GameStop Opens Lower Following Mixed Financials

The day after world’s largest video game retailer GameStop posted mixed second-quarter (ended July 30) financial results, company shares trended down during early Sept. 9 trading.

Despite a retail footprint of thousands of stores, GameStop rebooted its senior management team, incorporating a team of e-commerce experts led by new chairman Ryan Cohen, founder of Chewy.com. The company is in the process of transitioning from physical retail to technology and online gaming.

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Cohen & Co.’s ascendancy has been fueled in part by crowdsourced-investors looking to manipulate GameStop shares for short-term gains. The strategy has worked thus far, with shares up 860% year-to-date based largely on non-business fundamentals. Quarterly revenue topped $1.18 billion, above an industry estimate of $1.12 billion.

Regardless, GameStop management conducted no Q&A during its Sept. 8 fiscal call — the second consecutive fiscal period it has done so.

As a result, much of the established Wall Street investment community has abandoned GameStop, except Wedbush Securities game expert Michael Pachter. The analyst questions when Cohen will live up to his hype.

“I am waiting for his brilliant strategy, and it’s not going to be brilliant,” Pachter told Yahoo Finance. “If it was brilliant, then he would have let us know, months and months and months ago. [Cohen] is trying to revolutionize an industry that has already passed him by. He’s audacious, and he’s wrong on this one.”

FuboTV Capturing Stake in Live Sports/Betting Streaming Market

The subscription streaming video market is embracing live sports and gambling, and upstart online TV service fuboTV is leading the way.

The New York-based platform reported 138% year-over-year growth in total paid subscribers to 681,721, including 91,291 net sub additions in the second quarter, ended June 30. The company expects upwards of 910,000 subs by the end of the year.

Total revenue increased 196% to $130.9 million from the previous-year period, and advertising revenue shot up 281% to $16.5 million. Engagement also reached all-time highs with fuboTV subs streaming 245 million hours of content during the quarter, a 148% increase year-over-year.

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The platform has begun beta testing predictive, free-to-play gaming ahead of an expected launch this fall. The Fubo Sportsbook with real-money wagering remains on track for a fourth-quarter launch as the company plans to further combine interactivity with streaming video.

Michael Pachter, media analyst with Wedbush Securities in Los Angeles, said he expects fuboTV to double its sub base within the next two years, topping 1.2 million.

“FuboTV’s ability to offer comprehensive entertainment and sports viewing is a real differentiator, and its focus on the sports viewer/bettor should serve to accelerate subscriber growth,” Pachter wrote in an Aug. 11 note.

The analyst contends fuboTV to satisfy regulatory gaming requirements in up to three states by year end, and add another three states in 2022 as state government and sports gambling further meld.

“As fuboTV becomes more expert in dealing with the regulators, we expect [the platform] to ultimately offer real money wagering in 40 states,” Pachter wrote.

“If the company is ultimately successful in attracting free users to its app and converting some of these to real money wagering, it could generate as much as $2,000 in annual handle per paying user.”

The “handle” is the total amount of money that is wagered on a sporting event.

“It is too early to determine whether fuboTV can attract one million free app users…but if so, it could generate $20 million of annual high margin revenue for each one million free users,” Pachter wrote.

Analyst: Netflix Added Just 1 Million (Foreign) Subs in Q2

Netflix is expected to report adding 1 million international subscribers and net zero additions in North America for the fiscal period ended June 30 — on par with company estimates but down from Wall Street projections of 1.97 million subs, according to Wedbush Securities media analyst Michael Pachter. Netflix added 10 million subs in the previous-year period, driven largely by the pandemic and government-mandated stay-at-home measures.

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Netflix expects to have ended the period with 208.6 million subs worldwide. That compares with 192.9 million subs at the same time a year ago.

Michael Pachter

“We expect domestic (U.S. and Canada) paid streaming subscriber net additions to be flat,” Pachter wrote in a July 15 note.

The SVOD behemoth is contending with an increasingly saturated market inundated by media giants Disney+, Amazon Prime Video, HBO Max, Peacock and Paramount+, in addition to regional competition worldwide.

