February 7, 2023

Strong Quarter for Netflix, but Investors Hit Pause

Netflix’s subscriber gains — an improvement over last year’s performance during what is traditionally its weakest quarter of the year — and overall profits were well within projections, but some investors, hoping for more, sent the stock down about 8 percent in after-hours trading before rebounding somewhat. That result alludes to one of the challenges Netflix faces: maintaining the enthusiasm of both investors and subscribers to its video-streaming services.

Looking ahead, Netflix projected that it would add 690,000 to 1.49 million subscribers in the United States in the third quarter, continuing a growth trajectory that has made it one of the most closely tracked companies in the media and technology industries. Analysts say that Reed Hastings, Netflix’s chief executive, and his colleagues are under pressure to prove that they can keep adding members to what feels more and more like a Netflix club, with insiders who can watch the service’s original shows and outsiders who cannot.

On a first-of-its-kind video conference call between Netflix executives and two interviewers on Monday evening, the executives said that the original shows — including “House of Cards,” which was nominated for nine Emmy Awards last week — are only slightly affecting the bottom line now, but will ultimately add significantly to the company’s subscriber totals and revenues.

“If we do it right, these will turn into real franchises,” Mr. Hastings said.

Ted A. Sarandos, the company’s chief content officer, reminded investors that traditional networks like HBO and Showtime worked for many years to gain widespread recognition. In Netflix’s case, he said, “the brand is starting to mean something to viewers, already.”

In the second quarter, Netflix revenue topped $1 billion for only the second time ever, totaling $1.07 billion, in line with analysts’ expectations. Netflix reported earnings of 49 cents a share, beating the consensus expectations for 40 cents a share. It returned to positive cash flow for the first time in a year, because of a one-time decline in payments to content providers and overall profit growth.

Outside the United States, Netflix added 610,000 streaming subscribers in markets like Britain and Brazil. The international business continued to operate at a loss, but it was lower than expected.

“We’re feeling quite good about the business,” Mr. Hastings said during the Google-powered video conference call, which was set up as an alternative to the phone calls that many companies set up on a quarterly basis.

In their quarterly letter to investors, Mr. Hastings and Netflix’s chief financial officer, David Wells, attributed some of the second-quarter subscriber gains to “Arrested,” writing, “This show already had a strong brand and fan base, generating a small but noticeable bump in membership when we released it.” But they cautioned investors not to expect a similar bump from other new shows, like “Orange Is the New Black,” which came onto the service this month. “Other great shows don’t have that noticeable effect in their first season because they are less established,” they wrote.

In a hint of the company’s plans for more original programming, Mr. Hastings and Mr. Wells said Netflix would be expanding to “include broadly appealing feature documentaries and stand-up comedy specials.”

Over all, original shows like “House of Cards” remain just a sliver of subscribers’ viewing; Netflix’s menu of TV shows and films that have already had their premieres elsewhere “accounts for the bulk of viewing and leads to a lot of member enjoyment,” Mr. Hastings and Mr. Wells wrote. They cited a revealing statistic on Monday: three-fourths of the hours streamed on Netflix are spurred by the algorithms that recommend specific shows and movies based on a subscriber’s past viewing.

Sensing industrywide trends that are making hit shows and films cost more to license, Netflix increasingly wants to be known not as a service that has everything people want to watch, but instead has a selection of exclusive shows that cannot be seen anywhere else. In the second quarter, a deal with Viacom’s MTV Networks expired, resulting in the loss of shows like “SpongeBob SquarePants.” Netflix subsequently announced a deal for original programming from DreamWorks Animation.

Michael Pachter, a managing director at Wedbush Securities, who has been a Netflix skeptic, said on Monday that “I think that they probably gained a lot of new subscribers from ‘Arrested Development,’ and probably lost a lot because of the loss of Starz, SpongeBob, James Bond and MTV content.”

He added, “I think that their guidance suggests this will persist, and I’m pessimistic that they will hit the high end of their domestic streaming subscriber growth.”

Article source: http://www.nytimes.com/2013/07/23/business/media/netflix-revenue-tops-1-billion-for-the-quarter.html?partner=rss&emc=rss

DealBook: Goldman Sachs to Sell $1 Billion Stake in Chinese Bank

The headquarters of Goldman Sachs in New York.Mark Lennihan/Associated PressThe headquarters of Goldman Sachs in New York.

Goldman Sachs is selling a $1 billion stake in Industrial and Commercial Bank of China, the largest Chinese bank.

The share sale, which was begun on Monday, is the second time in less than a year that Goldman has reduced its holdings in the lender after acquiring its stake before the Chinese bank’s initial public offering in 2006.

Goldman has been selling off its shares as part of a broader effort to reduce its exposure to Industrial and Commercial Bank of China, which has benefited from an almost 50 percent rise in its share price over the six months.

