11th October 2024 – 18th October 2024 | Another week in the markets
| S&P 500 | Nasdaq | VIX | DJIA | Russell 1000 | NYSE |
| 5,864.67 | 18,489.55 | 18.03 | 43,275.91 | 3,205.73 | 18,489.55 |
| 0.85% | 0.80% | -11.88% | 0.96% | 0.91% | 0.80% |
| Nifty 50 | Gold | Silver | Brent crude | USD-INR | EUR-INR |
| 24,854.05 | $2,548.70 | $33.92 | $73.17 | 84.07 | 91.37 |
| -0.44% | 1.15% | 6.88% | -7.13% | -0.04% | -0.67% |
Source: MarketWatch
Hello Saturday,
This week, Netflix delivers bumper earnings in the third quarter, Microsoft and OpenAI thrash out the fine print of the stake and rights that will come to Microsoft as OpenAI transitions from a non-profit to a for-profit company and Jio Financial’s profit jump 3% to ₹689 crore.
- Netflix’s blockbuster earnings send the stock soaring; Revenue and net income soars while the subscriber addition pace slows down.
- Microsoft and OpenAI are hard at work trying to resolve the complications arising from the latter choosing to become a for-profit company.
- RBI directive spells tough time ahead for NBFCs and MFIs
- A surge in expenses offsets revenue growth as Jio Financial Services reports a 3% rise in net profit in the second quarter of FY25.
Taking stock | Exasperating exits | Compliance compulsions | Goodbye, Goldilocks | Tough times | Invest wisely | Another week in the markets
Taking stock
Netflix’s blockbuster earnings on Friday set the stage for the coming week as Big Tech firms get ready to unveil their latest quarterly results. On Friday, the S&P 500 added 0.4%, notching another all-time high. The tech-heavy Nasdaq Composite moved up 0.6%, and the Dow Jones inched up by 0.1%.
Netflix delivers a blockbuster!
Netflix’s password crackdown push that went live in mid-2023 around the globe seems to be paying off.
The streaming giant delivered its most profitable quarter ever despite a strong slowdown in the pace of subscriber additions. This signals that the company has been prioritising profitability over increasing its customer base.
Netflix added 5.07 million subscribers in the third quarter as against 8.76 million subscribers added in the same quarter in the last year.
The company reported revenue of $9.83 billion for the third quarter, jumping by 15% on a YoY basis and managing to beat its own projections of $9.73 billion. Net income also rose a whopping 41% to $2.36 billion. Undercutting the cheer for the jump in net income is the sobering projection of the company that net income will plunge to $1.85 billion in the fourth quarter.
Quite naturally, investors were in high spirits and sent the stock soaring 4.7% after the company’s earnings. So far, the streaming platform has managed to make investors richer by 46% this year alone. In the last 12-month period, the stock has delivered mouth-watering returns of 90%.
Netflix has been quite deliberate about orchestrating changes in its plan lineup, which seems to have beefed up its bottom line. A key driver of future revenue growth would be elevated subscription prices: The company recently jacked up prices in Japan and parts of Europe, Africa and the Middle East, and it is planning on raising prices in Italy as well as Spain.
As per subscription analytics firm Antenna, Netflix’s customer defection rate is the lowest in the industry and engagement remains quite high as total viewing hours per paying member keeps increasing annually.
Source: Google Finance
OpenAI’s equity troubles
Ever heard of a non-profit metamorphing into a for-profit company? Well, that is exactly what OpenAI, the start-up behind ChatGPT, is looking to pull off.
The pathway for the non-profit to transition into a for-profit company is riddled with bumps —- a major one being the manner in which equity will be distributed between different classes of investors in the non-profit. Microsoft — the largest investor in OpenAI —- is expected to receive a large stake, once the non-profit becomes a for-profit company.
OpenAI was valued at an impressive $157 billion at the close of its latest funding round. Both entities have onboarded investment banks to advise them on the transaction. While Microsoft is pairing with Morgan Stanley, OpenAI is partnering with Goldman Sachs. A former Citigroup banker, Michael Klein is also advising Sam Altman, OpenAI’s CEO.
Both the firms will have their hands full determining the stake Microsoft would hold in the new company. Apart from this, another thorny issue about the kind and scope of corporate governance rights that would accrue to both firms will also need to be thrashed out. Microsoft is forced to play a balancing act given that any outsized stake in the for-profit company will attract attention from antitrust regulators that are currently trying to break up the unquestioned dominance of Big Tech firms.
Since 2019, Microsoft has invested $13.75 billion in OpenAI.
The first $194 million of the company’s profits are reserved for repaying its first investors, which include Khosla Ventures and LinkedIn co-founder Reid Hoffman.
NBFCs in a tough spot!
Banking industry experts are signalling that NBFCs whose operations cater to small retail borrowers will be sailing through some choppy waters in the coming days.
The recent RBI directive barring four NBFCs presages tough times ahead for mid and small NBFCs. Operations of many of these NBFCs have been hamstrung due to a lethal combination of a fund choke-off coupled with a capital erosion due to excessive build-up of risk in the unsecured loan portfolio.
The RBI has recurrently issued warnings on the precarious state of affairs in the unsecured lending segment, where many customers are repaying at least three loans simultaneously. Delinquency levels amongst borrowers with loans below ₹50,000 are currently at high levels.
Market experts have hinted that NBFCs in the mid and small space have business models that are highly reliant on a steady disbursal of funds, which keeps their inflows pipeline healthy. However, with a credit crunch hanging ove them, exacerbated further by lending restrictions, many NBFC players will find it challenging to meet their existing obligations.
The RBI has directed Navi Finserv, Arohan Financial Services, Asirvad Micro Finance and DMI Finance to cease and desist from sanction and disbursal of loans, effective October 21. The central bank said that there were critical supervisory concerns related to loan pricing practices.
“This action is based on material supervisory concerns observed in the pricing policy of these companies in terms of their weighted average lending rate (WALR) and the interest spread charged over their cost of funds, which are found to be excessive and not in adherence with the regulations,” the RBI said in a statement on Thursday.
JFS’ ho-hum results!
Jio Financial Services reported a ho-hum 3% rise in the net profit to ₹689 crore for the second quarter of FY25, as a disproportionate rise in expenses eroded revenue growth.
The company’s total revenue rose 14.14% to ₹694 crore from ₹608 crore reported in the same quarter of the previous fiscal. Meanwhile, interest income in this quarter jumped to ₹205 crore.
The company’s total expenses, on the other hand, doubled to ₹142 crore in the latest quarter compared to ₹71 crore as seen in the same quarter last year.
In this quarter, Jio Financial Services has launched loans on mutual funds, home loans, corporate lending loans, along with loans against property (LAP), loans on securities, and life insurance products. It also launched physical debit cards.
Invest wisely
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Warm regards,
Another week
in the markets
