Netflix: Not Chilling

Netflix is not having a good 2022. This week the company reported that instead of adding 2.5m subscribers, as expected, it lost 200,000 in Q1. To be fair, the net loss was due to Netflix suspending services in Russia to show solidarity with Ukraine. The decision cost Netflix 700,000 Russian users...so the company's subscriber base actually grew by 500,000. However, the company does expect to lose 2m subscribers by July, as noted by Visual Capitalist. 

So, is streaming reaching a saturation point? Are the vast majority of consumers already getting their entertainment from Apps than their cable modems? Not even close, despite the spectacular growth of streaming in the last few years. According to Nielson, "streaming accounted for just 30 percent of total TV screen time in March 2022, with linear TV (i.e., cable and broadcast) still dominating video consumption."

Yes, streaming has overtaken broadcast TV, but it's still sizable and cable is king. What's more the streaming segment is highly competitive. While Netflix is synonymous with streaming, it only controls about 23% of the market. Disney, Hulu, HBO Max and other streamers are steadily chipping away at the former's share. It's why Netflix has lost about four years of gains in the last four months.

Netflix has jacked up subscription prices, with increasing regularity, to keep being able to deliver massive amounts of (subpar?) content and attract new customers. But the strategy seems to be reaching its limits. So, to get its finances in better order, the company is going after password sharers, which it conspicuously allowed for a long time. It is also trying hard to crack down on scammers in illegal password-sharing marketplaces that offer its premium $19.99/month subscriptions for $1.00/month. Combined the company says password sharing costs it $7b-$8b of revenue per year. Furthermore, Netflix is said to also be considering, gulp, ads!

Regardless, the main metric investors are looking for is growth. Until Netflix can demonstrate consecutive quarters of solid growth, the stock will continue to suffer. 

NASDAQ: Now and Then

The stock market had a very bad day yesterday, as well as a very bad month...and, oh yeah, a historically bad start to the year. The S&P 500 was down 3.63% on the day, 8.8% on the month and 13.3% YTD, the worst 4-month start to a year since 1939 (-17.3%). But the S&P 500's tumble was not nearly as bad as that of the tech-heavy NASDAQ Composite. The Composite was down 13.3% in April, its worst month since October 2008 (remember Lehman?) and 21.2% YTD, its worst start to a year ever. Below is a chart of the Jan-Apr returns of the NASDAQ Composite since 1999:

                                                Source: Macrotrends.net, Mantabye

Jan-Apr 2022's NASDAQ drawdown is 50% worse than the Composite's 2001 drop over the same months...and that was during the middle of "dot.com bust." Could this be the start of dotcom crash 2.0? Until this earning season, the resilience of Big Tech (Google, Microsoft, Apple, Amazon, etc.) had been supporting the broader indices. But even by early March the damage below the surface was extensive, as this chart from the SocGen and the FT shows, with over 60% of the NASDAQ's underlying, mostly technology, stocks down at least 25% and 40% of stocks down more than 50%.

                                                    Source: Societe General, FT
  

As the FT's Robbin Wigglesworth wrote: "For companies that are sustained more by dreams than cash flows, 2022 has been a nightmare. For those that scoffed at the last two years of excesses in markets, it has felt like sweet vindication." And that was in March.

Well now, Google has missed, Amazon incurred its first quarterly loss since 2006, and Apple has warned of weaker earnings ahead. We're sure the MAAMAs will be okay, perhaps after giving back most if not all of the pandemic gains. But for many unicorns this could be a replay of 2000? The chart below shows how the NASDAQ has behaved after reaching their 2000 and 2021 peaks. After 110 trading days (~5 months) we are in the same position.

                                            Source: Yahoo Finance, Mantabye

Where will the NASDAQ go next? Who knows, but here's what happened in 2000 over the following five months after this point. Of course, it's different this time, right?

                                              Source: Yahoo Finance, Mantabye

Best College Prank Ever?

An oldie, but gold. This was an answer to a question on Quora about epic university pranks. There have been many classic ones. This one, perhaps borrowing a page from Cal Tech's 1961 Rose Bowl Hoax, certainly ranks near the top. It was perpetrated on Harvard (or Hah-vahd, if you speak Boston) by their rivals during the annual Harvard-Yale football game on November 20, 2004.  

Months prior, two Yale students, Mike Kai and David Aulicino got a grid of the Harvard Stadium seating and began hatching their plan. They made giant signs with Harvard's red or white colors on them and printed fake T-Shirts that said, “Harvard Pep Squad” as well as fake Harvard student IDs. They handed these out to more than a dozen people who would pass these signs out at the football game to the designated people in the Harvard side of the stands, who were told it would read "Go Harvard."

"Then, after they had been distributed to all the Harvard students and alumni. They gave the signal. All of the Harvard students began to hold their signs...And the prank was complete."

"WE SUCK"

The full story, which got a lot of media coverage, is here. The prank was masterfully executed and had the effect of upstaging Harvard's lopsided 35-3 victory.

Wealth Porn: Rich & Famous Edition

Wealth inequality is a big problem in the U.S., just take a look at this insane chart from the IPS and Forbes, showing how just three Americans had more wealth than the bottom 165 million! That chart, if updated, would only look worse as the trio have collectively gained over $130 billion over the past few years.

