Barron’s Weekend Summary: Advertising already abounds on streaming. What is changing now is the scale.
Cover Story:
-Advertising already abounds on streaming. What is changing now is the scale. Netflix dominates viewership. Its users took in 1.3 trillion minutes of content during the most recent TV season, roughly from late last September to early May, according to Nielsen data by way of BofA Securities. That’s nearly double the attention paid over the same period to CBS, the ratings leader in traditional TV, and five times that of the next-biggest streamer, Disney+.
“We’ll be right back after these messages.” The age-old commercial lead-in takes on new meaning at a time when a bounceback for Netflix and Walt Disney shares rests on the coming launch of ad-supported tiers for the two streaming leaders.
Interview:
-Economist Jens Nordvig grew up in Denmark when the country was facing bankruptcy. In the fifth grade, he started researching how a nation could find itself in such a precarious financial position, eventually giving his classmates a presentation on government and external debt.
After becoming an economist Nordvig eventually co-headed global currency research at Goldman Sachs and then was a strategist at Nomura. He drew on these experiences, and a fascination with macroeconomic policy, to found Exante Data, a New York–based firm of which he is the CEO. The company analyzes data to help institutional investors navigate global markets.
Tech Trader:
-In the middle of last week’s four-day Goldman Sachs tech conference at the Palace Hotel in San Francisco, four of the firm’s tech bankers took to the stage to discuss the state of its deal business. Basically, they were there to explain why they hadn’t been doing anything. “And that’s why I’m short on Goldman,” one fund manager whispered to me in the middle of the session.
The Trader:
-The market was hopeful, as it entered the week that inflation had reached its peak, that the Federal Reserve would stop raising rates soon, and that the bottom was in. But Tuesday’s release of August’s consumer-price-index data showed that inflation hadn’t been tamed and dashed all the goodwill, sending the major indexes to their worst day since 2020.
-Recession risks are growing, and investors are looking for safety. But not all safe stocks are created equal. Take consumer staples. Their businesses tend to hold up better during recessions because people will continue to buy food and other necessities even as they cut back on, well, everything else. That’s one reason that the Consumer Staples Select Sector ETF has dropped just 7.5% so far this year, far better than the S&P 500’s 19% decline.
Features:
-Few companies are as anonymous as Amerco, parent of the ubiquitous U-Haul. But if investors look at Amerco closely, they’ll find a lot to like. U-Haul has a nearly impregnable market position, with nearly 10X the number of rental locations as Penske, one of its top rivals. Amerco also has quietly built a large self-storage business to complement its rental operations, and that value doesn’t appear to be reflected in its stock price. Amerco shares, which are off 29% this year to $515, look inexpensive, fetching just nine times the earnings of $57 a share in its fiscal year that ended in March.
-The White House said Friday that multiple agencies—including the Treasury Department and Federal Reserve—should continue research into developing an official US digital dollar. It would be a direct threat to stablecoins like those issued by Circle Internet Financial and Tether Holdings, but the report shows that those companies don’t yet have much to fear.
European Trader:
-While gas prices in Europe have soared, Goldman Sachs analyst Samantha Dart sees prices falling below €100 in 2023’s first quarter. Europe, she says, has built storage to 82% of capacity—and will exceed 90% by the end of October. Europeans are using less gas, because of new rules and a slowing economy. There are caveats. Winter could be harsh, forcing countries to use more gas for heat. Russia could curtail more gas, such as supplies to Italy. And consumer subsidies could encourage gas consumption.
-Airlines have taken a one-two punch, with the pandemic cutting global travel, and labor shortages and spiraling fuel costs crimping profits.
But Ryanair Holdings, Europe’s largest airline by passenger numbers, stands out from the pack, having hedged 80% of its fuel until early next year, protecting itself from price volatility. It also stuck with much of its workforce when others reduced head count to save costs. These moves put Ryanair in a strong position to benefit from a rebound in travel.
Emerging Markets:
President Xi Jinping has put substantial limits on China’s support for Russia’s Ukrainian adventure. He’s obeyed the West’s retaliatory sanctions without endorsing them. He’s lapped up Russian oil at discounts around 25%, but showed no interest in buying the assets that global energy majors like BP, Shell, and TotalEnergies are divesting within Russia. Putin acknowledged as much in terse remarks before the sit-down in historic Samarkand. He thanked China for its “balanced” position on Ukraine, and pledged to address his counterpart’s “questions and concerns.”
Commodities:
-Gold has lost its shine of late, but gold producer Newmont might be a diamond in the rough. It certainly hasn’t been easy being a gold miner lately. As a commodity producer, you’re worth as much as what you sell, and the price of gold has been sliding since it topped $2,000 an ounce in early March as Russia’s invasion of Ukraine spooked markets. Then, the Federal Reserve started raising interest rates, sending the US dollar higher, and it has been all downhill since then, with gold tumbling 19%, to $1,665.
Streetwise:
-This week Jack Hough worries about office REITs investors. He acknowledges the reluctance of many workers to return back to the office, as well as the very compelling reasons to account for this. He also worries about REIT investments. “Office REIT yields of around 7.5% speak volumes about work-from-home expectations. That’s more than double the average payout for other types of real estate investment trusts. The market is saying that payment cuts are coming, suggesting that occupancy levels aren’t going to bounce back to former levels soon.”