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Netflix, Inc.

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235.44
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This Could Be a Game-Changer for Warner Bros. Discovery. Time to Buy?

Warner Bros. Discovery (NASDAQ: WBD) has made headlines on a near-weekly basis as its CEO David Zaslav restructures the company to prioritize profits and pay down a looming debt. Building on this, recent reports state that Zaslav has decided to focus on releasing films theatrically rather than debuting new titles on the company's streaming service, HBO Max. The move has the potential to maximize revenue while continuing to make inroads in the streaming industry. Let's assess. A return to form The COVID-19 lockdowns and theater closures prevalent throughout 2020 and 2021 led WarnerMedia to adopt various release strategies to boost its newest films, to the detriment of box-office revenue. Blockbusters such as Wonder Woman 1984, Dune, and The Suicide Squad received a hybrid release in which the films premiered in theaters and HBO Max on the same day and were only available on the streaming service for one month. As a result, the company's biggest films severely underperformed as moviegoers chose to watch the new titles at home. For instance, Wonder Woman 1984 premiered in December 2020 in theaters and on HBO Max, taking home $169.6 million at the box office on a budget of $200 million. Alternatively, in 2017, the first film made $822.8 million on a budget of $150 million -- almost four times more than the 2020 sequel. Similarly, The Suicide Squad, a soft reboot of the 2016 DC film, did not fare well when it debuted simultaneously on streaming and in theaters in July 2021. The original movie was released five years before, and despite its 26% score on Rotten Tomatoes, it grossed $746.8 million on a budget of $175 million. Meanwhile, the 2021 film brought on Marvel legend James Gunn to direct, introduced a cast of fan-favorite actors, and earned a Rotten Tomatoes score of 90%, but only achieved $168.7 million on a budget of $185 million. While the pandemic greatly impacted the performance of these films, that doesn't mean consumers wouldn't continue to watch movies that come free with a subscription over paying extra for the theater experience. On Aug. 8, Zaslav shared the same sentiments as he announced the company's future content strategy would "fully embrace theatrical" releases. The move gives the company's films the best chance to maximize profits, something Warner Bros. Discovery needs as it pays down $55 billion of debt. Keeping what works Focusing film production on theatrical releases isn't a significant loss to Warner Bros. Discovery's streaming business. Time and time again, viewing numbers have proved quality TV shows are the main driver for streaming subscription growth. For instance, in the first quarter of 2022, Netflix (NASDAQ: NFLX) lost 200,000 subscribers and projected a further loss on 2 million in the second quarter of 2022. However, the company's release of Stranger Things Season 4 in May boosted subscriber retention and led the company to report a more modest loss of 970,000 members in Q2 2022. Comparatively, Warner Bros. Discovery has a significant asset in HBO, known as the king of prestige TV for hits such as The Sopranos and Game of Thrones. HBO Max can offer an incredibly attractive library of titles with a back catalog of HBO legacy series and new shows such as Euphoria. Its second season pushed the Zendaya-led show to become the second-most-watched HBO show in history, only behind Game of Thrones. As for films on HBO Max, the top-performing movies in 2022 so far all had a theatrical run rather than being made exclusively for the streaming platform. The top five most-watched HBO movies in 2022 have been as follows: Dune, The Batman, King Richard, Fantastic Beasts: The Secrets of Dumbledore, and The Matrix Resurrections. Developing films primarily for theatrical release and then adding them to HBO Max down the road will only bolster the company's streaming library. Additionally, the most significant move in Warner Bros. Discovery's future will be to combine HBO Max and Discovery+ into one platform. The merger will add an extensive library of popular unscripted series such as Property Brothers and 90 Day Fiancé, further boosting the company's streaming potential by offering a wide range of popular titles on one well-rounded site. A long way to go Warner Bros. Discovery is undergoing a dramatic shift in business strategy as it keeps what works and drops what doesn't. Investors will still want to be wary of its stock until the dust settles on its planned changes, but a move toward prioritizing theatrical releases is a step in the right direction. So while you might not want to put all of your eggs into the Warner Bros. Discovery basket, it is a stock to watch carefully as it carves its place in the increasingly competitive streaming industry. 