Tech Brew Ride Home - Wed. 04/20 – Netflix Earnings Bomb; Ads To The Rescue?

Starting point is 00:00:00 On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the tech meme right home for Wednesday, April 20th, 2022. I'm Brian McCullough. Today, Netflix shares crater after earnings, and the company might be turning to ads-supported streaming to eke out some growth. Coinbase's NFT marketplaces live. Why crypto stocks are uncoupling from the

Starting point is 00:00:51 underlying crypto market, why the surge in zero days might actually be good news, and the tech bubble that would never burst. At least so far, here's what you miss today in the world of tech. a springtime when a young person's fancy lightly turns to thoughts of tech earnings. Netflix kicked off tech earnings season for us once more by dropping a doozy. The company lost 200,000 net subscribers in the quarter when Wall Street was expecting an already anemic number of 2.5 million net additions. Netflix even missed a bit on revenue coming in at 7.87 billion versus 7.95 billion, estimated the stock this morning opened down more than 35 percent, quoting Yahoo Finance.

Starting point is 00:01:41 Netflix's drop in new users came as a surprise to Wall Street with analysts looking for a slowdown, but still positive growth in subscriptions in the first three months of 2022. Subscribers grew by nearly 4 million in the same quarter last year. In total, Netflix exited the first quarter with 221.64 million global subscribers. Netflix was all about subscribers for so long, Santosh Rer. Rao. Manhattan Venture Partners' head of research told Yahoo Finance Live's Tuesday afternoon following Netflix's results, the whole story has to be evaluated from a lower base now. And the multiples are getting compelling at this point, but we need to see that the growth story is still intact,

Starting point is 00:02:19 and they have a strategy to tackle the challenges ahead, end quote. For the current quarter, Netflix said it expected an even steeper decline in new users. The streamer said it sees subscribers declining by two million in the fiscal second quarter, whereas consensus analysts were looking for a gain of 2.4 million, end quote. The lone bright spot for Netflix last quarter was the addition of 1.09 million subscribers in the Asia-Pacific region, which analysts say was helped by the success of Squid Game. On the earnings call, Netflix was banging the drum once again about getting serious about cracking down on scoff laws.

Starting point is 00:02:57 Netflix estimates that its users are sharing passwords with more than 100 million non-paying households globally. including more than 30 million in the U.S. and Canada, which of course is in violation of its rules. Account sharing as a percentage of our paying membership hasn't changed much over the years, but coupled with the slowing pace of broadband and connected TV adoption, means it's harder to grow membership in many markets, an issue that was obscured by our COVID growth, Netflix said in its letter to shareholders. What to do about all this? How about something that Netflix swore up and down it would never do?

Starting point is 00:03:31 CEO Reid Hastings said Netflix plans to offer. cheaper ad-supported plans and will examine what those plans will look like over the next year or two, quoting the Hollywood Reporter. Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription, Hastings said. But as much as I am a fan of that, I am a bigger fan of consumer choice. And allowing consumers who would like to have a lower price and are advertising tolerant, get what they want, makes a lot of sense. It is pretty clear that it is working for Hulu.

Starting point is 00:04:02 Disney is doing it. HBO did it. We don't have any doubt that it works, Hastings said, adding that it will be a plan layer similar to Hulu. Hastings also said that when Netflix does launch an ad-backed tier, it would do so as a publisher without the data tracking and ad matching that some competitors are embracing. In terms of the profit potential, definitely the online ad market has advanced, and now you don't have to incorporate all the information about people that you used to, Hastings said, we can stay out of that and really be focused on our members, creating that great experience, end quote. The move to embrace advertising marks a sea change for Netflix, which has resisted advertising on its service since its inception. But with subscriber growth slowing and now declining

Starting point is 00:04:42 the potential to bring new, more price-sensitive users into the ecosystem is proving too great to ignore, end quote. Let's pull out, though, to the larger 30,000 foot view. Stocks of all the major players in the streaming wars were down this morning in sympathy because the question coming to the four is the one we discussed long ago with Peter Kafka. Does the business model of streaming actually math out? On CNBC this morning, Rich Greenfeld of Lightshed Partners said, quote, The whole subscription video business is slowing far sooner than management teams hoped. That's a major issue for every single one of the companies in this space. The streaming business seems smaller, far more competitive, and less profitable, end quote. Also, forget the drop in Facebook.

