Netflix Tanks After Weak Earnings Guidance, SpaceX Cancels Starship Rocket Launch

**Zaid Admani** (0:00)
Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Friday, July 17th. In today's episode, we'll break down why the chip stock sell-off is turning into a full-on bear market. We'll also recap earnings from Netflix and tell you why the stock is hitting a two-year low. We'll also get into some bad news coming out of SpaceX and Google. Then stick around to the end of the show to find out why a private equity firm is investing $3 billion in the New York Yankees. We got a great show for you today.
Let's go.
Well, guys, the tech sell-off is getting worse. Stocks fell again on Thursday with the S&P 500 dropping half a percent and the NASDAQ got hit much harder, falling nearly one and a half percent. The biggest source of pain here was chip stocks. The semiconductor index fell over 4% yesterday and is now down 19% from its June peak, putting it right on the edge of a bear market. And what's weird here is that this sell-off in chip stocks is happening despite strong earnings. Now, we covered TSMC and ASML earlier in the week. Both these companies are projecting strong growth, but yet the stock and the overall chip sector is selling off. So what this indicates is that this isn't necessarily about bad business fundamentals. It could just be that investors are taking profit after an insane run up in the stock price this year. In fact, Goldman Sachs now says that hedge funds have cut back their exposure to their AI basket to the lowest level of the year. So it looks like some of the big money on Wall Street is selling off and the bleeding continues today. I'm seeing a lot of red in the markets, especially in tech and chip stocks. But if you look beyond tech and AI, the market is doing fine. Eight of the 11 S&P 500 sectors were actually in the green yesterday. Financial stocks had a record high earlier this week. The healthcare sector has been the strongest over the past month, and transportation stocks are off to their best start to a year since 1991 What we're seeing is a continued rotation out of tech and AI and into the rest of the market. The question though is if this rotation will continue or rotate back, and if it does rotate back, when will that happen? We could get some answers over the next two weeks because Google and Tesla report earnings next week, and then Meta, Microsoft, Apple, and Amazon report earnings the following week. Not to mention, there's a Fed meeting in a couple of weeks as well. So we have a stacked calendar coming up. We're going to be staying on top of everything happening in the market. So if you're new here, it's a great time to get subscribed to the podcast and tune in every day to stay in the loop. Also, I am recording today's podcast in a hotel room in Dallas. So it looks a little different and might sound a little different too, but I will be back in Houston in my normal recording studio next week.
Let's run through some headlines and we're talking Netflix. Netflix reported earnings last night, and despite decent numbers, the stock is getting hit hard today. Revenues for the company in Q2 came in at $12.56 billion, which was up 13% from a year ago. That barely missed estimates, but profits came in at $3.4 billion last quarter, which was up 10% year over year and did beat estimates. So it wasn't like a disaster quarter or anything, yet the stock is down around 10% this morning for two main reasons. For one, the company's guidance was kind of weak. Remember, investors care about how a business will do in the future, and Netflix is flashing some red flags. The company expects their revenue to grow about 12% next quarter, which would be the slowest growth in over a year. And for a stock that's been priced as a growth story, that's a problem. Now, the second reason Netflix's stock might be tanking today is the concern around their engagement metric. There's been a ton of reporting that Netflix's engagement on the platform is falling, and that used to be Netflix's strength, keeping viewers on the platform and coming back. But there's new data showing that hit Netflix shows are losing about half their audience by season two. We talked about this in the show a couple weeks ago. Now Netflix pushed back on that narrative on the earnings call saying that season two fall off actually improved slightly this year. But then in the same breath, Netflix announced that they're cutting back on their engagement reporting. Moving forward, the company's What We Watch engagement report will only come out once a year instead of twice a year like it currently does. And typically, investors don't like it when a company gives less information, especially when that exact metric is already under pressure. And here's the thing, Netflix has a history of doing this. A few years ago, when subscriber growth was slowing down, Netflix stopped reporting their subscriber numbers, and now they're doing the same with this engagement number. I feel like if engagement was actually healthy, then Netflix probably wouldn't be doing this. So yeah, I think that's why investors are starting to get nervous about the business. Netflix stock has been a terrible performer this year. Down 20% heading into the earnings report, and it's lost over 40% of its value in the last 12 months. And as of right now, the stock is trading at its lowest level in two years. You know, I think a big sentiment shift happened with Netflix when they tried to buy Warner Brothers' discovery for $83 billion. Even though Netflix lost the bidding war to Paramount, that entire saga made investors question whether Netflix management thought that their organic growth was tapped out, and Netflix hasn't been able to address those concerns. Now, to be fair, the company is showing strong growth in advertising. The ad revenue is expected to roughly double this year to $3 billion, and live programming has also been a hit. It's helping the company attract new customers. In fact, live events accounted for six of the top 10 signed up days in the last five years. But that doesn't seem to be enough to satisfy investors. I think for Netflix to get investors back on their side, they'll have to prove that their ad business can continue to grow and that live programming can help bring in more subscribers. And who knows, maybe they'll do a couple more price increases along the way. Let's talk about some stocks making moves today.