Monday Morning Reads

Monday  Morning Reads



Implied moves for stocks reporting earnings next week (Oct. 18th – Oct 22nd)








Squid millions

Squid Game, the latest megahit from Netflix (NASDAQ:NFLX), could be worth nearly $900M for the streaming giant, according to an internal document from the company. The nine-episode horror-thriller has risen sharply in the headlines since its debut on September 17, and ranks No. 1 in several countries, including the United States. The South Korean show involves heavily indebted people who compete in children's games for a chance to win big cash prizes, though the challenges come with fatal consequences.

By the numbers: Netflix measures the success of its shows in "impact value," which combines data like how often a show is watched by new customers, existing customers, its cost efficiency and impact on long-term viewership. Squid Game has created about $891M in "impact value," making it a highly profitable series for the streaming giant. It only costs the company around $2.4M per episode, meaning the entire first season had production expenses of just $21.4M (41.7x in efficiency).

About 132M people have watched at least two minutes of Squid Game in the show's first 23 days, blowing past the 82M Netflix record set by Bridgerton. Netflix also estimates that 89% of people who started the show watched at least 75 minutes (more than one episode) and 66% of viewers, or 87M people, have finished the series in the first 23 days. That means subscribers have spent over 1.4B hours watching the show, which is more than double the total hours watched for Bridgerton.

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Market movement: The viewership figures could go a long way for Netflix, which reported its slowest pace of subscriber additions since 2013 in the first half of the year. In fact, the stock is up 7% since Squid Game was released on Sept. 17 (check out the chart above), and many analysts expect the show to boost Q3 earnings, which the company will release after the bell tomorrow. Squid Game has already resulted in BairdTruistKeyBanc and others to raise their price target on shares, while J.P. Morgan believes net subscriber adds will come in around 3.5M for the quarter and 8.5M for Q4.

Hollywood shutdown averted

Meanwhile... a strike that would have disrupted TV and movie production nationwide has been avoided at the eleventh hour. Over the weekend, a three-year deal was struck between the International Alliance of Theatrical Stage Employees (IATSE), which includes film crews across the country, and the Alliance of Motion Picture and Television Producers (AMPTP), which represents major Hollywood studios. The developments could have severely impacted the operations of streamers like Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX), as well as major film studio stocks like Disney (NYSE:DIS), Universal (NASDAQ:CMCSA), Warner Bros. (NYSE:T) and Sony (NYSE:SONY).

What's in the contract? A 10-hour turnaround between shifts, a weekend rest period of 54 hours, increased health and pension plans, a 3% rate increase every year for the duration of the contract, and higher penalties for companies that don't provide meal breaks. Included in the deal are a wide swath of industry workers, ranging from prop makers and makeup artists to camera operators and studio mechanics. The IATSE acts on behalf of 150,000 members in the U.S. and Canada (60,000 of them are currently covered by contracts being renegotiated).

"This is a Hollywood ending," IATSE International President Matthew Loeb said in a statement. "Our members stood firm. They're tough and united. We went toe to toe with some of the richest and most powerful entertainment and tech companies in the world, and we have now reached an agreement with the AMPTP that meets our members’ needs."

Outlook: Changing dynamics in the labor market have put employees in the driver's seat and have allowed unions to flex their muscles. 10,000 workers at John Deere (DEwent on strike last Thursday over wages and benefits, joining the industrial action seen at Kellogg (K), where 1,400 workers walked off the job because of seven-day work weeks and a two-tier retirement system. A Hollywood strike would have hit studios hard as they recover from theater closures and pandemic shutdowns, and could have led many shows to shorten, postpone or cancel new seasons.

China's slowing growth

Power shortages, COVID outbreaks, supply chain problems, industry crackdowns and the China Evergrande (OTCPK:EGRNF) debt crisis all weighed on China's economy in the third quarter. Data released overnight showed that GDP grew a disappointing 4.9% Y/Y, missing expectations for a 5.2% expansion, and marking the weakest clip since Q3 of 2020. That comes after a blazing 18.3% growth rate recorded in Q1 and the 7.9% seen in the three months ending in June.