10 stocks we like better than Warner Bros. Discovery, Inc. When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and Warner Bros. Discovery, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of July 27, 2022 Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool recommends Warner Bros. Discovery, Inc. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off. Today’s Big Picture Asia-Pacific equity indexes ended today’s session down across the board. India’s Sensex ended the day essentially flat, down 0.06%, China’s Shanghai Composite and Australia’s ASX All Ordinaries declined 0.54% and 0.55%, respectively while Japan’s Nikkei fell 0.65%, Taiwan’s TAIEX dropped 0.74% and South Korea’s KOSPI declined 0.90%. Hong Kong’s Hang Seng led the way, down 1.96% on a broad selloff led by Health Technology and Health Services names while Transportation and Communications sectors provided the only relief. By mid-day trading, major European equity indices are down across the board and U.S. futures point to a positive open later this morning. At 8:30 AM ET, the much anticipated July Consumer Price Index (CPI) report was released: The headline figure for the month was expected to fall to 8.7% from June’s blistering 9.1% reading with core CPI that excludes food and energy ticking higher to 6.1% in July vs. 6.0% the prior month. The actual numbers show that inflation hit 8.5%, and core inflation was 5.9%. With the national average retail price for a gallon of gas falling through late June and July from its June 14 high of $5.016 per gallon per data from AAA, forecasters had expected the month over month decline in the headline CPI for July. The July Employment Report also showed wage inflation ran hotter than expected during the month. Let’s also keep in mind that we will be facing a “wash, rinse, repeat” cycle when it comes to inflation data and expectations for the Fed given tomorrow’s July Producer Price Index report. Data Download International Economy Producer prices in Japan rose by 8.6% YoY in July, compared with market forecasts of 8.4% and following an upwardly revised 9.4% the prior month. While marking the 17th straight month of producer inflation, the latest reading was the softest since last December. China's annual inflation rate rose to 2.7% in July from 2.5% in June and compared with market forecasts of 2.9% but even so the July figure marked the highest reading in the last year. The country’s Producer Price Inflation figure for July eased to a 17-month low of 4.2% YoY from 6.1% the prior month and less than the market consensus of 4.8%. Annual inflation rate in Germany was confirmed at 7.5% YoY for the month of July, down slightly from June’s 7.6% reading but still above the March and April figures of 7.3%-7.4%. The annual inflation rate in Italy slowed to 7.9% YoY in July from June’s 8% reading matching expectations for the month. While energy prices declined, prices for food and transportation rose at a faster pace. Domestic Economy This morning we have the usual Wednesday weekly reports for MBA Mortgage Applications and Crude Oil Inventories from the U.S. Energy Information Administration. At 10 AM ET, Wholesale Inventories for June will be published, and the figure is expected to rise 1.9%. While investors and economists will keep more than a passing interest in those reports and data, as we discussed above, it will be the July Consumer Price Index report at 8:30 AM ET that will shape not only how the US stock market opens today, but also expectations for the Fed’s next course of monetary policy action. The U.S. Energy Information Administration (EIA) expects domestic production of crude oil, natural gas and coal will all increase next year compared with this year. It forecast US crude production rising 6.7% to an all-time annual high 12.7M bbl/day in 2023 from 11.9M bbl/day in 2022, US natural gas output climbing to 100B cubic feet (cf)/day from 97B cf/day, and US coal production inching up to 601M short tons in 2023 from an expected 599M this year. The EIA also modestly increased its 2022 average nationwide gasoline price forecast to $4.07/GALLON vs. $4.05 if called for last month. It now also sees 2023 prices at $3.59/GAL vs. its previous forecast of $3.57. Markets Stocks continued in their holding pattern waiting for the latest CPI print