Barron’s Weekend Summary: As the critical acclaim builds, the business of streaming is facing tough questions. With the exception of Netflix, no one is making money in streaming today
Cover Story:
-Streaming giant Netflix is nominated for 27 Oscars, more than any other studio, while AppleTV+ has six nominations and Amazon Studios has four. Numerous other nods came for films that made their debut simultaneously in theaters and streaming platforms from Walt Disney and Warner Bros. As the critical acclaim builds, the business of streaming is facing tough questions. With the exception of Netflix, no one is making money in streaming today. Instead, the industry remains in a land-grab phase, with companies throwing tens of billions of dollars into original series and movies, marketing, and promotions in an effort to win subscribers.
Tech Trader:
To understand why the White House is so anxious about the Russian cyber threat, it’s important to revisit a 2017 hacking incident that never got enough attention. NotPetya, as it was known, was malware used by Russian military hackers to attack Ukraine, but its impact went far beyond the intended target. The malware was uploaded as an update to commonly used Ukrainian tax-preparation software and spread rapidly from there. The U.S. estimated damages of some $10 billion to multinational companies. In 2019, FedEx CEO Fred Smith called NotPetya “the largest single attack by a state-sponsored entity in the history of the world.” And it could happen again.
The Trader:
Tesla has been on an absolute tear, rising for eight consecutive days, its longest winning streak since January 2021. The stock gained 32% over that span, putting it over $1,000 and its market cap above $1T for the first time since January 2022. The streak ended Friday, when Tesla fell 0.3%, closing the week at $1,010.64.
It was an epic run, but one that’s not easy to explain. Such moves don’t tend to happen in other ultra-large-cap stocks. The largest eight-day gain in either Microsoft, Apple, Alphabet, or Amazon since the start of 2021 was a 19% gain in Amazon stock, which also happened this month.
-With government bonds on pace for their worst year since 1949, investors are looking for other places to put their money—and they may have settled on stocks. In recent weeks, stock and bond prices have stopped moving in the same direction, as they had been early in 2022. Instead, when bond prices have gained, as they did after Russia’s invasion of Ukraine, stock prices fell, observes Capital Economics market economist Thomas Mathews. Now that investors appear to have accepted a long, drawn-out conflict—but one that won’t have as much of an economic impact as feared—bond prices are dropping and stocks are rallying.
-Rising rates are typically good for banks. They often mean banks can charge more for loans and earn a higher net-interest margin, the difference between the rates at which they borrow and lend. As interest rates rise, that means bank earnings should get a boost. The Federal Reserve typically starts a hiking cycle when there’s still a lot of runway for economic growth, so investors usually don’t need to worry about an imminent recession, which would make new loans riskier and default rates on old loans rise.
-Rising rates are typically good for banks. They often mean banks can charge more for loans and earn a higher net-interest margin, the difference between the rates at which they borrow and lend. As interest rates rise, that means bank earnings should get a boost. The Federal Reserve typically starts a hiking cycle when there’s still a lot of runway for economic growth, so investors usually don’t need to worry about an imminent recession, which would make new loans riskier and default rates on old loans rise.
Features:
-AT&T is in the process of spinning off its WarnerMedia business in a combination with Discovery Inc., which executives have said would allow AT&T to refocus attention on core telecommunications efforts. The company expects the deal to close in April, and executives declared plans for a stock dividend to its investors for April 5 at the close of business. AT&T explained in a Friday release that those who own AT&T shares as of the end of trading April 5 will be able to receive shares of WarnerMedia SpinCo representing 100% of AT&T’s interest in the business.
-Despite the recent surge in bond yields, some alternative investments provide much better yields with varying degrees of safety. They include Treasury savings bonds, multi-year guaranteed annuities from insurers, and—for investors willing to take on more risk—interval funds that invest in credit instruments. The bonds serve to balance the stocks in your portfolio. Treasury Series I Savings Bonds. For the truly risk-averse, these bonds are government-guaranteed and as safe as they come. They currently pay 7.12% because their rates are tied to inflation.
-Even though the Internal Revenue Service is auditing fewer taxpayers these days, you still don’t want to put a target on your back. Among those more likely to get audited: Small-business owners with lots of cash; landlords who persistently claim losses on rental properties; wealthy people who try complex tax maneuvers; and working-class taxpayers who claim the earned-income tax credit.
European Trader:
-Russia’s invasion of Ukraine has caused commodities prices to leap more than 40%, with nickel’s rise exceeding as much as 100% in recent weeks. Anglo derives the bulk of its earnings from platinum group metals, or PGMs, which accounted for 34% of earnings before interest, taxes, depreciation, and amortization, or Ebitda, in 2021, followed by iron ore, copper, diamonds, and nickel. Anglo has no operations or offices in Russia or Ukraine. Anglo shares have risen 31% in 2022, surpassing Rio Tinto but trailing Vale. Christopher LaFemina, an analyst at Jefferies, says Anglo’s stock could rise 16.1%, to £43, partly because commodities are likely to outperform even through a period of potential stagflation.
Emerging Markets:
There was some good news. Southeast Asia, a dynamic growth belt that sprawls from Malaysia to the Philippines, is ditching pandemic restrictions at last, promising an economic rebound for 650 million or so citizens. Australian tourists returned to the Indonesian paradise of Bali, Vietnam dropped quarantine for foreign visitors, and Singapore greenlighted large gatherings—among other developments from the past few weeks. “Except for China, the whole region is just living with Covid,” says Rahul Chadha, chief investment officer for Asia at Mirae Asset Global Investments.
-The U.S. Treasury sanctioned Sberbank chief executive Herman Gref, adding him to a long list of Russian oligarchs placed in the penalty box after the invasion of Ukraine.
The 58-year-old head of Russia’s biggest financial institution had been one of the few prominent business leaders in the country to remain unsanctioned.
Commodities:
Fertilizer is derived from potash, phosphate, and natural gas. Russia and Belarus produce more than a third of global potash, and dominate in natural gas. Belarus’ potash exports were strangled by prewar Western sanctions; Russia cut its own off on March 4. Potash fertilizer prices have soared by three-quarters in 2022. Prices of urea, one of two main nitrogen fertilizers distilled from gas, have risen 60% in a month. Shares of Saskatoon, Canada’s Nutrien , the Western Hemisphere’s top fertilizer maker, have climbed 37%. The Energy Select Sector SPDR exchange-traded fund, a proxy for Big Oil, is up only 13%. Nutrien has two major competitors on the North American continent: Mosaic and CF Industries Holdings
Streetwise:
US oil refiners are once again making good money, but investors aren’t quite piling into the shares. The profit boom could last through the end of the decade, helped by a price mishap that won’t be easy to fix: the giant premium Europe must pay for natural gas. Two key things to know about natural gas are that it plays a bigger role in the production of gasoline and other fuels than many investors realize, and it’s a colossal pain to transport.