I really dislike how every corporate communication regarding an “update” now means “here’s how we’re making things worse for you.”
I know honesty has never really been the fundamental value of public relations initiatives, but it would be refreshing to occasionally see a company saying that they’re putting the squeeze on customers because they need to protect their margins or even just because they can. The formerly-neutral “update” is starting to rankle.
There was an internal joke / meme at Google that any announcement starting with "An update on X" == we are killing X, to the point that if someone was sending their resignation email the subject line of the email would be "An update on <name>"
My current favorite corp speak is “we can’t wait to share it with you”. Seems like it’s in literally every product announcement. At least this one is positive
I don't see anything to dislike here. It is an update, and this particular notice is avoiding any of the usual nonsense like "to better serve our customers" or "to improve your experience".
It seems straightforward and to the point. And they're a for-profit corporation, of course they need to protect their profitability. That goes without saying. If they go out of business, then no Netflix programming for anybody, and no subscriber wants that or they wouldn't be subscribing in the first place.
I agree. The e-mail is unusually, refreshingly clear for typical corporate communication.
That said, the image at the top of the article is... menacing. I know it's sticking to Netflix branding, but the smiling, deeply red screens, made me feel like that house is about to murder everyone inside.
Holy shit you weren't kidding about that image. I was expected a red house with red TVs in it with a white background in a pleasant "Google-y"/ 'kawaii corporate-memphis' style.
It is decidedly dark / menacing / imposing / threatening, not playful at all.
Their stock went from $690 in Oct 2021 to $175 in June 2022.
That's a 75% plummet, which is definitely approaching the equivalent of struggling-to-keep-the-lights-on for a modern corporation. That's three quarters of the way to bankruptcy, big red flashing danger lights.
So of course this is a calculated bet to improve profitability. Virtually everything a for-profit corporation does is to improve profitability -- that's the whole point of being a business in the first place. What else would you expect?
Companies share price matters to shareholders and implies an ability to raise additional capital. It doesn’t have anything to do with solvency unless they borrowed money to buy back shares (which some companies did do when interest rates were low and share prices were depressed). Employees on stock incentive plans probably are eating the burden more than anyone.
While it's true that there is no direct link between share price and solvency, share price is the market's valuation of the company. This is very much impacted by the (future) profitability and the solvency of the company.
If the market thinks the company won't be able to make a lot of profit, or the market thinks the company is approaching insolvency, the share price will tank.
In other words, falling share price is not a cause of insolvency, it can be an indicator for it. The share price quite literally is the market value of the company.
The share price reflected the company’s state, but the share price didn’t induce the companies state. Debt and obligations were what brought down Lehman, not the stock price. (Well, not directly - if the stock had been worth a lot they could have raised capital… but just like their credit spreads blowing out, their stock price drop made capital raising impossible)
Of course it does. If a stock goes to $0, the company is essentially insolvent. Sure there are details of timing -- insolvency isn't exactly the same as bankruptcy isn't exactly the same as a stock price of $0 -- but in practice they all tend to go together and the company as a going concern owned by present investors is effed.
I’m sorry, you’re just wrong. While share price generally correlated to the market investors view of future value there’s no direct relationship between equity valuation and corporate performance in any way whatsoever, other than the ability to raise additional capital. Once the equity has been sold in the primary issuance it’s only relationship to the corporation is an ownership claim and a weak claim on assets.
I literally said they're not exactly the same. But in practice, if the share price is $0, it's because the company is generally unable to pay its bills for long and bankruptcy is imminent. If the market thinks a company has zero value, the company is unlikely to survive for long, unless some miracle proves the market wrong.
Splitting hairs over these technicalities is important for lawyers and analysts and management and in bankruptcy court, but not terribly important in the larger view. In the larger view, market cap via share price is a very practical reflection of the overall health/viability of a publicly traded company.
See the parallel comment about Lehman. Share price was fine. Company wasn’t. Only once it was public the company was effectively dead did the shares fall. They are unrelated.