save for some fundamental stories pushing Technology names and small caps around. The Dow and the S&P 500 were down slightly at 0.18% and 0.42%, respectively while the Nasdaq Composite dropped 1.19% and the Russell 2000 closed down 1.46% on the day. Energy names led the way yesterday but were overpowered by Technology and Consumer Discretionary sectors. Here’s how the major market indicators stack up year-to-date: Dow Jones Industrial Average: -9.81% S&P 500: -13.51% Nasdaq Composite: -20.14% Russell 2000: -15.83% Bitcoin (BTC-USD): -52.08% Ether (ETH-USD): -55.38% Stocks to Watch Before trading kicks off, CyberArk (CYBR), Fox Corp. (FOXA), Jack in the Box (JACK), Nomad Foods (NOMD), Vita Coco (COCO), Tufin Software (TUFN), and Wendy’s (WEN) will be among the companies issuing their latest quarterly results and guidance. At 9 AM ET, Samsung (SSNLF) will hold its Galaxy Unpacked 2022 at which it is expected to introduce new Galaxy foldable smartphone models, a new Galaxy Watch, and Galaxy Buds. Shares of advertising technology platform company The Trade Desk (TTD) jumped after the company reported quarterly results that topped expectations and guided current quarter revenue above the consensus forecast. The RealReal (REAL) reported a smaller than expected bottom line loss for its June quarter as revenue for the period rose 47.2% YoY to %154.44 million, topping the $153.99 million consensus. However, the company issued downside guidance for both the current quarter and 2022. Revenue for the September quarter is now expected to be $145-$155 million vs. the $164.3 million consensus; for the full year of 2022, revenue is forecasted to be $615-$635 million vs. the $653.7 million consensus. Shares of Coinbase Global (COIN) moved lower after it reported June quarter results that missed top and bottom line expectations. Revenue for the quarter fell 63.7% YoY as Total trading volume fell 53.0% YoY and 29.8% sequentially to $217 billion. Monthly Transacting Users (MTUs) grew 2.3% YoY but fell 2.2% sequentially to 9.0 million. For the current quarter, Coinbase sees the number of MTUs trending lower sequentially and total trading volume to be lower compared to the June quarter. Shares of Sweetgreen (SG) tumbled in aftermarket trading last night after the company missed quarterly revenue expectations, lowered its 2022 forecast, announced it will lay off 5% of its workforce, and downsize to smaller offices. ChipMOS TECHNOLOGIES (IMOS) reported its July revenue was $65.1 million, a decrease of 19.4% YoY and down 7.7% MoM. Taiwan Semiconductor (TSM) reported its July revenue increased 49.9% YoY to NT$186.76 billion, which equates to a 6.2% MoM improvement. Electric vehicle subscription startup Autonomy placed a $1.2 billion order for 23K electric vehicles with 17 global automakers, including BMW (BMWYY), Canoo (GOEV), Fisker (FSR), Ford (F), General Motors (GM), Hyundai (HYMTF), Lucid Group (LCID), Mercedes-Benz (DDAIF), Polestar (PSNY), Rivian (RIVN), Stellantis (STLA), Subaru (FUJHY), Tesla (TSLA), Toyota Motor (TM), VinFast, Volvo Car (VLVOF) and Volkswagen (VLKAF). IPOs As of now, no IPOs are slated to be priced this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page. After Today’s Market Close Bumble (BMBL), CACI International (CACI), Coherent (COHR), Dutch Bros. (BROS), Red Robin Gourmet (RRGB), and Walt Disney (DIS) are expected to report their quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar. On the Horizon Thursday, August 11 Germany: Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August US: Weekly Initial & Continuing Jobless Claims US: Producer Price Index – July US: Weekly EIA Natural Gas Inventories Friday, August 12 Japan: Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August China: China Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August Eurozone: Industrial Production - June US: Import/Export Prices – July US: University of Michigan Consumer Sentiment Index (Preliminary) – August Thought for the Day “The release date is just one day, but the record is forever.” ~ Bruce Springsteen Disclosures Tufin Software (TUFN), CyberArk (CYBR) are constituents of the Foxberry Tematica Research Cybersecurity & Data Privacy Index Canoo (GOEV), Fisker (FSR), Lucid Group (LCID), Rivian (RIVN), Tesla (TSLA), Vita Coco (COCO) are constituents of the Tematica BITA Cleaner Living Index Canoo (GOEV), Fisker (FSR), Lucid Group (LCID), Rivian (RIVN), Tesla (TSLA), Vita Coco (COCO) are constituents of the Tematica BITA Cleaner Living Sustainability Screened Index The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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