Question

Using an article relating to Business Finance from any medium, briefly summarize the article, explain how you found the article particularly useful or timely, and give your personal reactions to the article. Be sure to provide the title of the article, the author(s), and the reference for the article. Your classmates will make comments and ask questions concerning your report.

Answer 1

Title: Netflix Stock Tumbles as U.S. Subscribers Decrease After Price Increases

Author: Edmund Lee

Date: July 17, 2019

Source: The New York Times

Link: https://www.nytimes.com/2019/07/17/business/media/netflix-earnings-subscribers.html?module=inline

Summary

Netflix failed to meet second quarter expectations and stock price tumbled when it declared its second quarters results couple of days back. It lost around 126,000 subscriber probably on the back of increase in the subscription cost effected in the month of March.

Second quarter, in general remains weak for Netflix, however this year second quarter had been exceptionally weak. Not only it lost customer for the first time in history, it also failed to add up expected number of customers worldwide. Against 5.5 mn customers added during quarter ending March, It managed to add just 2.7 mn customers this quarter. It was well short of investors'expectation of 5 mn mark.

Netflix expects to add 7 mn customer in the quarter ending September, an aggressive target looking at what it has achieved in the first two quarters of this calendar year. Initially, a monopoly in streaming, it's now expected to face competition from AT&T and Walt Disney. AT&T acquired HBO and Turner Broadcasting and is now planning to go full fledged in streaming through its streaming service HBO Max, that will start next year. Walt Disney also has plans to go big on streaming through Disney Plus, again sometime next year. Adding to this is another player, Apple, which is also planning to enter the arena through Apple TV plus.

How you found the article particularly useful or timely?

I found the article very interesting and useful. After been through the courses in finance, I am now little interested in understanding how corporate finance concepts and fundamental work in real life. The article is also timely as we have recently learnt the concepts of market efficiency. Here is an article that examines the impact of a news article or earnings update and announcement on the share price. The stock price tumbled by 9% on the back of these updates. I can clearly see how market absorbs new pieces of information and prices start reflecting the new information. I can clearly see semi strong if not strong form of efficiency in capital markets.

Give your personal reactions to the article.

This is an excellent example of a company lifecycle. Netflix has never seen a decline on its domestic paid subscriber base since its inception. Paid customers base dropping significantly has been witnessed by Netflix for the first time. This proves business do see point of inflection.

You may not enjoy monopoly all the time. Streaming had been largely dominated by Netflix so far. However the days of competition is not far away with giants like Walt Disney, AT & T and Apple announcing plans to enter into these segments. It will be interesting to see how Netflix, which had been burning money so far, will cope up with deep pocketed potential competitors.

The article is simple and lucid. Even a person like me could clearly understand how poor performance on some of the business metrics straightway leads to decline in value of the firm. This article had been an interesting read.