📺📈 Netflix is SO Back
Happy Sunday!
In this week’s edition of the Sunday primer, the Fed is tip-toeing around the interest rate topic very carefully, Netflix is SO back, and ESPN is making the execs at Disney look like geniuses.
Halloween is next week so I hope you’ve decided on some costumes! Anyone dressing up as JPow?
Enjoy this week’s Sunday Primer
- Humphrey, Tim & Rickie
Market Report
Jerome Powell Signals Potential Pause in Rates
Federal Reserve Chairman Jerome Powell signaled this week that the Fed may pause interest rate hikes at its November meeting, citing the need to "proceed carefully" in light of various uncertainties and "highly elevated" geopolitical risks.
However, he left the option open for potential rate hikes in December or beyond, stating that any further moves will depend on a comprehensive assessment of incoming data, the evolving economic outlook, and the balance of risks.
Powell acknowledged the impact of higher long-term yields on the Fed's decision-making process but emphasized that policymakers will closely monitor the situation before taking any action.
He reiterated that inflation remains too high and expressed a cautiously optimistic view on the labor market, noting a recent moderation and a gradual decline in wage growth towards levels consistent with the Fed's 2% inflation target.
Tesla Valuation Unsustainable as it Tempers Growth Outlook
Tesla is grappling with challenges arising from its rapid expansion colliding with rising interest rates and consumers becoming more cost-conscious. After months of price cuts, the company’s margins have dropped significantly, prompting a cost-cutting drive to maintain profitability.
The uncertain economic environment has made CEO Elon Musk cautious, slowing down the progress of Tesla’s new factory in Mexico.
Analysts predict that Tesla will need to lower its delivery expectations and face decreased margins in the upcoming year, with some noting that the company is starting to resemble a traditional automobile manufacturer more than a tech or software firm.
Despite these hurdles, Tesla assures investors it is on track to deliver approximately 1.8 million vehicles this year, although it will need to increase its pace in the fourth quarter to meet this goal.
The company is also dealing with the complexity of ramping up production for its new Cybertruck, with Musk acknowledging the challenges and drawing parallels to the company’s past production difficulties.
Netflix Jumps Most in 3 Years on Record Subscriber Growth
Netflix Inc. experienced a significant boost in its subscriber growth during the third quarter, gaining 8.76 million customers and exceeding analysts' forecasts.
This growth was attributed to a strong programming slate and the company's crackdown on password sharing.
The successful introduction of paid sharing, where customers can purchase additional access for friends or family, has given Netflix the confidence to raise its prices in some of its biggest markets, including the US, UK, and France.
The third quarter saw the largest growth in Europe, the Middle East, and Africa, with almost 4 million new customers added.
Netflix predicts revenue of $8.69 billion for the next quarter, with subscriber additions expected to be similar to the third quarter.
The company also expects to improve its profit margins to at least 22% next year, with potential for further growth in the years to come.
Disney Reveals ESPN’s Financials For the First Time
ESPN is a major profit generator for Disney, contributing more than $16 billion in revenue and $2.9 billion in profit for the fiscal year 2022, exceeding the profits of Disney's entire entertainment business.
The vast majority of ESPN's income comes from its domestic business, with significant revenue from affiliate fees paid by cable programmers to distribute ESPN.
This high-profit margin is one of the reasons why Disney is looking for a strategic partner to help ESPN transition into the streaming era, rather than selling the asset entirely.
The data also highlights the challenges faced by traditional TV channels like ESPN, as the industry grapples with a shift from cable TV to streaming platforms.
As more consumers cut the cord and move to streaming services, ESPN's reliance on carriage fees from cable TV providers could become a vulnerability.
Despite these challenges, ESPN remains a lucrative operation, with its sports division potentially attracting outside investors at a valuation of up to $22 billion.
This valuation is supported by ESPN's standalone financial results, which were made public for the first time in a recent regulatory filing by Disney.
Costume Obsession Fuels Record Halloween Spending
Halloween spending in the United States is projected to hit a record $12.2 billion this year, with 73% of people participating in holiday activities, a rise from 69% in 2022, according to the National Retail Federation.
Popular activities include handing out candy (68%), home or yard decoration (53%), dressing in costume (50%), attending parties (32%), and trick-or-treating (28%).
Individuals are expected to spend an average of $108.24, with significant increases in costume purchases. Decorations and candy are also expected to see substantial spending.
Higher candy prices fueled by inflation could mean trick-or-treaters get less candy
Candy prices have been increasing with the average unit price up almost 14% year-over-year.
Forecast Ahead
Big Number: 58%
The percentage of American households that own stock, either directly, in mutual funds, or retirement accounts, reached a record high of 58% in 2022, setting the United States apart from other countries where equity market participation is lower.
According to the Federal Reserve, this increase is largely driven by a significant rise in direct stock ownership, which jumped from 15% to 21% between 2019 and 2022