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3 Things Under the Radar This Week

Stock MarketsJan 19, 2019 10:17AM ET
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© Reuters. - Here’s a look at three things that were under the radar this past week.

1. U.S. Nearing Energy Independence (to Saudi Arabia’s Chagrin)

Saudi Arabia and the rest of OPEC are battling the U.S. for influence on oil prices.

Saudi Energy Minister Khalid al-Falih sent oil prices rallying earlier this month when he said he’ll slice another 100,000 barrels per day in crude exports in February. On the other side, the Energy Information Administration said on Wednesday that U.S. crude production reached 11.9 million bpd last week.

But while headlines on production numbers weighed on market sentiment, another important forecast by the EIA this week went almost unnoticed.

The U.S., which is currently the world's second-largest oil importer after China, may be less than two years away from energy independence.

The U.S. has already virtually achieved the EIA’s 2019 production forecast of 12 million bpd, and the EIA is expecting 13 million bpd by 2020. It also thinks net imports of oil into the U.S. will dwindle to 1.1 million bpd by the end of this year and reach just 100,000 bpd in 2020.

In the final three months of 2020, the EIA thinks the U.S. will become a net exporter by about 900,000 bpd.

While there’s no guarantee all these will happen, the potential loss of the world’s second-largest oil importer will be a huge headache for the Saudis, who are fighting to preserve market share even now as they cut supplies to boost prices.

But if the EIA is right, al-Falih might not have to worry about cutting supplies to the U.S. anymore after 2020 and the U.S. might also be competing to export to the same markets as the Saudis and OPEC.

2. A Rising Netflix Price Lifts All Boats?

Netflix (NASDAQ:NFLX) made a big bet on the strength of its content after hiking U.S. prices. It may have also given its rivals a boost.

Disney , or more accurately its upcoming entertainment streaming service Disney+, is set to benefit, analysts said.

With the launch of Disney+ due this year, Netflix’s price hike increases "the price umbrella" Disney can charge for its streaming service, Loop Capital said.
That may give Disney (NYSE:DIS) shares a boost. They're up just 1.5% this year. Netflix is up nearly 27% even with Friday's slip.

While many will point to Netflix's stellar slate of binge-worthy content as a driver behind its decision to raise prices, Disney boasts an envious and far-wider-reaching lineup. Disney has been in the content game since, well, the days of Walt Disney.

Wall Street and Netflix are confident the company’s price increase will not see a wave of subscribers jump ship. It’s firing on all cylinders and its public profile won some glitz and glamour after it scooped up numerous awards at the Golden Globes. The hit movie “Birdbox” provided further evidence that Netflix's massive cash burn, an estimated $3 billion last year and this year, is bearing fruit (subscribers).

With a full slate of its top shows due this year, including “Stranger Things,” “Orange Is The New Black” and “The Crown,” Netflix has every reason to be confident that customers will stay on the couch and chill.

Looking ahead, a successful Netflix price hike could suggest U.S. consumers feel compelled to pony up for subscriptions services that have become ubiquitous in everyday life. That strengthens the case for other services, including Amazon’s Prime and Apple’s Music service, to join in on the hike, potentially boosting earnings.

3. Loss of a Planet Highlights Stumbling Video Game Makers

A long time ago, in a market far, far away, investors weren’t forced to pay attention to Star Wars. But in the days where content is king and Lucasfilm was worth $4 billion to Disney, it’s wise to be apprised of the happenings of Jedi and Sith.

For example, you may have missed an entire planet (Alderan?) disappearing on Wednesday.

Video game maker Electronic Arts (NASDAQ:EA) has shelved development of an open-world Star Wars game, Kotaku reported.

This sent some ripples through the gaming community given the popularity of open-world games, where players can explore the realm of the game independently, not forced to follow a linear storyline. That leads to hours more gameplay as winning the game becomes relative.

While a disappointment for gamers, investors should also be concerned about what looks like another own-goal from the video game companies. Stocks have been struggling to gain any sort of upward momentum as the major companies -- EA, Activision Blizzard (NASDAQ:ATVI) and Take-Two (NASDAQ:TTWO) Interactive -- keep making headlines for gaffes, not triumphs.

EA, which is down about 20% over the last year, managed to finish Wednesday higher despite the report, but fell Thursday following a downgrade.
Jefferies analyst Timothy O’Shea cut the stock to hold from buy and its price target to $95 from $139, saying the company may have “lost its creative way.”
O’Shea noted that analysts and investors “know next to nothing” about EA’s other Star Wars title “Jedi Fallen Order.”

Shares of EA haven’t recovered from the dive they took late August when the company delayed the release of its much-anticipated “Battlefield V” by a month to make “adjustments.”

Rival Activision, which is down 30% in the last 12 months, has had its share of blunders, losing the CFOs of its Activision and Blizzard divisions back to back and having to let go of its underperforming “Destiny” franchise.

Even Take-Two, which had a big success with “Red Dead Redemption 2” -- lauded as an excellent open-world game -- is down 8% over the last 12 months.

The company was forced to respond to sharp criticism of the way the economy worked in the beta version of “Red Dead Online,” which was to be a strong source of revenue from microtransactions. Critics said the online version was released too early and forced players to use too much real-world currency to enhance gameplay.

3 Things Under the Radar This Week

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Sagi Shvartz Jan 23, 2019 8:21AM ET
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