HOT AIR BALLOON FLIGHT

By Charles Riley • Wednesday, July 21

Good morning. In today's newsletter: Why Netflix isn't pressing the panic button. Plus, a prominent Japanese CEO says the Olympics are losing their commercial value, and China extends its tech crackdown.

 

US stock futures point to more gains after markets roared higher on Tuesday. Markets in Europe gained in early trading, while stocks in Asia closed mixed.

 

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MARKET FLASH

Why Netflix isn't pressing the panic button

Netflix lost 433,000 subscribers in the United States and Canada during the second quarter, according to financial results issued after the bell on Tuesday.

 

That's not great news for a company that has churned out huge growth in the past, inspiring rivals such as Disney, Apple, Comcast and CNN parent WarnerMedia to launch their own streaming services.

 

But Netflix isn't panicking. The company added 10 million new global customers in the same quarter last year, when the pandemic was raging and consumers in many countries were limited to home entertainment.

 

And the streaming giant made up for weaker 2021 numbers in its home market with growth in Asia and Latin America, topping its global forecast of 1 million new paid memberships between April and June by 500,000.

 

But it also made the case that much better days are ahead. In a letter to shareholders, Netflix argued that it doesn't need to get bigger via acquisitions to fend off rivals, and it underscored its massive global growth potential.

 

"We are mostly competing with ourselves to improve our service as fast as we can. If we can do that, we're confident we can maintain our strong position and continue to grow nicely," said Netflix.

 

 

Acquisitions? No thanks: Netflix made clear in its letter to shareholders that it doesn't plan to join the media industry trend of using mergers and acquisitions to get bigger and add more blockbuster content.

 

Amazon, for example, spent nearly $9 billion in May to buy MGM, the Hollywood studio synonymous with Leo the roaring lion. WarnerMedia is meanwhile combining with Discovery.

 

Netflix said it doesn't need to play that game.

 

"The industry has consolidated materially over the years, and we don't believe this consolidation has affected our growth much, if at all," the company said in its letter to shareholders.

 

"While we are continually evaluating opportunities, we don't view any assets as 'must-have' and we haven't yet found any large scale ones to be sufficiently compelling to act upon," it added.

 

Where's the growth? Netflix said the second quarter is traditionally a tough time to add subscribers in the United States and Canada, a trend made even more pronounced by the easing of pandemic restrictions in many places.

 

But this is now a global business. Netflix added more than 1 million new subscribers in Asia Pacific between April and June, and another 760,000 in Latin America. It now has 209 million subscribers around the world. 

 

The global nature of the audience — and content — is delivering benefits. Part two of the French-language heist thriller "Lupin" was a huge international hit, for example, with 54 million households tuning in over its first four weeks.

 

Netflix said there is still room to grow. 

 

Citing figures from data provider Nielsen, the company said that streaming represents just 27% of US television screen time. Netflix accounts for 7%. 

 

"Considering that we are less mature in other countries and that this excludes mobile screens (where we believe our share of engagement is even lower), we are confident that we have a long runway for growth," it said.

 

The bottom line: Netflix's second quarter profit this year was $1.3 billion, up from $720 million in the year-earlier quarter. Its revenue jumped 19%, to $7.3 billion. Shares were up slightly in premarket trading.

VOICES

We sent Jeff Bezos to space

"I want to thank every Amazon employee and every Amazon customer, 'cause you guys paid for all this.'"

 

AMAZON FOUNDER JEFF BEZOS

 

 

Read more from CNN Business

OLYMPICS MONITOR

CEO says economic losses from Olympics will be 'enormous'

One of Japan's most prominent business leaders says the Olympics are losing their commercial value.

 

Suntory CEO Takeshi Niinami told CNN Business on Monday that his company decided against being a sponsor of the upcoming Tokyo Games, saying it was "too expensive."

 

"We thought of being an Olympic partner ... but the economics didn't match up," said the chief of the Japanese beverage giant, which owns Orangina and Jim Beam bourbon.

 

Instead of signing on as an official sponsor, Suntory had chalked out another route to increase its visibility during the Games, which start Friday: the company planned to use restaurants and bars around the sporting venues to promote its drinks, and open several establishments to serve its products.

 

"I thought that this occasion would be very much a showcase for us," Niinami said in an interview. "I expected a lot of spectators from abroad to visit."

 

The decisions by organizers to ban overseas visitors and then spectators from the Games' Tokyo venues over public health concerns scrapped those plans.

 

"The economic losses will be enormous," said Niinami, estimating that Japanese businesses could have enjoyed a roughly 10% hike in sales had fans been allowed.

 

Having no domestic spectators could cost Japan's economy 146.8 billion yen ($1.3 billion), according to an estimate by Takahide Kiuchi, an economist at the Nomura Research Institute.

 

"This is the time [when] we have to think about: what is the value of the Olympics?" said Niinami. "I think the Olympics have been losing [their] value."

UP NEXT

Earnings from Daimler, Coca-Cola, Harley-Davidson, Johnson & Johnson and Verizon are out before the opening bell.

Also today →
▸ Earnings from Whirlpool and CSX after the close.

▸ Crude inventories data the US Energy Information Administration.

 

Coming tomorrow: Financial results from Unilever, American Airlines, AT&T, Domino's Pizza and Intel. Plus, the latest policy decision from the European Central Bank. 

WHAT WE'RE READING AND WATCHING

▸ You don't have to be rich to cash in on space (CNN Business)
▸ US set to drop opposition to Nord Stream 2 pipeline (WSJ)
▸ Israel used NSO spyware as diplomatic calling card (FT)
▸ What companies are doing to attract workers (CNN Business)
▸ SoftBank's robotics ambitions short circuit (Reuters)
▸ Robinhood targets July 29 for public debut (CNN Business)

FINAL WORD

China extends tech crackdown

China's internet watchdog said Wednesday that it would fine some of the country's biggest tech firms for spreading child-related obscene content. 

 

The Cyberspace Administration of China (CAC) said in a statement posted to social media that it had summoned executives from tech platforms including Alibaba's Taobao shopping service, Tencent messaging app QQ and social media giant Sina Weibo.

 

The regulator said the platforms have been ordered to "rectify and comprehensively clean up illegal information and accounts within a time limit."

 

It's the latest move in a dramatic campaign by Beijing to broaden its control over the tech sector. The CAC is the same agency that banned Didi, China's largest ride-hailing service, from app stores days after the company went public over "seriously violating laws" about data collection.