Raphael Stevens

Netflix announces its second-quarter earnings results on Tuesday.
The company previously projected a loss of 2 million subscribers for the period.
Netflix is adding an advertising tier and cracking down on password sharing to reinvigorate growth, but those maneuvers won’t kick in until later this year or later.

Jakub Porzycki | Nurphoto | Getty Images

Netflix reports its second-quarter earnings Tuesday, and the run-up feels like hurricane preparation. A storm is coming. It’s probably going to be bad. Shareholders are praying the foundation is sturdy enough to withstand the damage.
Netflix remains the world’s largest streaming service, but the company reported its first quarterly loss in subscribers in more than a decade earlier this year and warned that it expects to lose 2 million global subscribers in the second quarter. That would be the single largest quarterly loss in the company’s history.

It’s possible the losses will be even worse than projected. Macroeconomic trends are worrisome. Concerns of a possible recession and rampant inflation may already be slowing down spending in the U.S. Netflix’s standard U.S. plan is $15.49 a month, making it pricier than all other major streaming services. That could make it the first option people cancel when they look to save money.
Competition also continues to ramp up. By the end of the year, HBO Max will likely add Discovery+’s entire slate of content to its service, which costs $14.99 a month or $9.99 with ads. Disney last week increased the price on ESPN+ by $3 a month to $9.99, but kept its bundled offering of Disney+, Hulu and ESPN+ the same at $13.99 a month. That may lead to more customers for the Disney bundle, another potential alternative to Netflix.
“I don’t know if [this quarter] will be bad, but it won’t be a good story,” said Andrew Rosen, a former Viacom digital media executive and founder of streaming newsletter PARQOR.
At the start of 2022, many analysts were predicting Netflix would add more than 20 million new subscribers this year. As recently as April, JP Morgan analyst Doug Anmuth estimated the company would add 17.95 million in 2022. After last quarter’s bombshell, he lowered his full-year prediction to about 4 million.
The big question for how Netflix shares perform after the results are announced will be how much of the bad news has already been baked in to the stock price. Already, Netflix’s market valuation has gone from $300 billion to under $90 billion in less than a year.

“For now, I think the markets are going to focus on subscribers,” Yung-Yu Ma, BMO Wealth Management’s chief investment strategist, told CNBC on Monday. “I think there’s a big range of possible outcomes in terms of how much deterioration they actually see and how far that goes into the future.”

Weathering the storm

As last quarter’s earnings conference call was winding down, Netflix Chief Financial Officer Spencer Neumann jumped in to reassure investors positive growth would come in both the third and fourth quarters.
Neumann said the projected loss of 2 million subscribers in the second quarter didn’t mean losses would continue: “We will grow revenue. And there will be paid net add growth,” he said.

A still from “Stranger Things” season three, with the Hawkins crew on the cusp of adulthood and facing enemies old and new.

Netflix is counting on a stronger slate of content, including a new season of “The Crown” and the nearly $200 million budgeted action movie “The Gray Man,” starring Ryan Gosling and Chris Evans, to accelerate growth. It will need to “overdeliver” in international regions — Latin America, Asia Pacific and its Europe-Middle East-Africa unit — to account for mounting headwinds in the U.S. and Canada, Rosen said.
Netflix also has a lot going for it that other streamers don’t. Primarily, it makes money, and all signs suggest that won’t change anytime soon. Most analysts are predicting net income of nearly $5 billion this year. NBCUniversal’s Peacock, by contrast, is set to lose $2.5 billion this year. Even Disney, which has already added nearly 140 million Disney+ subscribers around the world since launching in late 2019, lost $887 million from its streaming products last quarter.
And with 222 million subscribers globally — at least, before any official losses announced Tuesday — Netflix is still the largest streaming service on the planet. That’s a big draw for any creator who wants to make content for the biggest audience possible. It’s also a significant carrot for advertisers, who will finally be able to tap into Netflix’s audience by year-end, when the company launches an ad-supported subscription option for the first time.
Netflix also plans to crack down on password sharing across the globe, a process that could add tens of millions of new subscribers over time. Netflix estimates more than 100 million households globally don’t pay for Netflix, with over 30 million of them in the U.S. and Canada.
But longer-term efforts won’t show just yet, and the major theme of Tuesday’s results may simply be damage control.
Netflix shares rose 1% Monday to $190.92 and are off more than 68% year to date.
WATCH: Netflix investors are still near-term focused on subscribers, says BMO’s Yung-Yu Ma

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McDonald’s franchisees unhappy with changes being made to ownership terms are expressing a lack of confidence in the company’s CEO and U.S. president, according to a new survey.
An independent franchisee advocacy group for McDonald’s owners recently polled its membership on changes being made to franchisee lease terms.
McDonald’s told owners in late June that beginning in 2023 it would evaluate potential new operators equally, instead of giving preferential treatment to spouses and children of current franchisees.