The market state of affairs underscores why Netflix appears to be ramping up efforts to offer video games to subscribers as early as next year.

Regardless, Pachter says Netflix’s pact with Steven Spielberg’s Amblin Partners studio, and a separate five-year deal with Sony Pictures in which Sony movies will stream on Netflix in the U.S. after their theatrical and home entertainment runs, represent strong cards in hand for the SVOD pioneer.

“This appears to be a major coup for Netflix when it is both facing immense competition and a drying spigot of licensed content,” Pachter wrote.

Analyst: 2021 Box Office Trending Up From 2020, Down From 2019

The recent domestic box office success of Paramount Pictures’ A Quiet Place Part II and Universal Pictures’ F9: The Fast Saga has jumpstarted the exhibition business, with theater operators on track to see 2021 revenue increase 120% from pandemic-addled 2020, according to media analyst Michael Pachter.

Year-to-date revenue has topped $1 billion, which is down about 41% from 2020, but the gap is expected to close and ultimately surpass last year’s tally as the year progresses with the debut of Disney/Marvel Studios’ Black Widow, among others.

Michael Pachter

The Wedbush Securities analyst, in a June 29 note, said the current month’s box office receipts of $368 million represent “a vast improvement” from the $4 million in ticket sales North American theaters mustered during June 2020.

Pacter said that while the vaccine rollout and a steady stream of summer blockbuster movies portends a strong industry rebound, the month’s revenue is still 68% below June 2019 box office receipts — underscoring the long path toward normalization theaters face.

Then again, the 2019 box office was an outlier as Disney alone generated a record $13.2 billion in revenue on the back of its expansive Marvel/Lucasfilm/Pixar IP portfolio.

“We expect [publicly traded exhibitor] shares to mostly trade higher this week after a reassuringly strong opening weekend for F9,” Pachter wrote. “While there was some additional release slate movement by Warner Bros. late last week, this appeared to be typical shifting to maximize profitability against competing releases, and not related to studio concerns about attendance trends.”

Warner last week pushed back again the release of big-budget sci-fi movie Dune to Oct. 22 from Sept. 22. The studio moved up to Sept. 17 Clint Eastwood’s Cry Macho, while “The Sopranos” prequel, The Many Saints of Newark, now fills the Oct. 1 slot.

Pachter cautioned that the exhibition business remains volatile dealing with merger and acquisition scuttlebutt, COVID variants gaining steam, and competing streaming services.

“There is plenty of theatrical content originally slated for 2020 to fill the 2021 release slate and spill over into 2022,” Pachter wrote. “However, streaming services are competing at the highest levels for content to bolster their offerings in an extremely competitive environment as content was consumed at heightened levels throughout 2020. [This trend] has continued through the first half of 2021.”

Is Netflix’s Pandemic Boom Over? Analysts, and Even the Streamer Itself, Think So

NEWS ANALYSIS — Heading into Netflix’s first-quarter fiscal results on April 20, market speculation regarding the streamer’s subscriber growth dominates.

Following a year, 2020, in which Netflix added a record 37 million subs, conventional wisdom suggests the SVOD pioneer can’t replicate, much less exceed, last year’s Q1 sub increase of 16 million subs.

London-based Ampere Analysis and Los Angeles-based analyst Michael Pachter contend Netflix added 6 million subs worldwide through March 31 — the lowest sub gain in four years. Of course, that’s playing it safe, considering Netflix itself has projected the same conservative sub growth.

That’s a smart move, since Netflix short-sellers typically salivate ahead of earnings, hoping for bad news — only to be dashed at the gallows when positive results come out.

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“It is not quite the end of the pandemic effect for streaming services, but we are beginning to see the tail end of it; it’s definitely on the wane,” Richard Broughton, analyst at Ampere, told The Guardian. “If Netflix’s numbers do come in as predicted, they will be the lowest for a good few years.”

Netflix ended 2020 with slightly more than 203 million subscribers and expects to end the first quarter of 2021 with 209.6 million subs. The service added 41% of subs from Europe and the Middle East.

