment-stocks-safe-coronavirus/
[7] https://research.investors.com/stock-lists/ibd-50/
It is forecasted that mobile banking is set to be more popular than visiting a high street bank branch within two years. And as the banking industry continues its digital journey, Mark Grainger, VP Europe at Engage Hub, says consumers are coming to expect more control over their data, greater convenience, and “anytime, anywhere” accessibility.
Mobile-first consumers
So far, most banks worldwide have handled the mobile era in exactly the same way, simply shrinking down traditional bank accounts and putting them on a smartphone screen without offering real innovation or engagement.
But simply pouring millions into innovation hubs and piecemeal digitisation strategies isn’t going to deliver the kind of results that will win over those tempted by the challenger banks. Traditional banks need to shift gears and use the valuable information they already have to provide customers with seamless interactions across different channels.
At the same time, banks need to understand that the digital banking revolution is more than a mobile app. It’s about creating an entire experience. The implications of failing to facilitate a seamless cross-channel customer experience – one that lives up to growing customer expectations – is huge. Today, consumers have more choice than ever before, thanks to the rise of fintech start-ups and digital-only banks, and if they do not get the level of service they’ve come to expect, they will not hesitate to take their business elsewhere.
Subscription service model
Using a service model patterned after Amazon Prime or Netflix may seem odd to many retail banks, but challenger banks are already experimenting. Would consumers pay a subscription to get the same service they do with Amazon and Netflix? The answer is yes.
Revolut is already showing itself as a front runner in subscription-based banking. The challenger provides a ‘freemium’ model, which gives users a free UK current account and a free euro IBAN account that offers no fees on exchanging in 24 currencies, up to £5,000 a month. Revolut also provides monthly subscription plans with higher thresholds for no fees, as well as instant access to crypto-currencies, cash back, travel insurance, free medical insurance abroad, airport lounge access and priority support.
Research shows that in the UK 57% of people would be willing to pay an extra monthly fee for additional services from their banks. Most consumers – 45% – would like additional media services such as Netflix and Amazon while 40% prefer earned cashback and 37% would pay for overdraft facilities.
Considering that at present, 72% of customers don’t pay any monthly fees to their banks it’s fair to say that there is a great potential for financial institutions to leverage these services and elevate their game when it comes to competing against challenger banks and unconventional financial services.
[ymal]
Trust and value
Furthermore, traditional banks have a crucial asset compared to challenger financial institutions, and that is trust. Traditional banks have a much longer and seemingly more robust security record.
The paradox is that many people trust their primary financial provider but distrust the financial services industry overall. Therefore, banks that want to persuade their customers to adopt new models and pay a potential monthly fee have to prove that they have customers’ interest at heart.
One way to achieve this is through transparency. The financial services industry still lags behind other sectors when it comes to transparent policies, costs and customer data. This needs to change and they need to show that they are keeping pace with the market trends and customer expectations.
Another crucial aspect banks need to keep in mind when it comes to monthly subscriptions is the added value they would bring to customers. If they agree to additional costs, consumers will also expect extra benefits and not just the same things they used to get for free. Without additional value added, it will seem that banks are trying to simply make some extra money thus confirming customers’ distrust in financial institutions.
If they agree to additional costs, consumers will also expect extra benefits and not just the same things they used to get for free.
Bank of America, for example, learnt this lesson the hard way when they wanted to charge their customers a $5 fee for using their debit cards for purchases. The backlash was swift and strong, and the bank had to cancel the plan within six weeks.
To avoid such situations, banks need to focus on their customers’ financial health and create personalised and holistic value propositions that will provide a competitive edge against challenger banks and convince millennials that they can provide safe and innovative solutions for life’s complex challenges.
By understanding these strategies and embracing the changes in consumer buying behaviours, financial institutions will be able to create new ways to generate recurring value for their customers and new sources of predictable income.
Key skills
However, in order to transform their approach to digital transformation and subscription models banks will also need the right skills and capabilities.
A new CBI/TCS report highlights the UK’s rapidly accelerating digital talent gap as new technologies transform the way we live and work. Currently, the UK is losing out on £63bn a year as companies struggle to find people with digital skills. Areas of banking that need to be a focus for investment include the use of AI in customer profiling, money laundering detection and improving customer services. All of these investments require emerging technology to be implemented, and employees with the skills to manage it. Banks will need to implement training programmes, smart hiring strategies, and strategic digital transformation programmes to attract tech talent and implement a customer experience to rival challenger banks.
And whilst providing subscription services to their customers might require considerable resources and a significant shift in strategy and policies, engaging the new generation of digital-first customers is paramount if traditional banks want to remain relevant and fend off challenger financial institutions. Harnessing this opportunity will provide a critical competitive edge, inspire loyalty and make customers feel valued.