McDonald’s franchisees unhappy with changes being made to ownership terms are expressing a lack of confidence in the company’s CEO and U.S. president, according to a new survey of owners that was viewed by CNBC.
The National Owners Association, an independent franchisee advocacy group for McDonald’s owners, recently polled its membership on changes being made to franchisee lease terms.

The results show an overwhelming majority – 87% – of respondents support calling a vote of “no confidence” on CEO Chris Kempczinski and the company’s U.S. president, Joe Erlinger.
In addition, nearly 100% feel the company should have collaborated with and consulted owner leaders before announcing changes to the franchise system, and 95% said the company’s senior corporate management does not have the best interest of owners in its approach to franchising.
The NOA has about 1,000 members, and nearly 700 responded to the poll. McDonald’s had more than 2,400 owners as of the end of last year. Franchisees run some 95% of McDonald’s locations and are key to the company’s operations.
NOA didn’t immediately respond to a request for comment on the survey results.
McDonald’s alerted owners in late June that beginning in 2023 it would evaluate potential new operators equally, instead of giving preferential treatment to spouses and children of current franchisees.

It is also separating the process through which it renews leases, given in 20-year terms, from assessments of whether owners can operate additional restaurants. In a message to owners about some of the changes, viewed by CNBC, the company said, “This change is in keeping with the principle that receiving a new franchise term is earned, not given.”
The move sent a shock wave through the franchisee community. It came on the heels of plans to roll out a new grading system for restaurants next year that some fear will alienate workers in a time of unprecedented labor challenges. The company has been actively working to recruit new and more diverse owners, underscored in a message to franchisees from Erlinger that was viewed by CNBC.
“We’ve been doing a lot of thinking about how we continue to attract and retain the industry’s best owner/operators – individuals who represent the diverse communities we serve, bring a growth mindset and focus on executional excellence, while cultivating a positive work environment for restaurant teams,” he said.
In December, McDonald’s pledged to recruit more franchisees from diverse backgrounds, committing $250 million over the next five years to help those candidates finance a franchise. McDonald’s declined to comment on the new changes or the survey.
McDonald’s controls lease terms for owners, and there is speculation among some in the franchisee community that the changes are being made to bring in new owners with higher lease rates than established owners would face.
The NOA poll found 83% of respondents said the new rules were a “veiled attempt to raise rents.” And 95% said they do not feel valued by corporate considering recent developments. In addition, 71% of respondents said existing or legacy owners should not be treated the same as potential new operators.
Other franchisee organizations are also frustrated with the changes.
A separate poll from the National Franchisee Leadership Alliance, also viewed by CNBC, showed nearly 100% of its over 400 respondents feel McDonald’s Leadership should have collaborated with and consulted with owners before announcing changes. More than 90% said the changes are not supported, and 90% said they felt their business would be negatively impacted by proposed changes.
The National Black McDonald’s Operators Association also returned a vote of no confidence in CEO Kempczinski, Restaurant Business Online reported in late June.
The tensions come at a time when McDonald’s U.S. business is strong and franchisee profits have been at record highs. The company topped estimates for earnings and same-store sales last quarter. The stock is down 5% year to date.

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Builder sentiment dropped 12 points to 55, according to a monthly survey from the National Association of Home Builders.
That marks the largest single-month drop in the survey’s 37-year history with the exception of April 2020.
Sentiment about current sales conditions saw the largest drop, while buyer traffic fell firmly into negative territory.

Confidence among builders in the nation’s single-family housing market fell in July to the lowest level since the start of the pandemic.
The National Association of Home Builders/Wells Fargo Housing Market Index, a survey designed to gauge market conditions, found builder sentiment dropped 12 points to 55. That marked the largest single-month drop in the survey’s 37-year history with the exception of April 2020, when the reading plummeted 42 points to 30 after the start of the Covid-19 pandemic.

Any rating above 50 on the index is still considered positive, but sentiment has now fallen 24 points since March, when mortgage rates began moving higher. The average rate on the 30-year fixed mortgage has nearly doubled since January and is now hovering just below 6%.

A contractor works on a new home under construction in Tucson, Arizona, U.S., on Tuesday, Feb. 22, 2022. Sales of new U.S. homes retreated in January after a flurry of purchases at the end of 2021, indicating a jump in mortgage rates may be starting to restrain demand.
Rebecca Noble | Bloomberg | Getty Images

Sentiment stood at 80 in July of last year after hitting a record high of 90 in November 2020, when the pandemic sparked a rash of homebuying among people looking for more space in less urban areas. Now, concerns about inflation and recession are among the factors taking a toll on builder sentiment.
Of the index’s three components, builder sentiment about current sales conditions dropped 12 points to 64, while sales expectations for the next six months fell 11 points to 50 and sentiment about buyer traffic declined 11 points to 37. That last component is now solidly in negative territory.
“Affordability is the greatest challenge facing the housing market,” said Robert Dietz, NAHB’s chief economist. “Significant segments of the home buying population are priced out of the market.”
Some major publicly traded homebuilders addressed affordability in their latest earnings releases, saying they would work with buyers to accommodate tightening budgets. But the price of a newly built home in May was $449,000, up 15% from a year ago. That may change in the coming months.

