Yesterday we had one the worst equity sessions in several weeks as the oil market collapse likely caused some margin calls hitting several markets. Italian government bonds (BTPs) traded lower increasing the likelihood of a heated EUCO meeting tomorrow where Italy will once again push for joint euro bonds. The probability for a new severe euro area crisis is going up and BTPs (10YBTPJUN20) should be on anyone’s watchlist. While equities have stabilised a bit here in early European trading the nervousness has increased also evidenced by the moved yesterday in the VIX curve.
Last night after the close Netflix reported what was initially perceived as a good result but at later inspection it turned out to be disappointing on the guidance. Netflix reported its first positive free cash flow in Q1 as growth in expenses in content assets slowed dramatically. While the global subscriber base rose by 15.8mn the y/y growth was only 22.8% in line with previous quarters and the company guides with only 7.5mn new subscribers in Q2 which is outright disappointing given the share price developments leading up to the earnings release.
The majority of the net new subscribers came from EMEA and APAC showing that the US market is saturated for Netflix, even in a lockdown environment. With operating margins around 17-18% this source will also provide less tailwind going forward at it’s closer now to Disney’s and in general the competition is heating up from Amazon, Apple and Disney. With Netflix valuation still elevated at 1% FY23 forward free cash flow yield the company is priced for perfection and the only certain thing in investing is that high valuation on average compresses future returns.