Quote: "The domestic economic recovery is still unstable and uneven," National Bureau of Statistics spokesperson Fu Linghui said at a news briefing.

China was the only major global economy to grow annually during the pandemic-induced slowdown (its economy expanded 2.3% in 2020). The nation was also quick to pare back stimulus enacted in the immediate aftermath of the pandemic last year, while Beijing's policymakers have so far brushed off economic headwinds, saying they wouldn't resort to liquidity or cutting rates to drive up the growth rate in Q4. China is targeting a full-year GDP target of 6% or more for 2021 and estimates even stretch to growth of more than 8%.

Some analysts feel differently: "Most of the [negative] factors are policy-driven... the economy is having a lot of pain points and these pain points are not going away soon because policies are here to stay, and therefore it will continue into 2022," said Iris Pang, chief economist for Greater China at ING. "We expect more measures to shore up growth, including ensuring ample liquidity in the interbank market, accelerating infrastructure development and relaxing some aspects of credit and real estate policies," added Tommy Wu, lead economist at Oxford Economics.

Into the Metaverse

Facebook (NASDAQ:FB) is diving deeper into Metaverse as the company heads up a recruitment drive to create a new digital world. It plans on hiring 10,000 high-skilled engineers across the European Union over the next five years, calling the effort, "one of Facebook's most pressing priorities." Resumes will be looked at in Germany, France, Italy, Spain, Poland, the Netherlands and Ireland.

What is the Metaverse? CEO Mark Zuckerberg describes it as an "embodied internet," which will be a major driver of new technology investment. The term was coined in the 1992 dystopian novel Snow Crash, where it refers to how a virtual reality-based Internet might evolve in the near future. Today, it's widely used to describe immersive, shared digital worlds, where multiple people can interact in a 3D environment.

"We believe this is going to be the successor of the mobile Internet," Zuckerberg said on a Q2 earnings call in July. "The defining quality of the Metaverse is presence: creation, avatars, and digital objects. In addition to being the next generation of the Internet, the Metaverse is also going to be the next chapter of us as a company."

Go deeper: Last month, Facebook unveiled plans to invest $50M to develop the Metaverse, but noted that parts of the new platform could take 10 to 15 years to fully develop. Other companies already have an early foothold in the space like Roblox (NYSE:RBLX) and Fortnite maker Epic Games. Facebook is also building out products that can be shared with the new technology, like a VR remote work app that allows Oculus users to hold meetings in their avatars.

Today's Markets

In Asia, Japan +1.7%. Hong Kong +0.3%. China -0.1%. India +0.8%.
In Europe, at midday, London -0.2%. Paris -0.8%. Frankfurt -0.5%.
Futures at 6:20, Dow -0.3%. S&P -0.3%. Nasdaq -0.4%. Crude +0.4% at $82.63. Gold -0.3% at $1762.50. Bitcoin -0.3% at $60945.
Ten-year Treasury Yield +4 bps to 1.62%

Today's Economic Calendar

9:15 Industrial Production
10:00 NAHB Housing Market Index
2:15 PM Fed’s Kashkari Speech
4:00 PM Treasury International Capital

Companies reporting earnings today »

What else is happening...

Bitcoin (BTC-USD) retakes $60K on news of imminent Bitcoin Futures ETFs.

Zillow's (NASDAQ:Z) home-flipping service pauses to work through backlog.

Banks feel wage inflation as competition for talent rises.

What's next for movies? Morgan Stanley does a cinema sweep.

Apple (NASDAQ:AAPL) to show the Mac still matters in an iPhone world.

U.S. households likely to pay much higher heating bills this winter.

Airlines losing pricing power with demand easing - Sector Watch.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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