Netflix beats expectations but subscriber numbers still fall, Royal Mail paints a bleak picture, and an encouraging update from Premier Foods

“Expectations were so low in the run-up to Netflix’s results that it’s no surprise to see its share price jump in after-hours trading. Yes, it is still losing subscribers. But nowhere near as many as forecast, so there has been huge relief in the market,” says Danni Hewson, Financial Analyst at AJ Bell.

“Investors like it when companies under-promise and over-deliver. Yet, at the end of the day, Netflix is stuck in the mud and its latest figures are hardly worth celebrating.

“It wants to generate more revenue and plans are in motion to achieve this goal.

“Having a cheaper-priced service with adverts could help attract a variety of different users. These include hooking in people who previously couldn’t afford the standard version of Netflix and retaining those who were on the verge of cancelling because money is getting is tight.

“Many advertisers will be excited at the prospect of being able to promote their goods and services on Netflix’s platform, given its wide reach. And it also presents an opportunity to target younger people who may only consume video content via streaming platforms or the internet.

“Netflix is guilty of being too reckless with its spending on content in recent years, chasing quantity over quality and paying too much to attract star talent. Reining that spending in, and focusing on quality, would be to the company’s benefit longer term.

“The streaming sector is highly competitive and new entrants continue to enter the fray. That means Netflix must find ways to stand out from the crowd – it will only do that by having a regular pipeline of must-watch content.

“It’s a dangerous game to play as there is always the temptation to pay top dollar to secure the top names in Hollywood. But as Netflix has already found out, having someone famous in its productions doesn’t always equate to viewer satisfaction. It has been responsible for some A-list fronted clangers.”

Markets / Premier Foods

“The latest UK inflation figures had a bit of everything, whether you’re a sunny optimist who thinks inflationary pressures are close to peaking, or a cautious Cassandra who thinks we’re a long way from escaping the cycle of rising prices.

“The headline number reached a new 40-year high of 9.4%, slightly higher than expected, and factory gate prices, often a leading indicator for consumer prices as manufacturers pass on costs, hit their highest level in 45 years.

“However, more encouragingly if you strip out volatile energy and food prices then core inflation actually eased back a touch.

“The FTSE 100 seemed to take the release in its stride despite speculation building that there will be a 50 basis point increase in interest rates when the Bank of England next meets in early August.

“Some better results from the US quarterly earnings season – including Netflix, which wasn’t as bad as feared – have helped to boost sentiment and led to strong gains on Wall Street last night and in Asia today.

“There was also an encouraging update from Mr Kipling maker Premier Foods, which has been able to manage soaring input costs through a combination of efficiencies and increased prices while still building its market share.

“This offers some evidence of brand power, although how long Premier Foods can sustain its edge over rising prices remains to be seen.

“There’s only so much fat you can trim off a business before you start damaging its operational performance though, and despite featuring many household favourites, Premier Food’s product portfolio is not immune to the risk of consumers trading down to cheaper supermarket own-brand alternatives.”

Royal Mail

“For a time it looked like the Covid-19 pandemic might help revive a stalling turnaround strategy at delivery firm Royal Mail.

“Any hope of that is looking pretty forlorn now as familiar structural and staffing issues raise their heads.

“Many employers are facing wage pressures and the threat of industrial action. But Royal Mail’s issues on this front are more longstanding and recent worries about the rising cost of living may have hardened its workforce’s resolve as they voted to go on strike over the summer.

“Hot on the heels of this news Royal Mail has delivered a sobering loss for the first quarter – demonstrating its inability to get costs down and create a more efficient service in line with its plans.

“This has been a challenge for numerous management teams and it comes at a time when demand for Royal Mail’s services is stalling.

“During lockdown parcel deliveries soared, supported by the surge in online shopping and some of the long-term structural decline in letters actually reversed.

“That has turned around now and even the star turn of the group, GLS, has seem some decline in volumes.

“The company is making no attempt to dress up the situation – painting a bleak picture may be a way of sending a message to union bosses that there is only so far it can go in negotiations.

“The plan to change the group’s name to the extremely boring International Distribution Services and create a clearer separation between the GLS and Royal Mail businesses may lead to speculation over a full break-up of the group.”

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