Many industries have already adopted this system and have reaped significant benefits already. It’s high time for traditional banks to challenge the current status quo as well and reap the benefits of a subscription model.
If it was possible to rewind back to 1999, we’d all invest in Apple stock instead of that VHS Recorder. In a new study by SmallBusinessPrices.co.uk, we analyse the priciest stocks of 2019 and what you could have bought with $100 over the decade.
Amazon is the most expensive stock, with the average stock price calculating to a whopping $1,752 - meaning $100 couldn’t buy you any stock, whilst in the year 2000 you’d be able to afford just two.
As one of the top e-commerce platforms in the world, Amazon gets more than 197 million visitors each month, and in 2018 the company’s share of the US e-commerce market hit 49%.
Based on the average stock price of Apple in 2000, $100 could have bought you around 35 stocks, whilst this same value wouldn’t buy a single stock based on 2019’s average stock price.
Steve Job’s innovative and visionary approach led to Apple becoming one of the biggest tech giants in the world. The launch of the iPod revolutionised the portable media player market, eventually launching iTunes which essentially changed the world’s understanding of digital media and the music industry.
Who’s worth more?
Microsoft top the leaderboard this 2019, with the company’s net worth being valued at $1 trillion - one of the only three companies to pass this figure, with Apple and Amazon being the other two in recent years.
Amazon takes second place for net worth, being worth around $928.5 billion, whilst Apple follows behind on $892.1 billion.
Despite Apple taking third place for net worth, the brand still remains champion for yearly revenue. In 2018, the giant made over $265.6 million - higher than both Amazon and Microsoft who made $232.9 and $110.4 million respectively.
What are unicorns?
A unicorn business is a startup with a valuation of $1 billion, they are privately held and rely on venture capital. The name ‘unicorn’ comes from the rarity of businesses gaining such success.
Which sector is taking the lead?
Despite unicorn companies being private and not being publicly traded, if you’re hot on investment and want to keep an eye on which sectors seem to tip the edge, we’ve taken a look at the sectors which are most likely to become unicorns.
With over 360 companies being valued at $1 billion this year, the e-commerce sector took the lead, with 42 companies being declared as unicorns. This was closely followed by Fintech, which saw 39 companies join the leaderboard, whilst Internet Software & Services took third place with 32 companies.
Ian Wright from SmallBusinessPrices.co.uk stated: “Unfortunately we can’t go back in time and invest that $100 we spent on junk, in Apple or Amazon! However, this research reveals just how quickly some of these brands have grown in the last few years, and how privately held start-up companies are also experiencing huge valuations from investors taking big risks to be successful.”
Investments of the 2000s
To see how much $100 could have bought you in the 2000s, or find out more about unicorn start-ups in more detail, you can take a look at SmallBusinessPrices.co.uk’s tool here.
Video streaming services such as Netflix and Amazon Prime have now been reported to have more subscribers than traditional pay-per-view TV services in the UK, according to new figures released by Ofcom. This of course also applies on a global scale, in the US and beyond.
This week Finance Monthly asked experts in the media industry, communications sector and markets experts what they thought of the proliferation of online streaming services and their impact on traditional TV.
Luke McDowell, Context Public Relations:
Netflix is a brilliant example of a business that adapted and reinvented itself to become not only a giant of the streaming world, but the television and film industry as a whole. It is of no surprise that streaming service subscribers now outnumber the traditional pay TV subscribers.
British television has lagged behind the streaming services for a while now, it’s no longer enough to make your programming available on catch-up, you must now realise the market need for ‘binge-watching’; as this is where Netflix and Amazon Prime have cut their teeth. Users want to be able to experience a whole series in a matter of days or even hours, and as attention spans dwindle, so do the returning viewers on typical week-by-week scripted programming. I think the next big trend we will see is studios closing the gap between seasons, so we may even see one or two seasons of a show in the same year, in order to offset the inevitable audience number drop.
We have already seen some of the traditional broadcasters sell programming to streaming giants, either after the initial air date or in other non-native territories, which has been a step in the right direction. However, in order to future-proof themselves, traditional pay TV providers must cater to a new generation who want to watch content whenever and wherever they are, without the arduous wait for the next episode.
This generation also want the ability to pick and choose subscriptions, with one individual possibly having accounts with multiple services. In my experience of working with streaming services over recent years, this is something that was recognised by early contenders such as Roku who created a set-top box built for streaming that was smaller, more portable and more user-friendly than your typical offering, and offered compatibility across a range of services. Offerings such as TVPlayer have also started to bridge the gap between streaming and traditional British television by bringing live TV to younger, more mobile generations through their app; this is something traditional pay TV institutions should take note of.
John Phillips, Managing Director, Zuora:
It’s no secret that the media industry has changed. A few years back, it was in crisis. The shift towards digital meant advertising spend was predominately diverted to the tech powerhouses such as Google and Yahoo!, resulting in a widespread fear that consumers would never again pay for online content.
