Curbing Wall Street’s unrealistic expectations

The market mantra of the past two decades has been “growth at all costs”. That isn’t working anymore. But even the “too big to fail” corps are struggling to step away from it under the crushing pressure of Wall Street’s expectations.

So, you made it to Wall Street. You landed a multi-billion dollar IPO and all your dreams are coming true. The late nights, fundraising rounds, and complete sacrifice of your personal life were all worth it. Good news, right?

Actually, the hell is just beginning. 

Netflix and panic  

Netflix is finally cracking down on password sharing. Those less versed in the markets think it’s the mouse that will fell the giant. And it’s easy to see why. 

Rebuffing a corporate monopoly when they make an unpopular decision makes us feel like we have control. “They won’t let me account share? Well I’m leaving. That’ll show ‘em!” The press has reported a “mass exodus” of subscribers as Netflix stock dropped 50% in a month.

The truth is, now there’s blood in the blue ocean they once swam free in, Netflix is being hunted by much bigger sharks. 

Competitor Amazon Prime can drop a billion on the new Lord of the Rings series and not break a sweat. Even if it fails. Because it’s Amazon. Disney+ lost USD $593 million during 2021, but Disney’s parks generated $2.45 billion. For many of the newer players, a streaming service is just an entry point into their wider product range.

But streaming is all Netflix has. It’s in a blood-soaked market with no diversification raft.

Who’s culpable here? Is it the head office decision to dismantle Netflix’s famous sharing culture? Or is it the massive expectations that were placed on the stock performance, despite streaming being its only product?

Wall Street is turning tail on the monster it helped create. Its biggest investor pulled their USD $1 billion investment at a loss of $400 million. This mass subscriber exodus must’ve been pretty bad to cause such panic. A million subscribers? 10%? 1%? 

Actually, it was 200,000. Netflix has 222 million subscribers. Less than 0.1% of the subscriber base has left the platform in 2022 so far. 

The number is nothing compared to the estimated 100 million households worldwide that are account sharing. Netflix let it slide for as long as they could, acknowledging both the “legitimacy” of password sharing (households with one account set up on a shared TV) as well as the fact it “likely helped” fuel growth by exposing more people to the service. 

The 200,000 subscriber loss doesn’t make a dent. The problem is that it’s the first time Netflix hasn’t increased numbers in 10 years. The fantasy of the infinite growth of this wunderstock has shattered. And it’s these phantom growth projections that can cause mature, successfully IPO’d companies to fall at the last hurdle.

Enough to turn a good founder bad

CEOs must deliver maximum profits to shareholders. And that’s at any cost. Social, environmental, moral. Thrown into the lion’s den of public listings, CEOs must also compete against the madly upwards-spiralling profit projections of other companies. 

The question is how C-suite decision makers can stay ethical under this crushing pressure. 

Netflix CEO Reed Hastings has taken a hammering both in the markets and the press, despite it being the first subscriber drop in over a decade. And Bill Ackman himself – the guy who pulled his $1 billion investment – said “it’s a great company run by a great management team”. 

Is Hastings an unethical CEO? Not really. But he was forced to dismantle the culture that underpinned the halcyon decade of Netflix and chill. The family-friendly profiles, the long-distance couples simultaneously streaming across continents, the still using your ex’s friend’s mum’s account 3 years after you broke up. The togetherness. 

A CEO’s job is to drive profit in the now. And if it damages long-term viability later, well, it likely won’t be their problem. CEO churn is increasing, with the average term down from 8 years in 2016 to 6.9 in 2020. 

There’s little incentive to “build a better tomorrow” when a CEO’s five year plan is to be retired in five years. 

Twitch is pursuing a similarly ominous path. It’s long been the home of live streaming (as opposed to YouTube’s more static content), has long paid streamers more than YouTube, and has a stronger, more niche, more loyalty-based culture.

In a relentless drive to increase profits even further, Twitch wants to cut the share of subscription fees that make up streamers’ profits. Top streamers on 70% fee share could be scaled down to 50%. 

Why? No one’s really sure. Viewer numbers shot up during the pandemic, and stayed high in the aftermath. The outlook was rosy. But despite being Amazon-owned, Twitch is still under huge pressure to prove outsized growth.

Stepped too far

The problem isn’t that huge corporations are intentionally hurting people.

It’s that under Wall Street’s duress, it’s hard to stop when their well-intentioned endeavours become harmful. AirBnB is a prime (property) example. Poor yet beautiful localities around the world are being capitalised on by portfolio “hosts”. The new and particularly insidious breed of landlord is not renting out spare rooms for spare cash. It’s buying up swathes of property, reletting it at extortionate sums, and pricing locals out of their own housing markets. 

Is AirBnB aware of the socio-economic devastation it’s causing in some areas? Yes. Is it pulling back on host recruitment now that it has “enough”? No. Because under capitalism, there is no “enough”. 

The beginning of the end

The longest bull run in US market history is coming to an end. The time of the next billion-dollar search engine or social media platform is over. We’re facing huge global instability. The pandemic changed everything. A crash may be coming.

An entire generation of entrepreneurs and tech investors built their expectations during the high-flying second half of the tech boom. Now, it’s time to re-engage with reality. 

And that might not be as painful as it sounds. The world is calling for the kind of paradigm shift we’ve never seen before. A better world, not a richer one. No longer profit at all human cost, but significant, sustainable business-building. 

We don’t just mean sustainable in terms of the environment. We mean value that doesn’t shoot up and then plummet based on the whims of the market. 

Founders love the idea of “hype” because they believe that’s what’ll send their valuation into the stratosphere. But hype is a glass house. New firms have an opportunity to reorient towards steady (not superfluous) profit and human good. 

With “too big to fail” incumbents at risk of, well, failing, the opportunity might come sooner than we realise.

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