Pavan Sharma

Global markets were up on Friday, with US markets (S&P 500 Index +1.7%) experiencing a fourth straight week of gains – the longest run since November last year. 

Global markets were mixed overnight, as US markets (S&P 500 Index) pared back early gains to end the session flat. There seems to be an element of profit-taking post the rally that followed softer-than-expected inflation data, with the Federal Reserve still set to keep tightening monetary policy.

Global markets traded up strongly overnight, with US markets (S&P 500 Index +2.1%) jumping to a 3-month high as US Inflation (CPI) data came in lower than expected.

Netflix shares have traded higher after it posted better than expected result, losing ‘only’ 1 million subscribers, doing better than management’s guidance of a 2 million subscriber loss. While an early disruptor in the sector, and a huge benefactor from covid lowdown, these tailwinds are quickly waning and competition is intensifying.

The company expects ~$2 billion in free cash flow for 2022 and a significant increase in 2023 (we project ~$2.2Bn). This healthy projected increase in cash flow is due to management reigning in content spend to ~$17 billion annually, as the “content wars” slow down. We think investors should be breathing a sigh of relief on this news.

However, we view Netflix as a content company with a web platform. Netflix trades at ~19x forward earnings multiple whilst Paramount and WarnerDiscovery can be purchased for ~7x earnings. Additionally, Netflix is hampered by a lack of a content library — both WarnerDiscovery and Paramount have extensive libraries going back decades, with solid franchises such as Star Trek, DC, etc. Netflix either needs to pay for content libraries or constantly generate new shows and movies. This puts Neflix at a constant disadvantage, and its previous advantage — scale — has been eroded as more consumers switch or add other services. Paramount+ added 4.9 million subscribers in this last quarter, and WarnerDiscovery added 1.7 million subscribers, bringing its total streaming audience to ~92.1 million. Netflix’s scale is no longer enough of a ‘moat’.

We downgrade NFLX from a HOLD to Under-weight.

Global markets were lower overnight, as US markets (S&P 500 Index -0.4%) fell for a third day in a row as investors brace for much anticipated US inflation data for the month of July.

Technical Charting Analysis: Over the past year, THL broke through a resistance level of $2.65, late last year. THL spiked on its attempt to takeover Apollo tourism and leisure, which has seen regulatory set backs causing the stock to pull-back to pre takeover.

We reiterate our BUY rating for Nike, albeit underweight, because of these caveats: i) the looming recessionary environment, ii) continuing supply-chain woes alongside China’s zero-covid policy and iii) elevated freight costs. We reiterate our view that Nike is a hugely valuable brand with recognition similar to Apple and Coca-Cola, however we caution against too much optimism in the next few quarters as we expect the company to continue to be impacted by the issues we have mentioned.

Global markets were mixed overnight, as US markets (S&P 500 Index, -0.1%) ended in the red erasing earlier gains as markets retraced following a strong couple of weeks.