In another sign of a softening market, 13% of builders in the HMI survey reported reducing home prices in the past month to bolster sales or limit cancellations, according to Jerry Konter, NAHB chairman and a homebuilder in Savannah, Georgia.
“Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home,” Konter said.
In the Northeast, builder sentiment on a three-month moving average fell 6 points to 65. In the Midwest, sentiment dropped 4 points to 52, and sentiment in the South fell 8 points to 70. The West saw the largest decline, falling 12 points to 62.

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London Luton Airport briefly suspended operations after a runway “defect” was spotted.
The airport is used by carriers including easyJet, Ryanair and Wizz.
A Royal Air Force base also suspended operations because of infrastructure damage in the extreme heat.

Ryanair planes are seen at Luton Airport as the number of coronavirus cases grow around the world London, Britain, March 17, 2020. 
Peter Cziborra | Reuters

Extreme heat in the U.K. on Monday caused runway damage and disrupted military and civilian flying, airport officials said.
A heat wave has engulfed much of Western Europe, with temperatures in London forecast to rise to about 100 degrees Fahrenheit on Monday and possibly higher on Tuesday before breaking midweek. The aviation industry is wrestling with the effects on infrastructure of extreme weather including storms, floods and high temperatures.

London Luton Airport briefly suspended flights on Monday but said operations were back up Monday evening.
“Following today’s high temperatures, a surface defect was identified on the runway,” the airport tweeted, apologizing for the inconvenience.
The airport is used by budget carriers including easyJet, Ryanair and Wizzair.
At Brize Norton Royal Air Force base in Oxfordshire, flying was halted after a similar report of runway damage.
“During this period of extreme temperature flight safety remains our top priority, so aircraft are using alternative airfields in line with a long established plan,” an RAF spokesperson said. “This means there is no impact on RAF operations.” 

The RAF didn’t specify why it suspended flights, but a spokesperson said “the runway has not melted” as early media reports indicated.
Heathrow Airport, the country’s largest, said it is monitoring the impact of the heat and is so far operating normally. Gatwick Airport outside London also said it has not identified any runway problems due to heat.

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Advocacy group 9/11 Justice slammed former President Donald Trump for hosting a Saudi-funded LIV tournament at his New Jersey golf club.
The letter expressed “deep pain and anger” over the arrangement.
The group noted that has Trump assigned blame to the Saudi government for the 9/11 attacks.

Donald J. Trump speaks during a press conference at the Trump National Golf Club in Bedminster of New Jersey, United States on July 7, 2021.
Tayfun Coskun | Anadolu Agency | Getty Images

Families and survivors of the 9/11 terrorist attacks criticized former President Donald Trump for hosting an upcoming tournament for the Saudi-funded LIV golf league at the Trump National Golf Club in Bedminster, N.J.
The group 9/11 Justice, in a letter dated Sunday, expressed “deep pain and anger” over Trump’s decision to host the tournament. The letter also pointed to a number of moments in which the former president assigned blame to Saudi Arabia for the attacks, which killed 2,977 people in 2001.

“It is incomprehensible to us, Mr. Trump, that a former president of the United States would cast our loved ones aside for personal financial gain,” the group wrote.
Fifteen of the 19 attackers on 9/11 were Saudi citizens, and terrorist mastermind Osama Bin Laden was born in the country. The Saudi government has repeatedly denied that it was involved in the attacks.
A receptionist at Trump National in Bedminster declined to comment on the 9/11 Justice letter. LIV didn’t immediately respond to a request for comment.
Trump himself ripped the PGA Tour in a post on his social network, Truth Social, on Monday, but didn’t mention anything about the 9/11 families’ response. The Bedminster course will host its LIV tournament from July 29-31. Trump’s Miami course is slated to host a LIV championship tournament in late October.
The LIV league has made waves in the worlds of sports and geopolitics, as big names like Phil Mickelson, Dustin Johnson and Bryson DeChambeau signed on for massive paydays.

The PGA Tour suspended players who joined LIV. In turn, the U.S. Department of Justice is reportedly investigating the Tour for potentially anti-competitive behavior against LIV.
The LIV tournament is not the first Saudi business dealing connected to Trump. According to The New York Times, his son-in-law and former White House advisor, Jared Kushner, secured a $2 billion investment from the Saudis’ sovereign investment fund for his private equity firm.
9/11 Justice previously protested the LIV tournament hosted at the Pumpkin Ridge course in Portland, Oregon. More stateside tournaments are scheduled for the fall in Boston, Chicago, culminating in a team championship hosted at Trump’s Doral course in Miami.
The letter to Trump comes on the heels of another it sent to President Joe Biden on the eve of his trip to Saudi Arabia, demanding the president hold the Saudi government accountable for the attacks.
Biden was criticized for perceived insensitivity towards these tensions with the Saudi government. The president met the Saudi Crown Prince with a fist bump amidst vocal advocacy from families and victims of 9/11 and supporters of murdered journalist Jamal Khashoggi.

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