A few years later, we started to see a few media houses take control and implement basic paywalls in order to access premium content. This slight adjustment jumpstarted revenue, and for the first time since the crisis, brought growth in through their respective subscriber basis.
Since then, the wider media industry has caught on and subscription services have evolved tenfold. Today’s subscription services have morphed into flexible and adjustable models, where media brands have the power to create unique, effective and profitable plans.
From the standard rate plans for weekly, monthly or quarterly subscriptions, to flexible charge models - per article or per download - the ability to adjust has allowed media leaders to test and try what clicks with their subscribers. As a result, they’ve created a successful and reliable revenue model independent from advertising.
David Ciccarelli, CEO and Co-Founder, Voices.com:
Before I got married, we cut the cord to the TV. This was likely predicated by growing up in a household where there was a one hour limit on the amount of television we could watch. When considering starting a family of our own, my wife and I agreed that books and the Internet would be the primary source of news and knowledge entering the home. Since then, we’ve never been a cable subscriber, and I think I know why.
What Netflix does well is facilitating the act of discovery. First, by allowing viewers to create their own profiles, the platform recalls the shows that you watched, but also those in progress that you likely want to finish. By analysing the viewing habits of the individual, Netflix can make recommendations seemingly tailored to your unique preferences.
While recommendations are a good means of discovering new content, it’s equally enjoyable to navigate the categories of both movies and TV series’ in hopes of finding something new. Surely, TV networks could better organize their content using a similar structure. Let’s move beyond the timeline and give the viewer alternative paths for discovering what’s on right now, and in the future.
It’s well understood that TV is advertiser-supported. However, perhaps it’s time to innovate beyond standard ad formats, the ubiquitous 15 and 30-second spot. Shorter spots may be one option, or subtle overlays may welcome new advertisers looking to reach audiences in fresh new ways. While I certainly don’t claim to have the answer on this one, I’d like to encourage broadcasters to consider this space ripe for innovation.
Both Netflix and the movie theatre experience are very immersive. In our household -- and I’ve heard of others doing the same -- sitting down for a show on Netflix, even one as short as a single episode, involves getting snacks, drinks, and blankets on a cold day. When visiting others, I have yet to see or hear of a similar ritual when flipping through the channels on TV for an indefinite period of time. Live sports may be the rare exception. Nonetheless, programming could be designed in such a way for the viewer to suspend their disbelief. Constant interruptions ruin the flow of the experience. Networks should consider new ways to keep the viewer watching and engaged.
Chris Wood, CTO, Spicy Mango:
British TV will have to change the way it operates if it wants to compete with internet giants such as Amazon and Netflix. OTT providers are under still under no obligation to adhere to the usual broadcast guidelines, giving consumers access to content whenever they want it. On the other hand, the linear world is still heavily regulated, particularly around watershed, and this essentially positions OTT at an advantage and has allowed those businesses to innovate faster.
Increased regulation, processes and rules are proven factors of reducing innovation, which the Broadcast sector has seen a lot of in current years. When boundaries are allowed to be pushed, technology has space to innovate and becomes more attractive to different businesses. The fact is, that internet giants free from regulation have completely captured the market and audience today and consequently the traditional broadcasters have been left behind. But how could we introduce regulations that apply to all and how would it work? How would a watershed rule be enforced in catch-up OTT? Would it require credit card verification to prove age? Is PIN enforcement enough? Or should it be enforced at all? Rather than locking everyone in, why don’t we open the doors?
Providers like the BBC need to be freed from constraints like this in order to innovate. With less and less Millennials tuning into live TV and more opting for paid for streaming services like Netflix on a device of their choosing, there is little value for this demographic in their TV license fee if they are only going to watch odd World Cup match or the news. OTT products and services have grown rapidly – primarily because of the flexible nature of viewing that is offered. For British TV to grow its user base and capitalise on these benefits – it’s time to remove the shackles.
The result would give viewers more platform choices and enable content developers to create more relevant programmes for their audiences.
Chris Lawrence, Head of UK Communications, Media and Technology Consulting, Cognizant:
In many ways, we are living a golden age for television. Technology giants, like Netflix, have raised the bar, spending more than ever before on high quality shows. It has become clear that to keep up, broadcasters need to make sure that they are investing more money on producing shows and films that draw in audiences. But in order to spend additional budget on production, cost savings need to be made elsewhere.
That is why broadcasters are using technology to streamline back-end operating costs. Automating back-end operations is a crucial step towards greater agility, enabling broadcasters to maximise revenue from content. A good example of this is UKTV’s investment in a new broadcast management system to provide greater flexibility to schedule and manage content across its channel brands and support Video on Demand viewing.
