Benner on Tech: Netflix Is Proven Right

Katie Benner is a Bloomberg View columnist who writes about technology, innovation, and the cult and culture of Silicon Valley. She lives in San Francisco.
Read More.
( Updated
)
a | A

People are Talking About ...

Remember when everyone was mad at Netflix for splitting the DVD rental and the streaming video businesses? And remember when Carl Icahn wanted Netflix to sell itself?

They weren’t open to Netflix Chief Executive Reed Hastings’s bigger vision for the company. But Hastings has been proven right. The stock just hit a record high after the company said its video-streaming service now has more than 62 million subscribers worldwide. What a graphic illustration of how hard it is for executives to execute a strategic long-term plan. Building companies for the long run and patient investing get tons of lip service, but Wall Street really wants short-term gains and instant gratification.

Netflix’s original shows, such as “House of Cards” and “Unbreakable Kimmy Schmidt” helped draw in new subscribers, especially in the U.S., and the company has vowed to make international subscriptions grow, too. BTIG analyst Rich Greenfield writes:

While Netflix has convinced the media industry that they simply want to become HBO faster than HBO can become Netflix, we believe Netflix’s ambitions are far larger.  Netflix is clearly focused on replacing linear television with on-demand, ad-free programming on a worldwide basis.

Greenfield also noted that Netflix is shifting its own marketing dollars from television to online ads, especially mobile.

Netflix’s first-quarter profit fell from $53.1 million last year to $24 million, or 38 cents a share, this year. Analysts had estimated 63 cents a share.

Hastings wrote in his quarterly letter to shareholders that the company will soon start using HTTPS because it “helps protect members from eavesdropping by their ISP or employer.”

** In other earnings news: SanDisk first quarter profit sank 86 percent, and the company missed earnings estimates. (the Wall Street Journal)

IPOs!

** Etsy priced its initial public offering at $16 a share.

Bloomberg’s Leslie Picker argues that Etsy isn’t being priced so much for tremendous growth, but that the IPO is setting a price floor for a potential acquirer. Could EBay buy Etsy? Picker thinks so. I have no idea either way. But I do recall that PayPal went public in part to set an acquisition price, and then EBay snapped that up.

If Etsy gets bought, well, there will be a lot of pressure on it to grow. And that will probably change its quirky, craft-selling vibe and force management to forego the needs of its community. Even without an acquisition, I think it’ll be hard for Etsy to keep its cult following happy and withstand the pressure that Wall Street puts on companies to maximize returns.

** In other IPO news: Virtu Financial, the high-frequency trading firm, priced its IPO at $19 a share and raised $314 million. (Bloomberg)

** AshleyMadison, the website that matches married people who want to cheat on their spouses with other married people, is planning an IPO in London. The company’s head of international relations Christoph Kraemer told Bloomberg that the site has 36 million members in 46 countries and saw 45 percent sales growth last year with a profit margin between 20 percent and 25 percent. The company thinks its value is right around $1 billion.

That all sounds very tempting. Then you read the part where the investors in AshleyMadison’s parent company, Avid Life Media, are described as “wealthy North Americans who prefer to remain anonymous.” That gives you pause.

I’m eating such very sad food.

Sprig recently raised $45 million in venture funding, for a total of $57 million. What is Sprig you ask? It’s a San Francisco-based food delivery company that’s cheaper than almost all of the lunch spots near my building. (It’s also available in Palo Alto and Chicago.) At one point I was eating from Sprig so often that when I would work out of Bloomberg’s New York office I didn’t know how to acquire lunch without it. There was actually a day when I did not eat because I couldn’t fathom walking to Chipotle. Sprig had trained me.

Apparently the Verge feels my pain. Nitasha Tiku writes:

My first Sprig order happened last November after I complained to a fellow New York City transplant about the lack of inexpensive and non-greasy delivery options here ... Six months later, I have spent $443.81 on items like Bagel & Lox ($12), Coriander Steak Salad ($11), and Goat Cheese Tart and Tomato Soup (served warm, $9).

It’s insanity. Not the food. The food is fine. I’m eating at my desk so I don’t taste it anyway. But the prices. How can they charge so little and still pay their delivery people and blah blah blah? What are these VCs thinking? Tiku, again:

Fifty-seven is a lot of millions. You can seriously undercut the competition while staying profitless-on-purpose -- all because investors believe other people will soon behave as mindlessly as early adopters like me.

Ventureland

Jawbone closed a $300 million funding round led by BlackRock that values the company at $3 billion. (Re/code) The Up3 fitness band has yet to ship, but the company has already announced the Up4.

Ola, Uber’s biggest rival in India, raised a $400 million Series E round led by DST Capital. (TechCrunch)

** Related: A regional car hailing service is growing in Europe. France’s BlaBlaCar acquired Germany’s carpooling.com and the Hungarian Autohop. (the Wall Street Journal)

Snapchat is recruiting Uber employees with a special filter that turns on when a phone is near an Uber office. (Forbes)

SpaceX got very close to landing the Falcon 9 on the platform, and then the rocket hit the water and exploded.

Tinder users can now use up to 34 Instagram photos in their profiles.

New Enterprise Associates closed a $2.8 billion fund, the largest pure venture fund on record, as well as a $350 million Opportunity Fund that the firm can use for already funded companies. (Bloomberg)

People and Personnel Moves

Brad Garlinghouse, a former Yahoo executive, has joined the bitcoin startup Ripple Labs. (TechCrunch)

Companies

Amazon offers the least expensive grocery delivery option in New York City. (Bloomberg)

Apple’s Siri service in Russia gave homophobic answers when asked questions about homosexuality. (BBC) The Los Angeles Unified School District wants a “multi-million dollar refund” for its iPad deal that has been scrapped. (Ars Technica)

Facebook’s Internet.org initiative is losing Indian Internet company members over net neutrality. (the Huffington Post)

Google fought back against the EU’s anti-trust complaint, saying that there are too many competitors in the market, many of which are thriving, for the search giant to be abusing its monopoly.  The EU is opening a separate formal anti-trust investigation into whether Google cut anti-competitive agreements or abused the Android operating system’s possibly dominant position.

Microsoft’s Skype, OneNote and OneDrive mobile apps won’t be included on Samsung Galaxy S6 phones sold by Verizon Wireless. Only OneNote and Skype will be on S6 devices sold by AT&T. (the Wall Street Journal)

Samsung formed a team to work exclusively on screens for Apple, as the Korean manufacturer relies more on its display and semiconductor units for growth. (Bloomberg)

Twitter revamped its homepage so that people without accounts can see tweets arranged by topic, which could help create user growth.

Security Watch

Ransomware, malware that holds your data hostage until you pay to have it released, is on the rise. (the Wall Street Journal) Here’s my take on the problem. Hackers don’t need to steal our data anymore to make money.

News and Notes

Yahoo, Google and Facebook are developing new messaging products. Facebook and Google are making “phone dialer” apps, and Yahoo is working on products that meld both live and recorded messages and videos. (the Information)

Your car can be busted into with a few simple electronic devices. (the New York Times)

(Corrects sixth paragraph to reflect that Netflix's earnings did not beat analysts' estimates.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the editor on this story:
Maria Lamagna at mlamagna@bloomberg.net