Netflix defies gravity

The online-video giant’s strategy of splurging on new programmes is paying off – for now, at least. Alice Gråhns reports. 

892-La-Casa-634
La Casa de Papel is Netflix's top non-English hit

Most of the FAANG stocks Alphabet, Amazon and Facebook "have lost their bite" recently, says Lex in the Financial Times. But "Netflix has evaded the slump". The stock has jumped by almost 40% since January. Back then, the streaming-service giant reported fourth-quarter results that included a record-breaking 8.3 million new subscribers.

Now it has reported yet more good news. Having predicted a first quarter with 6.35 million new subscribers, it now says it managed to add 7.41 million, a first-quarter record that gives it a total of nearly 119 million worldwide. Meanwhile, revenue of $3.7bn just beat estimates. The shares gained another 6% after this week's announcement.

Much of the bounce is due to its outlook for the second quarter, when Netflix has only four new series slated for release, says Elizabeth Winkler in The Wall Street Journal. This "could be worrisome" in terms of attracting new customers, yet the firm says it expects to add 6.2 million subscribers worldwide in the second quarter, a figure comfortably above the 5.24 million forecast by analysts.

Netflix is going global

It's no wonder Netflix is adding subscribers quickly outside the US, says Shira Ovide on Bloomberg Gadfly. Indeed, 5.46 million of the new subscribers in the latest quarter came from elsewhere. The company has made "a concerted effort over the last couple of years in its quest to become a global entertainment powerhouse". For instance, it has produced La Casa de Papel, a Spanish-language crime thriller that has become its most popular non-English series.But Netflix has also managed to maintain impressive subscriber growth at home. It has already signed up half the households that have fast internet service. The subscriber growth figures are proof that spending on pricey programming "is paying off" for the time being, at least.

The question is whether Netflix can keep this up, says Jennifer Saba on Breakingviews. CEO Reed Hastings has warned that the company is on track to burn up to $4bn in cash this year and will be cash-flow negative for several more years as it spends heavily on original content. If Netflix fails to attract more people to the service, or it suddenly starts to have trouble raising prices, "the model could fray". But until then, it is making "a calculated bet... that it can continue to borrow money to finance its programming splurge until it has enough paying customers to foot its own bills", adds Ovide.

Short-sellers, who have lost almost $3bn collectively this year, are frustrated. With a forward price/earnings ratio of 95, the company's valuation is extreme, says Wrinkler. Nonetheless, its "remarkable ability to keep drawing eyeballs" means it's unlikely investors will desert the stock any time soon.

Lacklustre growth hits Sage shares

In an unscheduled trading update last week, accounting-software supplier Sage admitted that it won't meet its full-year sales target following a disappointing first half, says Steven Frazer in Shares.

Sales growth in the first half of the year to the end of September 2018 was "lower than our expectations as the pace of execution has been slower than we planned", CEO Stephen Kelly (pictured) revealed. The news is especially disappointing because it comes after a similarly lacklustre start to the year in January, when sales growth was running at 6.3%. Sage has not been able to pick up the pace since then. As a result, it has had to revise down its full-year sales growth guidance from 8% to 7%. The news caused the shares to tumble by almost a fifth.

Sage bosses and investors "are beginning to look like software systems that don't talk to each other", says Carol Ryan on Breakingviews. The group's "persistent overoptimism" has irritated its shareholders.So what's gone wrong? The product software packages that help small and medium-sized businesses manage their finances "is not the problem, but sales staff might be". The ones based in the United Kingdom and Ireland failed to sell as much as the company had hoped. Meanwhile, clients in Africa and the Middle East delayed signing new licensing contracts.

Until Sage can find a fix, its goal of growing revenue by 10% each year looks ambitious. While the cloud business is doing well, thanks partly to a US acquisition, for now "Sage's problems are closer to the ground in Europe and the Middle East".

City talk

Shire has just boosted its takeover defences, says Neil Unmack on Breakingviews. The £33bn drugmaker, which is facing a potential bid from Japanese group Takeda, this week announced that it had sold its oncology business to Servier, a privately owned pharma group, for $2.4bn. The sale "strengthens the claim that investors are underestimating Shire". The price represents a "healthy" nine times the unit's sales last year twice the sales multiple the market currently ascribes to Shire itself.

"The blood-curdling threats of renationalisation emanating from Jeremy Corbyn have made quite a few investors steer clear of UK railway stock," says Jonathan Ford in FT Lombard. US buyout specialist Apollo Global Management is "clearly made of sterner stuff". FirstGroup has just outed the US buyout specialist as the reason behind the stock's "mysterious bounceback", and has rejected the approach. A successful bid seems unlikely. The business may be struggling, but with the government worried about Brexit leading to "a rash of unpopular foreign takeovers, Corbyn is not the only political player [Apollo] must contend with".

"Some shopping trips are a waste of time," says Alistair Osborne in The Times. France's Klpierre has "been wandering aimlessly around the Bullring, Brent Cross and Bicester Village for a month" and it hasn't even ended up buying Hammerson, the owner of the shopping centres. Instead, it has just walked away after raising a derisory first offer by a mere 3p a share, which was never going to be a clincher. Could it be that supervisory board chairman David Simon, its biggest investor with 20%, "just got cold feet"?

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