Can Netflix Win the Peace?

Good morning and welcome to the working week.

Shockingly, Wall Streeters are easily flattered, and will more or less tell you what you want to hear if you dangle a big job in front of them. Odin Partners — a leading London recruitment firm that has worked for major banks including Citigroup, Morgan Stanley, and Deutsche Bank — has been phoning up financial workers using fake identities and teasing phony job prospects to coax confidential information out of them, a report in Bloomberg News alleged Friday.

Bloomberg said Odin staff, pretending to be from nonexistent agencies with names like AMO Search, were able to pry top-secret details about salaries and profit and loss statements from traders at major banks in exchange for purported opportunities at Goldman Sachs and Morgan Stanley. Bloomberg said the practice is known internally at Odin as "rusing." The question for Odin is, will clients find rusing as amusing as they do? 

Netflix won the streaming wars, but the spoils aren't entirely clear. 

Last week, the preeminent streamer reported another stellar earnings result, featuring its biggest quarterly profits in company history and a surprisingly strong subscriber gain. Now, as the dust settles, Wall Street can't help but ask — and argue over — just exactly how high Netflix can fly.

Tudum-Dun-Dunnnnn

The numbers from last week's earnings report are nothing to scoff at. Revenue increased 15% year-over-year to $9.8 billion, while net income increased a whopping 41% to reach $2.4 billion. Even the roughly 5 million subscriber gain, down from over 8 million in the same quarter a year ago, beat consensus expectations (the company claimed to have around 282 million subscribers overall at the end of the third quarter — good for a comfortable first place among streaming competitors). It was enough to propel the company's share price to $763 by market close on Friday, an all-time high.

Commensurate with the company entering a new era as the unequivocal victor of the streaming wars comes a shift in how it reports its financials. Starting next year, Netflix will no longer include subscriber figures, focusing on revenue instead. That's not to say subscriber growth doesn't matter, according to at least some on Wall Street — but it is a sign that the company is exploring life after the streaming wars: 

• In a note published earlier this month, which downgraded Netflix's stock from "equal weight" to "underweight," Barclays analyst Kannan Venkateshwar wrote, "Even if Netflix gets to its revenue goal, valuation implicitly prices in more than a doubling of sub base from [the] present level, which seems unrealistic."
• Not so, says Wedbush Securities analyst Michael Pachter, who told The Daily Upside that the company could live up to its premium valuation through sizeable, but not unreasonable, subscriber growth (of around 25%, he estimates) paired with increased revenue per user from a combination of both price increases and advertising — particularly from live events broadcasting.

Library Card: While Netflix's future value might be murky, its past is prologue — and more valuable than ever. Demand for all the original TV content produced by Netflix over the past decade-plus, from "House of Cards" to "Love is Blind," has now surpassed demand for the 80-year-old back catalog owned by NBCUniversal, now housed mostly on streamer Peacock, according to a Parrot Analytics report published last week. It's the first time Netflix has passed a legacy media competitor in the key metric, Parrot Analytics said. In other words: Watch out, Paramount. You may be next.

Written by Brian Boyle

But, you're not in the Twilight Zone. The company creating an "infinite" energy source is taking investors for just 4 more days. 

Infinity Fuel has been designing "batteries" that turn water and solar electricity into hydrogen and oxygen, and back again. These "air-independent" fuel cells have already been funded by NASA, the US Navy, and major commercial space partners for up to $50M in total contracts. 

And this is only the beginning. 

In addition to powering outer space and deep-sea missions, Infinity wants to supply off-grid renewable power to billions of people worldwide. This investment is an opportunity for you to be part of their next phase of growth.

Join the renewable energy future and become an Infinity shareholder by 10/25.*

Some people just can't be pleased. Inflation has tumbled and a soft landing is in play, but as the International Monetary Fund and World Bank Group hold their annual meetings this week, the IMF's top official is concerned the world economy is headed for a state of "Not Good Enough."

