Wednesday 21 April 2021 7:33 am

Netflix catches a chill while inflation is knocking at the door

When you see American Airlines fall 8 per cent because it announced a bigger-than-expected loss in the first quarter, you are fine with that information.

But when you see Netflix plunge 10 per cent after-market because it missed estimates, that’s a shocker.

Read more: UK inflation climbs to 0.7 per cent in March

Netflix surprised to the downside yesterday, according to Ipek Ozkardeskaya, a senior analyst at Swissquote, because the company added less than 4m subscriptions in the first quarter versus 6m expected by analysts and said it expects to add just one more million in the June quarter.

“That’s a quarter of the 4m expected by analysts. So, the low production costs helped but didn’t compensate for the slow revenue stream due to less production as well,” she said.

“It appears that Netflix started feeling the pinch of the end of the lockdown measures and the company could be reaching its potential for now, Ozkardeskaya added.

Read more: Production delays weigh on Netflix as firm misses new subscriber forecasts

Elsewhere, Johnson & Johnson posted stronger-than-expected earnings and its vaccine will continue being given in Europe despite some issues.

But more importantly, Ozkardeskaya stressed, Procter&Gamble said it will increase its products price due to higher raw material prices. 

“Ouch for parents, Pampers’s price will go higher, and ouch for the economy, because that’s how we will start seeing a further and perhaps a sustainable jump in inflation moving forward,” she explained.

Read more: Johnson & Johnson posts $100m in Covid19 vaccine sales as profit beats expectations

Fed

The Federal Reserve (Fed) head Jerome Powell said that any rise in inflation won’t last long enough to compromise the Fed’s inflation target of ‘an average of 2 per cent’, but as long as the price increases are justified by rising raw material costs, Ozkardeskaya thinks it may.  

“For now, the US yields show no signs of stress, however. The 10-year benchmark is back to 1.56 per cent. But at this point, I start questioning whether the rising inflation, and stronger case for a more hawkish Fed policy isn’t just a way to say stop to the speculative price actions that we see in unexpected assets.”

Read more: Barclaycard defends decision to cut customers’ credit limits by 95 per cent

“Could the 8700 per cent rally in Dogecoin explain why Jerome Powell seems so detached regarding the rising inflationary pressures? Because one thing that makes speculation so appealing for people who would not speculate otherwise is the fact that the low-risk assets, such as US or European treasuries do no longer compensate their holders.”

There is a huge pool of negative yielding debt in the market, Ozkardeskaya continued.

“By the end of last year, it was just about $18 trillion; no wonder people look for alternatives. What’s crazier: paying to hold the German debt or buying Dogecoin. It’s open for discussion,” she concluded.

Read more: UK inflation climbs to 0.7 per cent in March

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