FTSE 100 gets back on its feet after big fall, while Netflix’s problems pile up

“After suffering its most substantial fall in two months, investors will be relieved to see the FTSE 100 dust itself off and get fight back on Wednesday as it looks to regain some of the big losses,” says AJ Bell investment director Russ Mould.

“The move higher comes despite one of the market’s big fears – inflation – ticking up in the UK. It probably helps that the CPI measure came in short of expectations and it is also worth remembering that a modest climb in prices is a sign of the economy getting back on its feet.

“The likely trajectory of inflation in the longer term means this issue is not going to go away and will remain something investors need to consider even if a short-term spike linked to pent-up demand in lockdown diminishes.

“For now the threat of rate rises to combat inflation looks very remote and the falls in Asia and the US overnight are a reminder that a more pressing issue, covid-19, hasn’t gone away.

“The world still faces a big challenge in containing the virus and it is no surprise to see travel stocks under some of the most severe pressure given the disparity in different countries’ experiences with covid.

“In London shares linked to the reopening, including airlines and other travel-related businesses, managed a bit of a rebound but we will almost certainly see more swings in sentiment as we move from spring into summer.”

Netflix

“One of the biggest threats to Netflix in 2021 is the great outdoors. People are bored of sitting at home under lockdown restrictions and many will have exhausted all the classic films and boxsets on Netflix by now. The flow of new films to streaming platforms is currently weak and Netflix, in particular, is really suffering from having unappealing new content.

“Cinema operators know that customers will only visit their screens if there are enticing films. The same applies to streaming providers – it’s all about content and Netflix’s proposition is diluted by having too many poor-quality shows. Disney Plus’s considerable success in the past few years has shown that quality rules over quantity.

“Now that lockdown restrictions are slowly being eased, the appeal of signing up to Netflix is diminishing as there are alternative activities competing for individuals’ attention, namely pubs, restaurants, domestic travel and hopefully a greater range of leisure pursuits in time.

“The company is taking a calculated risk in clamping down on password sharing between friends and family, hoping those who have been getting it for free will become paid subscribers. That’s not a given unless the content is worth paying for.

“Its decision to buy back shares is odd. Companies often buy back shares when they have nothing better to spend the money on. Those shares typically get cancelled, which pushes up the earnings for each of the remaining shares. That can be beneficial to shareholders in the short-term as it can improve the share price, but is it really the best use of the money? One would have thought Netflix would have been better off using that cash to bolster its content.

“Competition is heating up in the streaming space and Netflix cannot afford to make any mistakes at this juncture.”

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