Netflix beats, Tesla climbs

Equities

Netflix posted an earnings beat and better-than-expected net subscriber additions, but softer guidance on net adds was a slight drag. Shares rallied 2% after market. US net adds were mildly disappointing but growth in international markets was well ahead of forecast.

The company needs subscriber growth to be maintained at least at these levels, but the softness in the US – where net adds missed slightly – are a worry. Higher prices and competition are affecting consumers in the US. The good news is that international growth is exceeding expectations, which should more than compensate for plateauing in the far more mature US market. 

We’ve yet to see how competition from the likes of Apple and Disney will really affect subscriber growth. The guidance from Netflix suggests competition is going to be more of a worry going forward, as we would anticipate, but the proof will be in the 2020 numbers. As noted in our preview, consumers are meeting a sudden explosion of choice in streaming services that did not exist a year ago. This is relatively new and uncharted waters for Netflix. Instead of winner takes all, Netflix will need to be content to be primus inter pares, the first among equals. 

Tesla hit the $100bn market cap – a level which if maintained will trigger Elon Musk’s options package – in extended trading. The stock jumped 7% in the normal trading session, before adding a further 1.3% after hours to hit $555 and become the first car maker to achieve a $100bn valuation. Earlier New Street Research raises its price target on Tesla to $800. Tesla reports Q4 numbers on Jan 29th – see our preview for more.

Sainsbury’s boss Mike Coupe at last read the writing on the wall, bit the bullet and fell on his sword after the Asda merger debacle. As I noted last May: will Mike Coupe fall on his sword after the Asda deal failed? Or will he embark on a major turnaround of the business? I would feel the former is more likely. Questions persisted over his leadership after the CMA blocked the deal – to be fair it looks with the appointment of Retail and Operations director Simon Roberts as his successor, the passing of the baton by Coupe has been long in the planning. Coupe pulled off the Argos deal with aplomb, but he will be remembered for the Asda disaster – a hubristic and entirely obvious failure from the get-go. It also left management with their eyes off the ball just as margins really were pressured and as Tesco, Morrisons and the German discounters got their act together. But on the plus, there have been some, minor tentative signs of improvement in the core grocery division of late that his successor will want to accelerate sharply. Competition is fierce, but it’s not just discounters like Aldi and Lidl parking their tanks on Sainsbury’s lawn. Sainsbury’s did well when Tesco was facing problems and Morrisons was a long way short of where it is now. Both of those have undergone impressive turnarounds, Having put all its eggs in one basket with the Asda merger, a new boss is the right course of action.

Burberry – Good numbers here with an upgrade to the 2020 forecast, Revenues now seen rising by a low single digit percentage point, versus pervious guidance to remain flat. China sales picked up with Mainland China sales up in the mid-teens, but the strife in Hong Kong bit as sales halved.