But it’s also not splitting hairs. It’s important to realize that equity price has no bearing on the company itself. You’re talking about something different than what was being discussed. You’re saying share price is correlated to expectation of company performance. What was being discussed was company performance is related to share price. One direction is true but the other isn’t. Companies see their valuations fall for all sorts of reasons that are not reflected in actual performance. Thats often because of a hype cycle that deflates, or maybe a scandal involving an executive, or whatever. This fall in valuation doesn’t impair the company in the least, except for if they need to raise capital by issuing equity.
May companies get delisted, which effectively brings their share price to the penny stock levels. They sometimes resurface and relist. Companies also can do certain corporate actions that make their stock basically worthless. The key is that while a stocks price sometimes corresponds to actual performance, actual performance is never impacted by stock price.
Stock markets are secondary markets. When you buy or sell Meta stock no money flows in or out of Meta. If Meta don't want to raise more capital, which they don't, ... their stock price means nothing to them until the shareholders revolt and vote for change (except they can't in Meta's case, since Zuck has total control).
There’s a technical detail here to note though. To management the share price actually does matter because they have a fiduciary duty to maximize shareholder returns, and the board even more so. So while it’s true equity has no bearing on current operations, current operations does have to consider share price.
Well, it does exist but it’s premise is twisted and unclear. Dodge v Ford established such a duty exists but over time (as discussed in the article you linked) it’s been interpreted as a duty to the long benefit of shareholders. Dodge v Ford hinges on the fact Ford stopped paying dividends to pay his workers and that it was an enrichment of the employees at the expense of the equity holder. That’s been twisted around but never fully dismissed or accepted. But you can see shareholder value lawsuits all the time. However it’s a common law civil duty, not like a financial manager fiduciary responsibility that can bear criminal teeth.
No. It was specifically due to not meeting expected subscriber numbers, prompting a widespread negative reevaluation of Netflix's entire business model. The decrease was way beyond anything affecting the stock market or tech stocks generally. A simple glance at the numbers, and the dramatic plummets directly after earnings reports, makes that clear.
> It was specifically due to not meeting expected subscriber numbers
Sure, but "not meeting expected subscriber numbers" doesn't mean "the company is soon going to be unable to keep the lights on" or even "the company has an unsustainable business model and will fail". It just means market analysts believed Netflix would grow at a particular rate, but they grew at a lower rate. Wall Street is pretty fickle about growth numbers.
Also note that the stock price has partially recovered, to $355. A year of fairly steady stock price increase doesn't suggest to me that there's anything particularly wrong with the company.
Up higher, you said that a 75% price drop is "three quarters of the way to bankruptcy", which is... just not how the stock market works. The stock price is just a reflection of how the public market values ownership in the company. Hell, the stock price of a company going through bankruptcy proceedings might not even drop all the way to zero, depending on the details of the bankruptcy (e.g., if the company's assets exceed liabilities, there'd still be money left over for shareholders even in a liquidation). And regardless, bankruptcy doesn't even mean the company is going to be shut down; plenty of companies come out of chapter 11 and remain going concerns.
Share based comp is accounted under a different line item then OPEX. And if the share price falls, more shres are used. If share prices rise bove projections, share based comp can become an issue due to the guaranteed number of shares outstanding all of a sudden becoming really expensive...
Not only is stock price not a cause of bankruptcy (as others have said)... but you're comparing meme stock, overcharged markets frenzy with everyone's wallet plump from the stimulus, with the beginning of a recession.
(Side note, recaptcha is getting genuinely awful. 3 different challenges, 1 of which had 3 steps, and 20 seconds to get past it?! Have they given up detecting bots and decided to just make them wait?!)
Please don't be insulting by telling other people what to learn.
And if you look at the quarter before -- 2022Q4 -- they made just $55 million net income, which on revenue of 7.85B is below 1% profit.
