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Will renewable energy power the future?

Alphabet’s (NYSE: GOOGL) subsidiary Google just increased its commitment to renewable energy. The company has purchased a 1,600MW package of agreements that includes 18 new energy deals, which will increase its global portfolio of wind and solar agreements by over 40% to 5,500MW.  

In 2017 and 2018, the company managed to match its entire annual electricity consumption with renewable energy, thus becoming the largest corporate buyer of renewable energy in the world.  

First Solar Q2 2019 Earnings
Photo by Zbynek Burival on Unsplash

The company’s new agreements will drive the construction of energy infrastructure worth over $2 billion, including solar panels and wind turbines. The 18 deals include investments in the US, Europe and Chile. The deal in Chile includes a hybrid technology deal that combines solar and wind.

Google is not the only major corporation that is increasing its investment in renewable energy. A number of companies, including Budweiser, Gap Inc. (NYSE: GPS) and MGM Resorts International (NYSE: MGM), have invested in solar and wind energy, increasing their spend by 13% to more than $16 billion last year. This growth is expected to double in 2019.

The US Energy Information Administration forecasts that energy resources such as solar and wind will be the fastest-growing source of electricity generation in the US over the next two years. The EIA estimates electricity generation from utility-scale solar generating units to increase by 10% in 2019 and by 17% in 2020. Wind generation is expected to grow by 12% in 2019 and 14% in 2020.

Also read: JinkoSolar Q2 2019 Earnings Report

The report by EIA states that the industry plans to bring around 11GW of wind capacity online in 2019 and another 8GW in 2020. Solar capacity is expected to increase by over 4GW in 2019 and almost 6GW in 2020.

A report by Deloitte suggests that taxes and trade policies could create headwinds for the growth of the renewable energy sector in 2019. Despite this, new initiatives at the state and federal level could drive renewable energy growth. The increasing investments in renewable energy by corporates as well as advancement in technologies are also factors that could help push growth.

All in all, it does appear that we are slowly moving towards a future where renewable energy sources will play an important role.

High debt and free-falling stock: Netflix might need to revisit its business model

Netflix’s (NASDAQ: NFLX) stock ended the most recent session at the lowest level since the beginning of the year, extending the downturn that started a few months ago and worsened after the company’s dismal second-quarter performance. It has added to apprehensions about the sustainability of the streaming behemoth’s business strategy, which is characterized by high debt and huge spending on content.

Also read: iQiy grows faster than Netflix

One of the focus areas of the post-earnings interview that followed Netflix’s second-quarter results was the slowdown in membership growth. CEO Reed Hastings attributed the slump to seasonal factors and the nature of the content slate, and announced initiatives to revive the growth momentum. At the end of the quarter, the steamer had more than 151 million subscribers, up 20% from last year. However, the growth rate fell short of expectations, triggering a stock sell-off soon after the announcement.

Resilient to Competition?

Interestingly, the management did not want to link the slowdown in net additions to the growing competition, and it exuded confidence that the business would not be affected by the entry of Disney Plus (DIS) and Apple’s (AAPL) planned streaming service. The stance complemented the company’s long-term view that it faced competition only from linear TV networks, not from other video streaming platforms.

Netflix's (NFLX) paid membership growth slows in Q2 2019

However, Hastings changed his view this week and admitted that competition is a serious concern as far as future growth is concerned. “It’s a Whole New World Starting in November,” he said, apparently referring to the upcoming launches of Apple TV Plus and Disney Puls. In a way, the revelation endorses what investors have feared for long. Netflix’s excessive spending on original content has been a cause for concern for the stakeholders.

Splurge on Content

Netflix spent about $13 billion on content acquisition last year, when its long-term debt stood at $10.3 billion. The company might end up spending more this year as it is already facing stiff competition from the likes of Amazon (AMZN) in that area.

netflix long term debt vs content spend

On Friday, the already-dampened investor sentiment suffered a fresh blow after analysts cautioned that the ongoing slowdown in mobile app downloads might intensify in the coming months. The drop in the share value validates the average buy rating assigned by market watchers, who have set the target price at $412 representing a 30% upside from the current levels.

Crucial Q3

Since Netflix’s market value is closely linked to its ability to maintain/expand the user base, the next quarterly report will be crucial, considering the headwinds the company is facing. To put it simply, 2020 will be an extremely challenging year for the company.

Related: Stranger Things season 3 is driving Netflix stock

Though the stock had bounced back from the 12-month low seen towards the end of last year, it pared the gains in recent weeks and closed the last session broadly at the levels seen at the beginning of the year. In the week ended September 20, the stock lost about 9%.

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