Starting point is 00:05:27 Netflix's market valuation has declined by $200 billion in the past five months. Should we retire the term fang? At the very least, we should replace the N of Netflix with the M of Microsoft, in my opinion. Netflix was always the outlier in this little group. But then, you know, the F of Facebook is now the M of meta, too, so I don't know, it's all outdated. Also, I'm going to stick this right here over the last year, here has been the performance of some of the COVID Times high flyers. Peloton stock down 77%, Teledoc, down 65%, Chegg down 65%, Roku down 67%, DocuSign down 53%, Just Eat, down 65% and zoom down 65%. Speaking of Just Eat Takeaway, I'm going to shove this right here real quick, Just Eat Takeaway says it

Starting point is 00:06:25 is exploring a partial or full sale of Grubhub, less than one year after buying Grubhub for $7.3 billion. Quoting Bloomberg. The Amsterdam-based company said in a statement Wednesday it's exploring strategic actions for the U.S. division, just as it's losing an unusually high level of customers across its key markets. Months after the transaction closed in June, Chief Executive Officer Jitzy Grone said the business would be an important part of industry consolidation. A transaction has yet to materialize.

Starting point is 00:06:56 However, Just Eat is facing deeper questions on its strategy. Groin has been touting a turnaround plan that featured activity on Grubhub, as well as expansion into groceries and building out its own courier network. Shareholders have been lobbying for quicker action around its assets and pushing the company for clarity on how it's developing other parts of the business. Pressure on the company intensified last week when investor Lucerne Capital Management said it planned to vote against the reappointment of the food delivery company's chief financial officer and supervisory board at the annual general meeting in early May. In recent months,

Starting point is 00:07:28 Groen has said outside investment in Grubhub could be feasible, including from private equity or strategic partners. Bloomberg News reported in January the company was open to a sale of the division, end quote. Coinbase has officially launched its NFT marketplace into beta, after announcing the service back in October of 2021, with support for Ethereum-based NFTs and ETH payments, quoting the block. The beta NFT marketplace is accessible to everyone to view from today, but initially only select users will be able to buy or sell. Coinbase will be onboarding a small number of users into the beta for Coinbase NFT, Sanchen Zexena, VP of product that Coinbase told the block.

Starting point is 00:08:11 Coinbase opened a waitlist for the marketplace in October, winning more than one and a half million signups. Only some customers will initially be able to use the beta marketplace based on their position on that wait list, said Coinbase. Beta testers will be able to create a profile on the marketplace to buy and sell NFTs. They can use any self-custody wallet, including Coinbase wallet and Metamask. Coinbase won't charge transaction fees for a limited time, the exchange said, adding that it will eventually add fees in line with industry norms. Coinbase NFT for now only supports

Starting point is 00:08:40 Ethereum-based NFTs and payments in Ether. Sexana said the marketplace will integrate other blockchains in the future, and full-fiat-on ramps will be coming soon. As for gas fees, Coinbase said it has partnered with zero-x protocol to optimize transactions. for lower costs. Coinbase will also allow users to purchase NFTs via credit cards as it announced earlier this year. At the time, the company partnered with MasterCard to let users buy NFTs by card, end quote. But back to doom and gloom since we're back to crypto, many cryptocurrency stocks have fallen sharply in 2022. For example, Coinbase stock is down around 40% year to date, Marathon Digital is down more than 30% and Riot blockchain is down more than 30%. In other words,

Starting point is 00:09:29 crypto stocks are performing worse than crypto itself. They're decoupling from the overall market, quoting the Wall Street Journal. The cryptocurrency market has been in sell-off mode recently, even as hundreds of millions of people now trade Bitcoin, Ether, and other digital assets. Bitcoin is down 11% this year. Ether is down 16%. As of Monday, the entire crypto market had fallen about 19%, though prices were off their year lows, according to data from coin market cap. Stocks have publicly traded crypto-focused companies, however, are doing. worse, falling as much as 60% so far this year, according to facts said. The combined market capitalization of crypto companies that trade publicly has fallen to roughly $60 billion from

Starting point is 00:10:10 $100 billion in November, when Bitcoin rose to a record, according to J.P. Morgan analysts. More than half that slide, roughly $20 billion, came from Coinbase alone. The divergence between cryptocurrencies and cryptocurrency companies shouldn't be a surprise, said Nicholas Colas, co-founder of research firm Datatrek. There is always some difference. between the value of an asset and the companies that build businesses around that asset, he said. Bitcoin and its peers, Mr. Kola says, are driven by consumer interest and usage, but companies, such as Coinbase, Silvergate, and Marathon, derive their value from how well they sell their products to customers. The same dynamic can be seen in oil and gold markets, as well as other

Starting point is 00:10:49 commodities, end quote. It wasn't my imagination. Google's Project Zero says that 58 in the wild zero days were detected and shared in 2021, more than double the previous yearly record. But what if that's actually a good thing, a sign of success, a sign that the industry is improving at finding zero days. Quoting from threat posts, Google attributes the uptick and reported zero-day bugs not to higher volumes of bugs, rather an increase in detection and disclosure. Also, not a revelation, is attacker methodology, researchers wrote. attackers are having success using the same bug patterns and exploitation techniques and going after the same attack surfaces, wrote the author of the report, Maddie Stone, security researchers with Google Project Zero. While this was Google's third annual review of Zero Days exploited in the wild, researchers said they have been tracking instances of zero day bugs since mid-2014. We've tracked publicly known in the wild Zero Day exploits in this spreadsheet since then, Stone wrote. The important distinction in Google's research is between known in the wild, bugs and exploited in the wild bugs. While we often talk about the number of zero-day exploits used