Under the terms of the deal, Goldman will sell Hong Kong-listed shares in the Chinese bank at 5.77 Hong Kong dollars (74 cents) each, according to a person with direct knowledge of the deal who spoke on the condition of anonymity because he was not authorized to speak publicly. The exact number of shares has yet to be confirmed, the person added.

The share sale represents around a 3 percent discount to the bank’s closing share price on Monday.

In April, Goldman also sold $2.5 billion of shares in the bank to the Singaporean sovereign wealth fund Temasek Holdings and other institutional shareholders.

Its investment in the world’s largest bank by market value has proved successful for Goldman. After initially investing around $2.6 billion, Goldman Sachs has raised more than $4.5 billion by progressively selling down its stake in the Chinese bank.

Article source: http://dealbook.nytimes.com/2013/01/28/goldman-sachs-to-sell-1-billion-stake-in-i-c-b-c/?partner=rss&emc=rss

Creating Value: When Your Broker Doesn’t Really Represent Your Interests

Creating Value

Are you getting the most out of your business?

As I explained in my last post, Holly Hunter’s first try at selling her business didn’t work out. The second time around she decided to hire a seasoned company that specializes in selling small financial services businesses. This broker had great public relations and a history of having sold many businesses.

What Ms. Hunter did not fully understand was that when you sell a business you essentially enter an alternate universe. It can be a confusing and scary place. For one thing, there are different types of brokers, and some of them get paid to represent the buyer and the seller. The was the case with the broker Ms. Hunter hired.

She would soon discover that brokers who represent both parties often don’t really work for either party. And in her case, it ended up looking as if the firm was working mostly in its own interest. This eventually left the buyer and seller with a disaster on their hands.

Another problem that often arises in the selling of a business is that sellers tend to put pressure on themselves to get a deal done. This can lead them to do things they would not ordinarily do. Good brokers understand this and prepare their clients for the process, offering steadying advice as the deal unfolds. But when the broker advises both parties, there is an unavoidable conflict of interest, and that means that one or even both parties may not get the best advice.

After Ms. Hunter listed her business for sale, her broker told her that 60 parties had expressed interest. The broker whittled the group down to 12 potential buyers it considered realistic. If Ms. Hunter’s broker had been working only for her — and not for both parties — it most likely would have set up what is known as a structured auction to sell the business.

The auction process would have narrowed the buyers from 12 to about five, and then the broker would have gone back and forth among the five buyers to produce the best deal for Ms. Hunter. Not only didn’t the broker use this avenue to sell the business, it never informed Ms. Hunter that using a structured auction was an option.

Instead, Ms. Hunter’s broker put together a negotiated deal. The buyer the broker negotiated with agreed to pay Ms. Hunter one third of her purchase price immediately and two thirds as a seller’s note over five years. Ms. Hunter thought this was a good deal, in part because she thought that the entire payment was guaranteed

Ms. Hunter’s buyer was a 40-year-old certified financial planner. Ms. Hunter obtained a personal guarantee from the buyer and his wife, but it wasn’t until more than a year after the sale was complete that she learned that a personal guarantee needs to have assets behind it to have any value. And that was a problem. While Ms. Hunter’s buyer owned a house, he had very little equity in the house.

Before her sale closed, Ms. Hunter hired a lawyer who had a good reputation within her industry but little experience in mergers and acquisitions. She probably would have been better off hiring a lawyer who specialized in helping business owners buy and sell businesses. Ms. Hunter’s lawyer used specimen documents — sample documents that are used as a model — that were provided by her broker. Such documents can save the client time and money, but there is often reason to be wary of them, and they are a long way from best practices in the industry.

The lawyer did recommend that Ms. Hunter get a personal guarantee from the buyer. The broker assured her that, even though the buyer had no real financial assets, she would be covered because he was a certified financial planner and the clients he was buying from her would be plenty of collateral. When you sell your business and provide financing, you essentially become the bank for your buyer. That means you must act like a bank. And no bank — not even one with Small Business Administration backing — would have made a loan based on that collateral.

Three weeks before closing, the waters were muddied even further. The buyer informed Ms. Hunter that he had a new silent partner. This silent partner was a wealthy person who could have offered the security that Ms. Hunter or any bank would require as part of a deal, but he refused to provide his personal guarantee. At this point, Ms. Hunter felt she was too far down the road of selling her business and couldn’t back out. I’ve been in that position, and I know how she felt. Once you are that close to selling, it takes herculean effort to back out.

The deal closed, and for a year everything seemed to go well. Then, disaster struck. An employee left the buyer’s practice — taking staff and clients. Suddenly, there was no business, and Ms. Hunter learned the hard way that there were no assets backing up the personal guarantee she had obtained. She ended up being unable to collect most of what she was owed by the seller.