“We’re becoming an increasingly global service, with 83% of our paid net adds in 2020 coming from outside the [North America] region,” co-CEOs Reed Hastings and Ted Sarandos wrote in the company’s Q4 shareholder letter. “The quarterly guidance we provide is our actual internal forecast at the time we report and we strive for accuracy.”

Pachter says Netflix has executed “extremely well” during the pandemic by keeping its “foot on the gas pedal” for subscriber growth, while benefiting from a disruption in content production that allowed it to generate — for the first time — positive free cash flow.

“While we are far more constructive about Netflix than we have been at any point in nearly a decade, we continue to question its [market] valuation,” the analyst wrote in a note.

Netflix continues to successfully fend off growing competition from Disney+; increased content spending from Amazon Prime Video; and pending European launches of HBO Max and Paramount+. As warmer weather arrives around the world and pandemic restrictions on social gatherings ease due to vaccinations, the number of consumers interested in binge-viewing the latest U.K. serial drama might wane.

“Netflix went into the pandemic as the strongest service, and although there has been the arrival of very successful new entrants such as Disney+, it is [still] in an extremely strong position now,” Broughton said.

Amazon Upped 2020 Content Spend 41% to $11 Billion

Among streamers such as Netflix, Disney+, HBO Max, Hulu and Peacock, Amazon Prime Video remains relatively under the radar when it comes to publicized content spending.

So when founder/CEO Jeff Bezos released his final shareholder letter April 15, the world’s richest man threw out a lot of big numbers befitting a company tagged on Wall Street as No. 1 in market valuation. Not to be overlooked in the data dump: $11 billion in content spend on movies, TV shows and music in 2020. That’s up 41% from $7.8 billion in combined content spending in 2019.

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Netflix spent $11.8 billion on content in 2020, which was actually down almost 15% from $13.9 billion spent in 2019.

Amazon in recent years reduced content production as it focused monies on high-profile license agreements such as “NFL Thursday Night Football,” according to analyst Michael Pachter with Wedbush Securities in Los Angeles. He says Amazon is positioning to resume releasing original content at a steadier clip, as it had in the past. Amazon Studios recently installed a new, more comprehensive TV development team in place.

“We view [the move] as a way [for Amazon] to remain relevant in the face of heightened competition from various other streamers,” Pachter wrote in a note.

Separately, Bezos said the e-commerce pioneer created $126 billion in “value creation” economic benefit to consumers in 2020. He said most Amazon consumers complete 28% of their online purchases in three minutes or less, and half of all purchases are finished in less than 15 minutes.

When compared to the typical shopping trip to a physical store — driving,
parking, searching store aisles, waiting in the checkout line, finding your car, and driving home. Bezos said research suggests the typical physical store trip takes about an hour.

“If you assume that a typical Amazon purchase takes 15 minutes and that it saves you a couple of trips to a physical store a week, that’s more than 75
hours a year saved,” Bezos wrote.

Indeed, when valuing the time saved shopping through e-commerce at $10 per hour, Bezos estimates the average Amazon Prime member created $630 in annual “value creation” for themselves. A tally that skyrockets to $126 billion when multiplied by 200 million Prime members.

“That’s important,” wrote Bezos.

Analyst Pachter: ‘We Have Been Consistently Wrong About Netflix’

Netflix has been on a roll since the pandemic began, and that’s unlikely to change anytime soon, says analyst Michael Pachter.

Pachter, media analyst with Wedbush Securities in Los Angeles, has been a longtime bear on Netflix’s stock, contending the SVOD juggernaut’s fiscal success is overstated, and glosses over significant shortcomings such as debt and free cash flow.

With Netflix set to release first-quarter (ended March 31) fiscal results after the market’s close on April 20, Pachter April 15 issued a note admitting the streamer continues to defy naysayers with or without a pandemic.

Michael Pachter

The analyst says Netflix will add 6 million subs worldwide in Q1, bringing its global base to about 210 million — data points that reflect Netflix’s own guidance.

