Netflix and JPMorgan share post-pandemic potential - Reuters

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Gamers and visitors rest at the booth of Netflix during Europe's leading digital games fair Gamescom in Cologne, Germany, August 21, 2019. REUTERS/Wolfgang Rattay

NEW YORK, July 16 (Reuters Breakingviews) - Netflix (NFLX.O) and JPMorgan (JPM.N) have a similar problem, and opportunity. While some companies were crushed by Covid-19, America’s biggest video streaming service and its largest bank emerged with more customers, cash and competition. JPMorgan boss Jamie Dimon gave clues as to his response on Wednesday; next week Netflix leaders Reed Hastings and Ted Sarandos will get their turn. For both, the answer may lie in making acquisitions, small and numerous.

Netflix added a record number of subscribers last year - some 37 million – giving it more than 200 million customers worldwide. Sales grew nearly 25% to $25 billion, and the company says it no longer needs to borrow to fund its day-to-day operations. Many of Netflix’s stay-at-home viewers will also be JPMorgan’s stay-at-home savers. The giant lender’s average retail deposits swelled 25% over the past year, and it added 2.4 million new digital customers.

But habits are shifting, and Netflix is preparing investors for the fallout when it reports second quarter earnings on Tuesday: It forecasts only 1 million net paid customer additions versus the 10 million it nabbed a year earlier. Rivals are upping their game, as shown by Amazon.com’s (AMZN.O) $8.5 billion purchase of movie studio MGM. Dimon, meanwhile, reiterated during his quarterly earnings call that competition from old rivals and new fintech firms is – thanks to “good old American capitalism” – fierce.

Spending is one answer. JPMorgan can’t easily do big deals given its size but has been using small ones: Its 30-plus acquisitions this year, including ESG investing startup OpenInvest and British wealth manager Nutmeg, nearly lap its total number in 2020, according to data from Refinitiv. With a market capitalization of nearly $500 billion, Dimon doesn’t have to give much detail on such deals. If some fail, investors can barely tell the difference.

Hastings and Sarandos ought to have the same edge. The $241 billion Netflix’s $8 billion of cash has more then doubled in two years. The co-chief executives only completed two deals last year, according to Refinitiv, focusing more on talent tie-ups with Hollywood royalty like Steven Spielberg and Shonda Rhimes. But there’s room for both. Video game producers, podcast studios or even literary agencies could be smart additions. That won’t help Netflix in 2021, but the next 10 years is the greater challenge.

Follow @jennifersaba on Twitter

CONTEXT NEWS

- Netflix will report second-quarter earnings on July 20. The company is forecasting 1 million paid net subscriber additions compared with 10 million paid net subscriber additions in the same quarter last year.

- JPMorgan on July 13 reported $3.78 of diluted earnings per share for the three months ending June 30, more than double the figure from a year earlier. The U.S. lender said it had spent $2.5 billion on technology and communications during the quarter.

Editing by John Foley and Marjorie Backman

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

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