'Breaking the Neck of Inflation'

Of 12 major developed-market central banks tallied by The Daily Upside — those in Australia, Canada, the Eurozone, Japan, New Zealand, Norway, South Korea, Sweden, Switzerland, Taiwan, the UK, and the US — eight are in rate-cutting mode, with Australia, Norway, Japan, and Taiwan the odd men out.

IMF managing director Kristalina Georgieva, in a joint address to her organization and the World Bank Group last Thursday, told the audience to "cherish the good news" that the "big global inflation wave is in retreat" thanks in part to monetary policy action.

The Eurozone last week reported a 1.7% annual inflation rate, below the ECB's 2% target for the first time since June 2021. Inflation cooled to 1.7% in the UK and 2.4% in the US in recent updates. But while this has encouraged policymakers to ease restraints on household spending and business activity, Georgieva said global economic growth is at risk of entering a "Period of Not Good Enough":

• Noting the growing backlash against international trade — the EU imposed tariffs on imports of Chinese-made electric vehicles this month, and the US presidential election is full of tariff talk — she warned that "trade will not be the same engine of growth as before," likening protectionism to "pouring cold water on an already lukewarm world economy."
• The IMF in July projected the global economy would grow 3.2% this year and 3.3% in 2025, though it will release updated projections on Tuesday.

Beg, Borrow, or Get Real: Another big red flag for the IMF is governments' seeming addiction to debt: If fiscal policies are unchanged, the fund's economists said in a report last week that increasing borrowing by the US, China, and other major economies will push government debt to $100 trillion this year, equal to 93% of the world's GDP. "Even the traditionally fiscally conservative political parties are developing a taste for borrow-to-spend," Georgieva said, noting the combination of low or medium growth and high debt could especially hurt developing economies.

Written by Sean Craig

CVS has a new boss, but there's still no cure for what's ailing the business.

The US' largest pharmacy chain appointed David Joyner, formerly head of its pharmacy benefit manager Caremark, as CEO, replacing Karen Lynch. This leadership change comes amid significant challenges in the retail pharmacy industry, including thin profit margins, store closures, and layoffs. And there ain't a pill that can fix that.

What Ails You?

Pharmacies are grappling with declining reimbursement rates for prescription drugs. They typically purchase medications from wholesalers and are reimbursed by pharmacy benefit managers (PBMs) that negotiate discounts with insurers and drug manufacturers. CVS benefits from owning Caremark, one of the largest PBMs in the US. However, in the second quarter, CVS reported a 12% drop in adjusted operating income for its Pharmacy & Consumer Wellness segment, primarily due to reimbursement pressures. Walgreens has been faring worse: It saw its pharmacy income plummet nearly 50% year-over-year in its most recent quarter.

Despite owning health insurer Aetna, CVS is not immune to rising medical costs, which have impacted profitability. Its Health Care Benefits segment reported a 39% decrease in operating income, falling to $938 million year-over-year in the second quarter.

CVS's stock has suffered significantly, down more than 25% this year, making it one of the S&P 500's worst performers. Walgreens, however, leads the declines, with a nearly 60% drop in its share price. All this is to say that it's cost-cutting time: 

• CVS plans to close 300 stores this year as part of a broader strategy initiated in 2021 to shutter 900 locations. Rite Aid has been closing more than 500 stores following its bankruptcy last year, while Walgreens announced it will close 1,200 stores over the next three years.
• At the start of this month, CVS announced that it will lay off 2,900 employees in an effort to cut costs. 

Front of House: The retail side of drug stores — candy, makeup, cheap toys you buy as a last-minute gift — isn't faring much better. Increased competition from Amazon and other large retailers has made sure of that. And while no chain is specifically saying theft is a factor in store closures, most businesses have begun putting large amounts of inventory behind locked glass ever since the pandemic.

Written by Griffin Kelly