Earnings season is set to kick off this week, bringing investors fresh data on the strength of corporate earnings amid heightened inflationary pressures.
Two of the big names reporting this week are Netflix (NFLX) and Tesla (TSLA), providing an early look at the performance of some of the mega-cap tech companies earlier in the year.
The other names to report this week will span a range of industries and contrast with last week’s bank-dominated results. Companies such as United Airlines (UAL), American Express (AXP), Johnson & Johnson (JNJ) and Kimberly-Clark (KMB) will each report on deck in the coming days.
Results for the earnings season so far have been mixed, although heavily skewed towards the range of financial stocks reported last week, including JPMorgan Chase (JPM) and Goldman Sachs (GS). About 7% of the index components of the S&P 500 have reported actual Q1 results so far, and 77% of those have beaten Wall Street estimates for earnings per share (EPS) and met the five-year average percentage, according to FactSet data. The estimated earnings growth rate for the index is currently 5.1%, which would represent the lowest earnings growth rate for the index since the fourth quarter of 2020 for the remainder of the season.
Netflix earnings
Netflix is expected to report results on Tuesday, with investors watching closely for further signs the streaming giant’s growth is slowing after a surge in subscribers during the pandemic.
Analyst consensus estimates call for Netflix to add about 2.51 million subscribers in the first quarter, marking the smallest gain since the second quarter of 2021. That would bring the total number of Netflix subscribers to almost 225 million. In the same quarter last year, subscribers grew by almost 4 million.
Although Netflix has already severely slowed subscriber growth since a peak in the pandemic-era, the streaming giant’s exit from Russia in early March will also contribute to the slowdown. The Los Gatos, Calif.-based company suspended operations in Russia on March 6 due to the country’s invasion of Ukraine, and analysts have since continued to lower their subscriber estimates.
The story goes on
“We now expect paid net adds to be 1.45m, below the 2.5m benchmark given Russia’s suspension (~1m subs),” Cowen analyst John Blackledge wrote in a note last week. The company also lowered its price target on Netflix to $590 per share from the previous $600 per share due to the lower subscriber growth forecast.
BRAZIL – FEB 03, 2022: In this photo illustration the Netflix logo seen on a smartphone screen and background. (Photo illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)
Other analysts also suggested that Netflix’s churn or subscriber losses could increase in the quarter after the company announced a price hike for U.S. and Canadian subscribers in January. But the proceeds from those price increases could also be used to help Netflix build larger content rosters and fuel growth in less saturated markets internationally, others pointed out.
“Netflix appears to be nearing a cap on UCAN subscribers (US and Canada) and is pulling new levers to lower churn,” Wedbush analyst Michael Pachter wrote in a note. “Subscription price increases in the West should spur additional content production and growth in other regions, and we expect cash flow to be positive in 2022 and beyond as management has forecast. However, subscriber growth is likely to occur primarily in less developed regions at lower subscription prices, with Western subscribers paying higher fees to fund new content.”
“Content dumps, where all episodes of a new season are delivered at the same moment, are likely to keep churn high as budget-conscious consumers can abandon Netflix and switch to a competing service after watching the content they want,” he added. “Sustained earnings growth should continue as long as Netflix is able to continue increasing subscription prices, but competition may limit future price increases.”
Overall, Netflix is expected to report GAAP earnings per share of $2.91 on revenue of $7.95 billion, which would mean a bottom-line increase of just 11% year over year. In the same quarter of 2021, revenue increased 24%.
Netflix stock is down 43% year-to-date in 2022, lagging the S&P 500’s 7.8% drop over the same period.
Tesla Earnings
Meanwhile, Tesla will be another big company to report results this week.
The electric vehicle maker is expected to release its quarterly report on Wednesday after the market close. Prior to these results, Tesla announced record deliveries of more than 310,000 in the first three months of this year. That’s a jump of 68% over last year’s shipments. Tesla is targeting average 50% growth in annual vehicle deliveries.
However, production was slightly down quarter-on-quarter, with first-quarter production at 305,407 compared to 305,840 for the last three months of 2021. Tesla, like many other automakers, continues to struggle with ongoing supply chain challenges and rising input costs, which prompted CEO Elon Musk to suggest the company could start mining its own lithium for batteries if metal prices rise.
