Ted Sarandos was just named co-chief executive at Netflix and already he faces a difficult task: soothing investor anxiety about slowing growth at the video-streaming giant.
The company tapped its longtime chief content officer to take the top job, alongside current chief executive Reed Hastings, on a day when it delivered a disappointing subscriber forecast and sent its shares plunging as much as 15 per cent in late trading.
The world’s largest paid streaming service expects to sign up 2.5 million new subscribers in the third quarter, compared with the more than 5 million expected on Wall Street.
That’s a steep comedown from Netflix’s ferocious growth in the first half of the year, when pandemic-fuelled lockdowns sent consumers scrambling to sign up for the service. Netflix added 10.1m new paid customers in the second quarter, beating Wall Street’s average estimate of 8.27m. And the company finished the second quarter with almost 193m subscribers.
Netflix warned in April that its growth would slow in the coming months, but investors were hoping to be pleasantly surprised. They bid up the company’s shares to record highs in recent weeks. The stock is up more than 60 per cent for the year, vaulting Netflix’s market value past the likes of Walt Disney.
The change at the top was another curve ball for investors -- co-CEO arrangements often aren’t successful -- but Mr Hastings and Mr Sarandos have already worked together for decades and the title just made their existing partnership official, Netflix said.
Mr Hastings, 59, has run Netflix from its Silicon Valley base in Los Gatos, California. The 55-year-old Mr Sarandos, meanwhile, is more like the head of a studio, operating from Los Angeles.
The global pandemic has been a boon for Netflix, accelerating the shift toward online, on-demand TV and movies around the globe. With movie theaters, concert venues and sports arenas still closed to patrons in much of the world, people stuck at home have turned to Netflix and other streaming services for entertainment.
The company also scored big hits with original movies, including “Extraction” and “The Wrong Missy,” as well as reality TV shows “The Floor Is Lava."
Yet the company has warned that the surge in new customers makes it harder to maintain that pace.
“When we think about the guidance for the third quarter, we’re not thinking about it just in itself,” chief financial officer Spencer Neumann said on a call with analysts. “We just added 10 million members, which is the largest growth we’ve ever had in the second quarter.”
Netflix also downplayed concerns that it will run out of new content soon. While production halted in almost every country due to the pandemic, Netflix has said it already has the programming it needs for this year and the first half of 2021.
The streaming service has released more than 30 movies since mid-March, and has had particular success with star-driven action films like “Extraction” and “The Old Guard.”
“Extraction,” starring Chris Hemsworth, delivered the biggest audience of any Netflix original movie in its first four weeks.
“We want to have so many hits that you know when you come to Netflix, you can just go from hit to hit to hit, and never have to think about any of those other services,” Mr Hastings said on the call.
The second quarter results were unusual in that the US and Canada provided the largest boost in new customers. While that remains Netflix’s largest region, growth there has been slower of late because of how many people are already customers.
On a regional basis, the US-Canada market led with 2.94m new customers. Europe, the Middle East and Africa added 2.75m, bringing the total there to 61.5m. Netflix gained 2.66m customers in Asia and 1.75m in Latin America.
Second-quarter revenue rose to $6.15 billion (Dh22.6bn), beating the average of analysts’ forecasts. But earnings of $1.59 a share fell short.
The company also faces plenty of competition. In addition to contending with new streaming services from Apple, Disney, Comcast's NBCUniversal and AT&T's WarnerMedia, Netflix cited the TikTok video app as a rival on Thursday.
Netflix shares fell as low as $449.65 in after-market trading, putting an end to one of the biggest rallies of the year. The company’s valuation was almost $232bn at the close of trading on Thursday.
What drives subscription retailing?
Once the domain of newspaper home deliveries, subscription model retailing has combined with e-commerce to permeate myriad products and services.
The concept has grown tremendously around the world and is forecast to thrive further, according to UnivDatos Market Insights’ report on recent and predicted trends in the sector.
The global subscription e-commerce market was valued at $13.2 billion (Dh48.5bn) in 2018. It is forecast to touch $478.2bn in 2025, and include the entertainment, fitness, food, cosmetics, baby care and fashion sectors.
The report says subscription-based services currently constitute “a small trend within e-commerce”. The US hosts almost 70 per cent of recurring plan firms, including leaders Dollar Shave Club, Hello Fresh and Netflix. Walmart and Sephora are among longer established retailers entering the space.
UnivDatos cites younger and affluent urbanites as prime subscription targets, with women currently the largest share of end-users.
That’s expected to remain unchanged until 2025, when women will represent a $246.6bn market share, owing to increasing numbers of start-ups targeting women.
Personal care and beauty occupy the largest chunk of the worldwide subscription e-commerce market, with changing lifestyles, work schedules, customisation and convenience among the chief future drivers.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Killing of Qassem Suleimani
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Name: Yousef Al Bahar
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Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
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