Last year, Pro Publica released documents showing the paltry taxes they, and other, billionaires pay, despite their vast wealth. The organization also provided a helpful PSA on how they do it. Well, it's tax season and Pro Publica now has a new data dump on income generated by the ultra-wealthy as well as celebrities and shows how that compares to ordinary Americans and the merely well-off.  First, celebrities (click to enlarge):

Impressive. Clooney, Taytay, and Lebron make huge sums compared to, not just the typical American (that tiny square below Swift), but even the average 1 percenter! The average annual income of the top 1% is roughly $1M or just 1% of Lebron's. So, how do these stars' income compare to that of the really wealthy? What do we mean by that? Let a pre-slap Chris Rock explain: "Shaq is rich, the white man who signs his checks is wealthy."

Below is a chart (again, click to enlarge) of the Top 400 highest income earners 2013-2018. Our friends Clooney, Swift, and James don't even make this list, because you needed an average annual income of $110 million just to break in. You can barely see them (circled in red). Pro Publica does the math and helpfully notes that the typical American, earning $40K a year, would need to work 2,750 years just to make what the lowest-earning person in this group made in one! The Top 400 group includes a lot of tech titans, hedge fund managers, private equity moguls, and Walmart heirs. The highest earner in this group was Bill Gates, who generated, on average, $2.9 billion in income per year (presumably through stock dividends).

Well, this is income, not wealth. At least these people will be taxed at the highest income tax rate, right? Umm...no. Even though the highest tax bracket for the period covered above was 37%, the Top 400 earners, as a group, had a far lower effective tax rate of just 22%. Sure, it was still moderately higher than the effective rate the top 5% paid, but well below that of the merely rich, the 0.5% and 0.01%, who, as a group, had an effective tax rate of 29% and 27%, respectively. Ironically, it's the hard work of the lawyers, tax specialists, and financial advisors in that 1%-0.01% cohort that keeps the tax rates of the uber wealthy so low.

I wanna be a billionaire so f***in' bad

Buy all of the things I never had

Uh, I wanna be on the cover of Forbes magazine

Smiling next to Oprah and the Queen

                                                                          --- Bruno Mars and Travie McCoy

Buy, Borrow, Die...

America's billionaires pay an effective tax of just 8%, according to the government, even though the highest income tax bracket, starting at around $524K, is 37%. How to do they manage that? By a nifty, and completely legal, strategy of buying, borrowing, and dying...Let Pro Publica explain:

 

Banks love to lend their money to people who don't need it, it's basically their business model. As Bruno Mars crooned,

I wanna be a billionaire so fricking bad

Buy all of the things I never had

Uh, I wanna be on the cover of Forbes magazine

Smiling next to Oprah and the Queen

A Hot Housing Market is Bad for Homebuilders?

Sometimes, there can be too much of a good thing. Since the start of the Covid-19 pandemic an already strong housing market has become super-charged, as unprecedented demand pushes home prices through the roof (pun intended). The Case-Shiller National Home Price Index has gained an astonishing 30% YoY, as shown below (click to enlarge). Makes the HPA of the 2000s look almost mild by comparison!

This should be a great situation for homebuilders, no? Umm...not really. Here's a chart of the SPDR S&P Homebuilders ETF, which tracks a broad-based, equal-weighted index of US companies involved in the homebuilding industry. It's down nearly 30% after peaking in early December. What gives? Bloomberg's Odd Lots Podcast, hosted by Joe Weisenthal and Tracy Alloway, has a good explanation. While Housing Starts have been growing with housing demand, Housing Completions, have been going sideways recently. A scarcity of materials and labor means those homes don't actually get built. There's now a clear and growing gap between these two series as shown below:

The upshot is investors are worried that with interest rates (and, with it, mortgage rates) rising, housing demand may cool by the time all these homes are finally completed, and homebuilders might have to take write-down on the assets. So much so, that KB Home, a leading homebuilder in the U.S., is actually trading below its book value! 

An overreaction? Possibly. Given that the U.S. has a shortage of 4-5 million housing units which will only grow as 10 million new households are formed in the next 10 years, it seems like most of these homes will get snapped up, if not by individual households, then investors who buy to rent out. Single-family rentals are a big business. So, a good time to buy KH Home (NYSE: KBH)?

Man or Woman?

Science says male and female brains are different (duh!). The chart below highlights some of the key structural differences between our brains. (Of course, everyone's brain is unique, and there'll be degrees of variations from one person to the next)

Now psychologists have apparently devised a simple optical illusion to identify the type of brain you have based on what you see first in the below picture:

Is the man running towards you or away from you? Neurologists say that because the of the varying ways information is received and processed by male and female brains, we decipher ambiguous images differently. 

If your first impression was that the man was approaching you, then you have more of a male brain. "You try to solve your problems and pass life’s difficult obstacles using your spot-on analytical skills and good reason." You're tend to apply great focus to one task at a time...in other words, you're not a great multi-tasker.

Conversely, if your first impression was that the man was running away from you, then you probably have more of a female brain. You are creative and rely on your senses and reasoning, not rushing to make a decision. You’re a great multi-tasker and have an amazing memory (of course!).

Seems consistent with what the above chart says about our different brains. But psychologists or neurologists are just saying what we intuitively knew all along:

Final Four Classic: 2022 Edition

Last year it was Gonzaga vs UCLA; but not to be out done, the 2022 Final Four has its own classic: Duke vs North Carolina. Though the perineal rivals had met 257 times previously since 1920, the two college basketball powerhouses had never actually played each other in NCAA basketball's biggest stage. Adding to the drama, this was Duke's legendary coach Mike Krzyzewski's last tournament. Well, the two teams did not disappoint...it was a thrilling semi-final that UNC won (81-77) in the final seconds.