Starting point is 00:12:05 in the wild, what we're actually discussing is the number of zero-day exploits detected and disclosed, as in the wild, she wrote. Google reported that of the 58 in the wild zero days for the year, 39 were memory corruption vulnerabilities, 17 use after free, six out of bounds, read-write bugs, four buffer overflow, and the remaining for integer overflow. Google also provided a list of platforms impacted, such as Chromium with 14 zero days. Chromium had a record high number of zero days detected and disclosed in 2021 with 14. Out of these 14, 10 were renderer remote code execution bugs. Two were sandboxes, one was an info leak, and one was to open a web page in Android apps other than Google Chrome. Stone wrote. Seven zero-day bugs were found in the Safari WebKit component.

Starting point is 00:12:52 Microsoft's Internet Explorer had a reported four zero-days exploited in the wild. Microsoft's Windows operating system had ten. zero days and Apple had a total of six with five iOS zero days exploited and one MacOS one. The Brave browser has introduced DAMP, a feature which bypasses Google-hosted AMP pages and takes users straight to the original website, quoting the verge. Where possible, DAMP will rewrite links and URLs to prevent users from visiting AMP pages altogether, Brave said in a blog post. And in cases where that is not possible, Brave will watch as pages are being fetched and redirect users away from AMP pages before the pages even rendered,

Starting point is 00:13:38 preventing AMP slash Google code from being loaded and executed, end quote. Brave framed D-Amp as a privacy feature and didn't mince words about it stance toward Google's version of the web. In practice, AMP is harmful to users and to the web at large. Brave's blog post said, before explaining that AMP gives Google even more knowledge of users' browsing habits, confuses users and can often be slower than normal web pages. And it warned that the next version of AMP, so far just called. called AMP 2.0 will be even worse. Brave's stance is a particularly strong one, but the tide has turned hard against AMP

Starting point is 00:14:10 over the last couple of years. Google originally created the framework in order to simplify and speed up mobile websites, and AMP is now managed by a group of open source contributors. It was controversial from the very beginning and smelled to some like Google trying to exert even more control over the web. Over time, more companies and users grew concerned about that control and chafed at the idea that Google would prioritize AMP pages in search results. Plus, the rest of the internet eventually figured out how to make good mobile sites, which made AMP and similar projects like Facebook's instant articles less important. A number of popular apps and browser extensions make it easy for users to skip over AMP pages,

Starting point is 00:14:45 and in recent years, publishers, including the Verge's parent company, Vox Media, have moved away from using it altogether. Amp has even become part of the antitrust fight against Google. A lawsuit alleged that AMP helped centralize Google's power as an ad exchange and that Google made non-amp ad loads slower, end quote. Finally today, and I really mean this, there is not a theme to today's stories. I didn't pick any of the stories because there was a thread I was pulling at. This is just what we were dealt today. But I will end with this one. It's from the New York Times. It's a timeline of warnings from investors over the past decade about a possible tech startup bubble, a bubble that never really burst even for all the warnings. Instead of a collapse,

Starting point is 00:15:33 things just kept getting bubblier. This is one of those cool graphical stories that the Times seems to excel at these days, one that you really need to load up for yourself to get the full impact, especially of the timeline. But quoting from the accompanying piece, today's warnings are different from those of the last decade. Investors tiptoe around the word bubble, referring instead to a recalibration or a pullback or even a gentle softening. The people who once called for caution grew tired of being wrong and their audiences became numb to the warnings. Every time the alarm bells rang, more money poured into startups. This time is different. Used to be a morbid joke among investors. Now people believe it. Tech is too emmeshed in our lives,

Starting point is 00:16:15 the thinking goes, and the dot-com bubble is too far in the rear view. This decade-long startup boom has surged in the face of so many scares, each time amassing even more money and power. Maybe it really is different this time. Some investors believe market euphorias are good, even necessary, for progress. Without all that attention and excitement, how can a startup founder convince workers and investors to help turn their crazy moonshot ideas into reality? Sure, most of the people who flock to a bubble are in it for the money, and yes, things can get messy, but underneath, it's all moving forward. Out of the dot-com ashes, techies like to remind us, grew Amazon, PayPal, and eBay. Even as the biggest factor driving investors to high-growth startups over the last decade, low interest rates, begin to change, even as economists worry about

Starting point is 00:16:59 impending recession and even as startups lower their valuations or suddenly run out of cash, few today are predicting a total collapse. A decade of talking about a bubble that never bursts, we'll do that, end quote. Happy Elon Musk Day, to all who celebrate, talk to you tomorrow.

Tech Brew Ride Home - Wed. 04/20 – Netflix Earnings Bomb; Ads To The Rescue?

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