“We have been consistently wrong about Netflix,” Pachter wrote. “Netflix has executed extremely well during the pandemic, surprising us by keeping its foot on the gas pedal for subscriber growth, while benefiting from a disruption in content production schedules that allowed it to generate positive free cash flow.”

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Free cash flow is the cash a company produces through its operations, less the cost of expenditures on assets. In other words, FCF is the cash left over after a company pays for its operating and capital expenditures.

Indeed, free cash flow, or the lack thereof, has been a persistent sore point for Pachter, who argues Netflix regularly spends exorbitantly more each quarter than it generates. Since 2018, Netflix has generated more than $3 billion in annual negative FCF.

Then came the pandemic, and the streamer in 2020 produced its most successful fiscal year ever, generating $25 billion in revenue and adding nearly 37 million new subs.

Pachter now believes Netflix will generate $1 billion a year in positive FCF through 2030 — a projection the analyst contends still does not support the streamer’s $540 share price value. Pachter said he believes Netflix shares should be priced at $340.

Optimism about the company’s potential to generate free cash flow growth of more than $1 billion per year seems to us to be misplaced,” Pachter wrote. “We reiterate our ‘underperform’ rating on shares of Netflix.”

Analyst: Netflix Paying Sony $1 Billion For Movie Rights

Netflix’s big distribution deal with Sony Pictures for exclusive streaming access to new theatrical and original-produced movies beginning in 2022 is expected to cost the SVOD behemoth more than $1 billion, according to media analyst Michael Pachter. Netflix and Sony did not disclose financial details of their landmark agreement, which supplants Sony’s long-time distributor (since 2006) Starz.

“This is meaningful for Netflix as many of its earlier exclusive licensing deals have expired, the content pulled back by studios such as Disney and WarnerMedia seeking to shore up their competing streaming services,” Pachter wrote in an April 12 note.

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The agreement comes as other studios pull content from Netflix for proprietary services. MGM-owned Epix and MGM have opted for an exclusive partnership with Paramount+, while NBCUniversal is considering pulling content from both HBO Max and Netflix to shore up its Peacock service, while potentially leaving some of its content available to co-owned Hulu on a non-exclusive basis.

“While these are clearly exceptional times and exhibitors are willing to negotiate terms they typically would not have in a pre-COVID environment, we think these types of negotiations will continue, and we expect to see more original content from streamers playing in theaters post-pandemic,” Pachter wrote. “We think exhibitors are now more willing to negotiate favorable terms with far more flexible windows than they had in the past, as long as their counterpart is willing to pay.”

Indeed, the analyst contends Netflix acted proactively as studios continue to hold back major tentpole titles due to the pandemic. With many lower-budget movies slated for release last year shifted to streaming to recoup production budgets, most larger budget titles have been pushed back to later this year or into 2022. Despite the expected July 9 theatrical bow of Disney/Marvel’s Black Widow, and exhibitors in some markets, including Los Angeles, expanding seating capacity to 50% from 25%, Pachter says the exhibition industry is not expected to “normalize” until this summer at the earliest as more moviegoers get vaccinated.

“Attendance levels will not materially improve until tentpole titles return to theaters, and studios clearly prefer the lower risk of releasing tent-pole titles when vaccine s should be widely distributed in the U.S. and Europe,” wrote the analyst.

Analyst Michael Pachter: Breaking Windows Destroys Value

Michael Pachter thinks the right thing for studios to do after the pandemic subsides is to reopen some windows.

Speaking at a DEG: The Digital Entertainment Group virtual presentation March 24, the Wedbush Securities media analyst said the way for content owners to get the most from their content is to once again have a theatrical window, along with several others in which they can maximize the value of content.

“It is suboptimal if a consumer spends the same amount of money … and subscribes to five services and consumes three times as much content,” he said. “Somebody loses. So the creatives can’t get paid and the publishers of their content can’t get paid if the total pie stays the same and people consume more. So it’s in the best interest of everybody in the value chain to maximize profit, which means theatrical, followed by PVOD or VOD, followed by DVD, and then make the streaming guys wait three years.”