In my next post, we’ll look at how seemingly minor details in a transaction, if not handled properly,  can make your life miserable.

Do you have any cautions you would like to share about how to hire someone to sell a business? Were you ever involved in a situation like this? How did it turn out?

Josh Patrick is a founder and principal at Stage 2 Planning Partners, where he works with private business owners on creating personal and business value.

Article source: http://boss.blogs.nytimes.com/2012/12/19/does-your-broker-really-represent-your-interests/?partner=rss&emc=rss

Economix Blog: The Director Congressman



Notions on high and low finance.

My column this week discusses a company founded by Representative Darrell Issa, Republican of California, who remained on its board until it was acquired by a private equity firm a few weeks ago. About the same time that the company decided to look for a buyer, it forced small investors to sell for a fraction of what larger shareholders would soon receive.

It is the second time this week that The New York Times has run an article centered on Mr. Issa. On Monday, Eric Lichtblau reported on the “overlap between his private and business lives, with at least some of the congressman’s government actions helping to make a rich man even richer and raising the potential for conflicts.”

It is reasonable to ask why the two articles appeared in such a brief time.

The answer is that I was intrigued by references to the company in the article that appeared Monday. After reading it, I looked up the company, DEI Holdings, and was interested in what I found. It had cost its investors millions, and it had taken steps that ended up treating some investors worse than others. Had I noticed the company, I would have been tempted to write about it even if it did not have a well-known director. The involvement of Mr. Issa, who has often criticized the Securities and Exchange Commission, made it all the more interesting.

I called Mr. Issa’s spokesman on Tuesday, asking for an interview to discuss both his views on securities laws and his experience at the company. I told the spokesman of specific issues at the company that interested me. He did not call back. A spokesman for the company did return my call, but did not provide information on what I think is an important question: Had the company decided to seek a buyer before the small investors were forced out?

At the hearing Representative Issa conducted, which I link to in the column, he stated the S.E.C. had a “dual mandate.” One is to protect the public. The other is capital formation. At that hearing, at least, he was more interested in the latter. He said he believed that a loosening of S.E.C. rules would lead more companies to seek capital, and thus promote economic growth.

I think the two mandates are intimately related. Perhaps the most important aspect of our capital-raising system is the belief that investors can get a fair shake when they are in no position to closely monitor what is happening at the companies where they invest their money. If that belief were to vanish because the S.E.C. did a bad job on the first mandate, the commission would have no chance to fulfill the second one.

Article source: http://feeds.nytimes.com/click.phdo?i=df344c6f9bfab34ad2de2759975d4b68

Portugal Hit With New Downgrade

PARIS — Moody’s Investors Service downgraded its rating on Portuguese debt for a second time in less than a month Tuesday, warning that the country’s next government would have to turn to its European partners for aid “as a matter of urgency.”

The agency cut its rating on Portugal’s long-term bonds by one notch, to Baa1 from A3, and placed the country on review for another downgrade. The ratings have been cut several times since the government collapsed last month, after a failure to pass a new round of austerity measures.

If Moody’s cuts Lisbon’s rating a further three levels to Ba1, then its bonds would be considered junk by that agency. SP has already cut Portugal’s rating to BBB-, which is just one notch above junk.

The country has about €9 billion, or $13 billion, of bond redemptions falling due in April and June and investors doubt its ability to meet those payments without help from its European partners or the International Monetary Fund. On Friday it sold €1.65 billion of short-term bills in what was seen as a stop-gap measure.

Yields on Portuguese bonds pushed higher Tuesday, with the benchmark 10-year at 8.43 percent and the 2-year and 8.6 percent, making the country’s debt significantly more risky to investors than that of Indonesia or India. Portuguese officials have conceded that the country cannot sustain paying 7 percent or more for long.

Elsewhere in markets, oil prices remained elevated but off their intra-day highs. In London, Brent crude oil for June delivery stood at $120.26, down 38 cents a barrel. Stocks in Europe were down slightly.

Moody’s said Lisbon faces a range of difficulties, including the upcoming general election on June 5, rising interest rates and a limited window for repaying existing obligations, which increase the risk that Portugal will be unable to achieve the outgoing government’s ambitious deficit reduction targets over the coming three years and put the public finances into shape.

According to the Portuguese news reports, the caretaker government and European officials are evaluating the possibility of Portugal obtaining a short-term loan from the Union to cover remaining funding needs until the new government is formed.

Moody’s said the next government was likely to approach its European partners for financial help “as a matter of urgency.”

“It is very unlikely that the long-term debt markets will reopen to the Portuguese government or to the Portuguese banks to any meaningful extent until the government is able to take action to dispel doubts over its commitment and ability to implement the fiscal program,” Moody’s said.

Article source: http://www.nytimes.com/2011/04/06/business/global/06euro.html?partner=rss&emc=rss