Broadcasters also have a chance of winning back customer loyalty through providing a slick customer experience and reducing any friction along the customer journey. Reacting to this challenge, last year the BBC announced it would be using artificial intelligence (AI) to “better understand what audiences want from the BBC". The initiative, launched in partnership with eight UK universities, will take the learnings and directly apply them to the BBC’s UK operations. The use of AI to boost the customer experience and streamline services will crucially enable broadcasters to invest more heavily in the front of screen services. Because ultimately, content is king.
James Gray, Director, Graystone Strategy:
As technology has changed so have subscription models and hence we now have a shift towards Amazon Prime and Netflix from pay TV. There was a time when TV content was consumed by a family with one subscription per household and only one device - a TV - in the house to watch it on.
Now individuals consumers have multiple content subscriptions and many different devices so they can access programmes on the bus, in the park, at the station, by the pool on holiday, and in a different room to another family member. Smart phones and tablets have enabled this, as well as the availability of wifi and more recently better rates for data and data roaming.
But there are some real polar differences as to which customers take which TV service. Graystone segmentation analysis shows that older customers “Settled Seniors” have the lowest take up of Pay TV, with 53% having Pay TV like Sky or Virgin and only 17% taking internet TV models like Netflix or Amazon. Unsurprisingly the Technology Trailblazer segment, which is much younger, has the highest adoption rates - 65% and 56% showing that they are taking multiple subscriptions. It’s a clear indicator of where the market is going and where providers need to place their bets.
The younger segments are also far more transactional, so for example if a show moves from Prime to Netflix they will move too. Amazon’s move into football will no doubt cause some ripples in the market. It illustrates that as well as offering convenience, the content has to be right too. You must know what your customers like and provide more of it - Netlfix is very good at producing original drama for this reason.
What fascinates me is where the subscription economy is going. I can pay for shaving products, gin, dog food even socks on a monthly subscription. We can’t be far away from a time when all subscriptions can be managed under one mega bundle - TV, mobile, broadband, gas, electric, gin, socks, car access, and who knows what else.
As millennials care less about ownership and more about experience and access, we will see more and more subscription models managed via smart phone apps. And for companies that has to be a great thing, particularly if consumers manage their subscriptions like my gym subscription - 36 monthly payments to date and just 5 visits! (But next month I am definitely going more regularly!)
Alistair Thom, Managing Director, Freesat:
With a raft of new entrants in the market and increasing choice for consumers driving change in viewing habits, there’s no argument that TV services in the UK and elsewhere are facing tough challenges. Whether that’s competing for content rights against global companies with huge budgets or facing up to new distribution opportunities offered by online services.
Yet from a Freesat perspective, we believe that Ofcom’s report suggests that new entrants offer a great opportunity for subscription free platforms like ourselves. While On Demand services offer new choice and flexibility for customers, they do not offer all of the content customers want, nor can they offer the same level of shared experience as the “appointment to view” TV moments found on traditional broadcast TV; whether that’s amazing sporting events like the World Cup, global spectacles like the Royal Wedding or this summer’s “OMG TV” in Love Island.
Our research[1] has shown, that the most watched programmes are consistently those available on free channels, even in homes signed up to a pay TV subscription. These pay platforms must now face up to the additional challenge to their business models offered by new entrants with lower monthly fees and no long-term contracts.
I strongly believe that the UK has the best free-to-air TV in the world and while methods of entertainment consumption are clearly evolving, especially amongst younger viewers, there will still be a place for more traditional viewing in the changing media landscape for many years to come.
[1] Freesat carried out omnibus research with OnePoll in May 2017, surveying 2,000 TV subscribers on their TV habits.
It seems like every business is now charging a monthly subscription, but, if done right, that’s not always a bad thing.
Billions lost, reputations ruined and company's that never recover. Business can be unforgiving. Saying yes to the wrong idea can lose you and your company millions or even result in bankruptcy and the demise of a business. So you have to make sure that the decisions you make are correct. But sometimes businesses get it very, very wrong, with disastrous consequences. So what are the worst decisions ever made in business history?
Welcome to Finance Monthly's video countdown of the Top 10 Worst Business Decisions in History. We examine the 10 most catastrophic choices made by companies ever and the effect each of these. Every one of the mergers, or new business ideas in the video above resulted in severe consequences for the parties involved, whether it be huge financial losses or reputational damage. In some cases, it was the reluctance to see a glittering opportunity in front of their own own eyes that led to the eventual demise of some of the industry's heaviest hitters. From Apple and Coca-Cola to Star Wars, we explore the business decisions that have cost companies and businessmen millions.
So sit back and enjoy our video highlighting the 10 worst business decisions ever made.
Have we missed any disastrous decisions that cost companies millions? Let us know in the comments below.
Apple makes an astonishing amount of money but this presents an interesting challenge for the company and raises questions about what they should do with it all.
