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Tech stocks pull Wall St down with Netflix hit hard, while Google and Facebook fight a curb on content

Published: 10:18 21 Jan 2022 AEDT

Netflix Inc - Tech stocks pull Wall St down with Netflix hit hard, while Google and Facebook fight a curb on content

Wall St repeated the same pattern on Thursday that saw it rise and fall on Wednesday. 

At the end of trading in the US, the Dow Jones Industrial Average had fallen 0.9%, while the S&P 500 lost 1.1%. The Nasdaq finished 1.3% lower. This is despite all US benchmark indices gaining more than 1% in earlier trade. 

All of this leads to a slow start on the ASX.

ASX SPI 200 futures were trading 0.9% lower to 7179 as of 9.27am AEDT.

Iron ore was up again, this time by 2.6%, or $US3.45, to $US133.65 per tonne. 

Here’s what we saw: 

  • The Aussie dollar rose from lows near US72.20 cents to highs near US72.75 cents but fell back to US72.20 cents in late US trade.
  • Global oil prices ended flat as short-term supply concerns continued to support prices. Reuters reported that "US product supplied, a proxy for demand in the world's largest consumer, reached 21.2 million barrels per day over the past four weeks, ahead of the pre-pandemic pace."
  • OPEC+ has also continued to produce less oil than its target level in December.
  • The Brent crude price fell by US6 cents or 0.1% to US$88.38 a barrel.
  • The US Nymex crude price fell by US6 cents or 0.1% to US$86.90 a barrel.
  • Base metal prices rose by between 1.6-2.5% with nickel up the most, but lead fell by 0.6%.
  • The gold futures price fell by US60 cents or less than 0.1% to US$1,842.60 an ounce.
  • Spot gold was trading near US$1,838 an ounce at the US close.
  • Iron ore rose by US$3.45 or 2.6% to US$133.65 a tonne.

Australian market

Calls for isolation rules to change

As WA locks down indefinitely … again, Australian Industry Group chief Innes Willox says has called for changes to isolation rules as well as bringing migrant workers and backpackers back to help with the job shortage crisis currently crippling the country.

“The reports are in some cases up to half, 50 per cent of staff aren't able to turn up because they are in isolation,” he told the Nine network.

“This is massively disruptive for business right across the board."

“There was an agreement in national cabinet to reduce the isolation period but that hasn't been adhered to by the states and it's going to be very, very difficult for business for a very long time, as long as this continues.”

BHP set to be single listed

BHP Group Ltd shareholders yesterday voted in favour of the company putting all its shares on the ASX.

Over 97% of shareholders agreed BHP should only be listed on the local exchange.

The company has been dual listed for almost two decades, with a secondary listing on the London Stock Exchange.

The move will strip London’s FTSE index of one of its largest companies, however both the UK’s BHP Plc and local shareholders have backed the move.

This is one of many changes CEO Mike Henry has made since taking the reins in 2020.

Henry has struck deals to divest its oil and gas assets and many of its coal mines and has been freeing up cash to concentrate on copper and nickel as it moves into the electric vehicle and clean energy space.

BHP chairman Ken MacKenzie urged investors to support the move which would put BHP in the “best position to capture the opportunities presented as our world evolves”.

“We value simplicity,” he said. “And having two parent companies listed in two locations is complex, and managing them requires significant management time and focus.

“We are not the same group we were in 2001,” he said. “Our most recent review ... concluded that now was the right time to unify – facilitating a corporate structure that better supports the BHP of today and the BHP of tomorrow.”

In 2001, BHP’s London entry contributed about 40% of earnings, today that is just 5%.

“From an overarching standpoint, it means that shareholders will have a company with a corporate structure that is “fit for purpose to support the BHP we are today and our exciting future,” MacKenzie said.

US markets

Netflix stock plunges

Netflix Inc (NASDAQ:NFLX). was one reason Wall St performed so poorly in late trading, down nearly 20%.

While the streaming giant brought in eight million new subscribers in the holiday quarter, trailing its expectation of 8.5 million, executives expect even slower growth to start 2022.

Several analysts had already called the shortfall. JP Morgan’s Doug Anmuth feared significant shortfall in the coming months.

“We now project 4Q Net Adds of 6.25 million, down from 8.8 million previously, and below NFLX’s NFLX, -1.48% 8.5 million guide,” Anmuth said in a note that trimmed Netflix’s price target to $725 from $750.

“For 1Q, we now model 5.5 million Net Adds, down from our prior estimate of 6.5 million.”

“We believe 4Q Net Adds were lumpy as NFLX started the quarter w/significant spike and buzz around Squid Game, which was released in late September,” Anmuth wrote.