He isn’t keen on the moves by several studios of late to send first-run theatrical releases to their streaming services concurrently with theatrical release, and he thinks it shouldn’t last.

“I think that if the world ever returns to normal, and that’s a 2022 prospect at the earliest, but if the world returns to normal, I think greed is going to thrive,” he said. “I think that the studios are going to maximize the theatrical window again, maybe that’s a 45-day window and not a 70-day window, but you’re going to have [a theatrical window] for a while. You have to remember all the constituencies involved in creating film. Directors like to win Best Director, and actors like to be on ‘The View’ and they like to be on ‘Access Hollywood’ and they like to measure their success in terms of box office. So when you release a movie like Bird Box direct to Netflix, what does everybody get paid? It’s impossible to actually track how much revenue that generated. Ultimately, everybody who works in this industry is motivated by getting paid for their hard work and the best way to get paid is to maximize revenue.”

Disney’s strategy of Premier Access on its streaming service (with an additional fee) for first-run films is a short-term phenomenon, he contended.

“I don’t think they’re going to see any meaningful spike in subscribers, that they are going to abandon this pretty quickly,” he said, noting, “Honestly, nobody is signing up for Disney+ to see Black Widow, period, or Mulan or Raya.”

WarnerMedia’s scheme to send all of its first-run films to its streaming service HBO Max for a year “was an overcommitment,” he said.

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“If you remember a famous HBO product, ‘Game of Thrones,’ we can say, ‘You know nothing, [AT&T CEO] John Stankey,’” Pachter said. “That guy knows nothing about anything. And I’m a big fan of Jason Kilar, and he’s I think in charge of the studio at HBO Max. … My bias is that AT&T bit off way more than they could chew when they bought Time Warner. They’re trying to package HBO Max and sell it and maybe later sell the studio, and I think they’re doing everything they can to make the HBO Max asset worth a lot because they think they’re going to get a Netflix multiple on that, so I think they’re making bad decisions for the creatives and for maximizing profit for the content by shoving it onto HBO Max. I really think that’s where that’s all coming from, but again It’s hard to get in the head of somebody who actually doesn’t know what they’re doing, so it’s hard to second guess. I don’t think the guy knows what he’s doing. I don’t think he has a clue — in way over his head.”

Analyst: Theatrical Return Could ‘Normalize’ in July

With President Biden predicting 1.5 million daily COVID-19 vaccinations nationwide by mid-spring, the return of the domestic box office could be right around the corner. Wedbush Securities media analyst Michael Pachter believes the box office could “normalize” as early as July as vaccinations roll out, and virus infections/deaths decline.

“We maintain that most people will remain reluctant to attend the movies until they receive their vaccine, or in the case that the
transmission rate significantly falls,” Pachter wrote in a Feb. 22 note. “Simply stated, we do not expect attendance levels to begin to normalize until July at the earliest.”

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Pachter contends AMC Theatres and Cinemark have taken the right precautions — installing high-quality air filtration systems, implementing enhanced cleaning and disinfecting protocols, reducing seating capacity, and block seating to preserve social distancing. Regal, which remains shuttered, has taken similar steps.

The analyst bases much of his optimism on the strong return of the Chinese box office — the second-largest in the world — which saw a major boost from a record Lunar New Year weekend with action comedy Detective Chinatown 3 opening to $393 million.

“Chinese box office bodes well for Imax, global theatres post-COVID,” Pachter wrote. “There was clearly pent-up demand in China as audiences returned en masse once theaters re-opened, and in Q4 Imax revenue was down only 4% YoY in the region. Through Feb. 14, Imax is trending up 471% from [the previous-year period].”

That said, Pachter estimates the Q1 U.S. box office is trending
down 93.6% through Feb. 21, with ticket sales down 88.1% year-over-year, and 2021 trending up 122.5% over 2020 (down 59% over 2019). More than 50% of theaters in major markets remain closed.

“We expect 2022 to return to 2019 levels on pent-up demand for long-delayed films,” he wrote.