The overall point is that Netflix is in an extremely volatile and risky industry where it's not in a position to leisurely "extract" more profit because it's a bad guy or something, but rather it's very much been forced into doing things like cracking down on password sharing and introducing an ad-supporter tier simply to stay healthy as a business. Fortunately both of those things seem to be going well, but they easily might not have.
If a company's market cap drops 75% in a short period of time, it's making big changes out of necessity, not as a comfortable choice.
I'm not trying to be insulting, I'm trying to help you and other readers. You're clearly ignorant of company finances, and commenting like you know what you're talking about is doing no one any favours.
You picked the one quarter they did poorly, before this they made a consistent 1B+ net profit. This is extremely good financials, and not volatile at all. They also have 50B in assets at the moment, including almost 8B in cash.
While your overall point and conclusion is correct, this paragraph is a bad characterization of the relationship between stock price and solvency, hence the replies:
>That's a 75% plummet, which is definitely approaching the equivalent of struggling-to-keep-the-lights-on for a modern corporation. That's three quarters of the way to bankruptcy, big red flashing danger lights.
This sort of misunderstanding is what we should expect when we teach people that the stock market is equal to the economy, rather than teaching people that it's just a casino for the ultra-wealthy.
I received an e-mail update several weeks ago from a company that actually improved and made things cheaper in every way.
I had to read it 5 times to be sure that there was absolutely nothing being cut/made worse because they used the same corporate speak as one usually does for bad news (i.e. there was no "GOOD NEWS YOU NOW PAY $10 LESS", you had to dig through the details...).
This, however, was a major supermarket chain that's been going for nearly 100 years. They decided to make delivery cheaper AND reduce minimum spend per delivery by half. There must have been something they made more expensive somewhere to compensate or maybe they were pushed to do this by the market, I am not sure.
> There must have been something they made more expensive somewhere to compensate
Milk and eggs? Probably they saw a dip in spending because people can't afford extras. Cheaper delivery can get people to add-spend "cause I'm already paying for delivery, should make it worth it".
Corey Doctrow has a good term for this, or at least it’s him i heard say it: enshitification. I think it just captures the dynamics beautifully, it’s almost poetic.
Ah, yes. Cory Doctrow. One of those people everybody hoped was full of shit and/or irrelevant 20 years ago, who, sadly, turned out not only to be right, but completely relevant (c.f.https://StallmanWasRight.reddit.com)
That's a great word, but wouldn't just plain "shittification" be better?
I think it's better as "enshitification". Where "shitification" would probably be a noun (like "relocation"), "enshitification" then becomes a verb to carry out that process (like "endanger" to "danger").
Reading this one, though, this seems like a rare case where they're not trying to spin it as a positive for the customer.
They pretty much just state what they're doing, and even ack at the bottom that there are other options.
FWIW, I'm not (currently) a subscriber, and only subscribe seasonally as shows get released that I'm interested in (e.g. Stranger Things), which isn't often.
What else should they say about their enshittification?
The idea that many updates are now hostile is a disturbing but real hallmark of the cloudified age, in particular. Users used to have more choice, to have the power to decide to update.
Now they cannot manage the software; that than being a user, they are now merely a client.
Moreover I don’t see how this is really an update on anything, they’re not saying “this is how it was done and how it will be done now”, they’re just stating things as matter of fact, which makes it difficult to know exactly what they’re changing.
I do not see anything dishonest here. No lies, no broken promises. If anything it is a bit passive-aggressive, but essentially the message is: “many of you are breaking terms or service and we are going to le you know we know who you are, as a warning”.
Somehow I find “clarifications” which rescind an obviously boneheaded move to be more annoying. At least the bad-update isn’t an attempt to totally gaslight us.
I know honesty has never really been the fundamental value of public relations initiatives, but it would be refreshing to occasionally see a company saying that they’re putting the squeeze on customers because they need to protect their margins or even just because they can. The formerly-neutral “update” is starting to rankle.