“Download growth then slowed and ultimately declined into early December before picking up on more favourable seasonality and stronger content releases.”

According to eToro analyst Josh Gilbert, "Global streaming platform Netflix today announced its Q4 earnings of USD$1.33 per share on revenue of US$7.71 billion, compared to analyst expectations of US$0.80 per share on revenue of US$7.71 billion. 

“It was the second straight quarter of solid subscriber growth for Netflix, reporting 8.28 million, its highest recorded figure in 2021. This was an expected side effect of the spread of the Omicron variant, which has resulted in more people being isolated and stuck at home, as well as a slew of new content released over the last six months of 2021. However, its weak outlook has sent shares tumbling out of hours. 

“The cost of new content is coming at a significant price for Netflix, with its margins taking a hit this quarter, down 42% year-over-year. Its share price has dropped 12% in the last year, as it continues to struggle with slower subscriber growth, burgeoning competition and rising costs. To counteract this, Netflix recently increased its fees in the United States and Canada, which could act as a headwind if investors opt to switch off.

“The Asia Pacific region (APAC) had another strong quarter, reporting the highest subscriber numbers since the pandemic, adding 2.5 million new subscribers. In Q3, the worldwide phenomenon Squid Game helped Netflix better access the APAC market, and it’s anticipated that there will be an array of additional foreign language content from Netflix in the coming 12 to 18 months, continuing to open up a significant addressable market. Compared to the United States and Europe, lower production costs in APAC will also assist the company's bottom line.

“The standout from the report, however, was the disappointing guidance Netflix has offered. In the first quarter, the streaming service expects to gain only a mere 2.5 million users, falling short of expectations and indicating that growth is slowing. 

“With fierce competition and escalating expenses, Netflix faces a number of potential challenges in 2022 and this Q4 report demonstrates that it's going to potentially be a difficult year."

Netflix executives have said a lack of new programming is partly to blame for the slump.

“Our guidance reflects a more back-end weighted content slate in Q1’22 (for example, ‘Bridgerton’ S2 and our new original film ‘The Adam Project’ will both be launching in March),” Netflix ececutives wrote in a letter to shareholders announcing the results.

“In addition, while retention and engagement remain healthy, acquisition growth has not yet re-accelerated to pre-COVID levels. We think this may be due to several factors including the ongoing COVID overhang and macro-economic hardship in several parts of the world.”

Generally speaking

While the markets were down shares in Travelers were up 3.2% and Baker Hughes rose 1.6% after posting earnings results.

Shares in 'stay-at-home' stock Peloton fell 23.9% on a report indicating that it was pausing production of fitness equipment.

At the close, the Dow Jones index was down by 313 points or 0.9% after earlier being up 462 points. The S&P 500 index fell by 1.1%. And the Nasdaq index fell by 186 points or 1.3%.

European markets

Took the opposite approach to Wall St to finish higher.

Travel stocks led the gains up 2.9%, with Ryanair posting a 4.2% gain having expressed confidence about a recovery in travel demand later this year.

The pan-European STOXX 600 index rose by 0.5%. The German Dax index rose by 0.7% despite data showing a record rise in German producer prices in December.

The UK FTSE index eased by 0.1%.

In London trade, shares in Rio Tinto fell by 1.3% while BHP shares rose by 1.2%.

Content catastrophe for Google and Facebook

The European Parliament has approved a proposal to curb on online content with bans on the most intrusive methods of advertising.

The Digital Services Act (DSA) is aimed at ensuring tougher consequences for platforms and websites that violate a long list of rules on content, including Google and Facebook.

“The largest platforms can no longer hide behind a veil of ignorance,” Danish MEP Christel Schaldemose said.

Schaldemose has spearheaded the law through parliament and has called the law a new “gold standard” in tech regulation.

“They’ll be forced to face up to the consequences of their algorithms,” she said.

Fines could be as heft as 6% of their global sales.

“What happens on the internet, parents see it, it’s the Wild West,” said EU commissioner Thierry Breton, who tabled the original proposal in December 2020.

“We don’t know what kids are doing anymore… harassment, hate speech, attacks on democracy, personal attacks, counterfeit products.”

 “What is allowed in everyday life will be allowed on the internet, but everything that is prohibited will be as well,” Breton told RTL radio in France.

A complete ban on advertising tracking was also marked.

“The battle is not over,” said French MEP David Cormand of the Greens group, who defended the DSA as a “first step”.

“We need to be more ambitious in tackling the manipulative algorithms and the divisive business models of Big Tech,” he said.

The French government, which took over the EU’s six-month presidency on January 1, will negotiate with senior MEPs on a final outcome at the same time the big tech companies will attempt to influence the final law.

During that time, big tech companies and other interests will continue to lobby furiously to influence the final law.

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