“Right now, Tesla is having a high-level demand-surpassing-supply issue, which issue is now reflected in around 5-6 month delays for Model Ys, some Model 3s in different parts of the world,” wrote Wedbush analyst Dan Ives in a note. “The key to alleviating these issues lies in the important Giga openings in Austin and Berlin, which will alleviate production bottlenecks for Tesla worldwide.”
Just earlier this month, Tesla officially began shipping its first Texas-made vehicles from its new Gigafactory in Austin. At Tesla’s “Cyber Rodeo” launch party on April 7, Musk said the facility aims to begin building the Tesla Cybertruck in 2023 and has a goal of making 500,000 units of the Model Y per year.
The newly built U.S. gigafactory will be instrumental in helping Tesla keep ramping up production and meeting domestic demand, especially in the face of international snarl as Tesla’s Shanghai gigafactory was closed for weeks due to a COVID outbreak in the region .
“We believe that by the end of 2022 Tesla will have run-rate capacity for a total of ~2 million units per year from about 1 million today,” Ives added. “While Shanghai’s China-zero-COVID policy is causing shutdowns for Tesla (and others) and remains a worrying trend if sustained, Musk & co. will continue to falter as they see the forest through the trees, while Austin and Berlin is now living and ramping up its sales muscles in the EV landscape, while many other automakers are struggling to get things off the ground.
While Tesla shares have outperformed the S&P 500 year to date, the stock came under pressure on Thursday after Musk announced that he had made an offer to buy social media company Twitter (TWTR) for $54.20 per share, or about $43 billion in cash. Many have noted that Musk would likely need to sell Tesla stock to fund the deal if it went through.
In Tesla’s first-quarter results, Wall Street expects the company to report adjusted earnings per share of $2.27 on revenue of $17.85 billion, for revenue growth of 65% .
economic calendar
Monday: NAHB Housing Market Index, April (77 expected, 79 in March)
Tuesday: Housing Starts, March (1.745 million expected, 1.769 million in February); Building Permits, March (1.830 million expected, 1.859 million in February)
Wednesday: MBA Mortgage Applications, week ended April 15 (-1.3% in the previous week); Existing Home Sales, March (5.78 million expected, 6.02 million in February); Federal Reserve publishes Beige Book
Thursday: Philadelphia Fed Business Outlook Index, April (20.5 expected, 27.4 in March); Initial Jobless Claims, week ended April 16 (185,000 in previous week); Continuing Claims, week ended April 9 (1.475 million in previous week); Leading index, March (0.3% expected, 0.3% in February)
Friday: S&P Global US Manufacturing PMI, preliminary April (57.8 exp., 58.8 in March); S&P Global US Services PMI, preliminary April (58.1 exp., 58.0 in March); S&P Global US Composite PMI Prelim April (57.7 in March)
results calendar
Monday
Before market open: Synchrony Financial (SYF), Bank of New York Mellon Corp. (BK), Bank of America (BAC), Charles Schwab (SCHW)
After Market Close: JB Hunt Transport Services (JBHT)
Tuesday
Before the market opens: Fifth Third Bancorp. (FITB), Johnson & Johnson (JNJ), Citizens Financial Group (CFG), Halliburton (HAL), Truist Financial Corp. (TFC), Hasbro (HAS), Lockheed Martin (LMT)
After market close: Netflix (NFLX), IBM (IBM), First Horizon Corp. (FHN)
Wednesday
Before Market Open: Anthem (ANTM), Nasdaq (NDAQ), Baker Hughes (BKR), Procter & Gamble (PG), Abbott Laboratories (ABT)
After market close: CSX Corp. (CSX), United Airlines (UAL), Crown Castle International (CCI), Alcoa Corp. (AA), Equifax (EFX), Steel Dynamics (STLD), Tesla (TSLA), Tenet Healthcare (THC), Kindermorgan (KMI)
Thursday
Pre market: Xerox (XRX), AT&T (T), Dow Inc. (DOW), Las Vegas Sands (LVS), Spirit Airlines (SAVE), Blackstone (BX), Danaher (DHR), American Airlines (AAL), Pool corp (POOL), AutoNation (AN), Alaska Air Group (ALK), Tractor Supply Co. (TSCO), Philip Morris International (PM), Union Pacific (UNP),
After Market Close: Boston Beer Co. (SAM), Snap (SNAP)
Friday
Before market opening: Verizon (VZ), Schlumberger (SLB), American Express (AXP), Kimberly-Clark (KMB)
After market close: No significant reports planned for publication
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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