Thursday Markets Drift Down, Netflix Q2 Mixed

Thursday’s day of regular trading closed with all major indexes in the red, following a morning of mostly improved economic data (albeit relatively so) and a couple key positive earnings surprises. But Q2 earnings season to this point does not seem to guide traders’ sympathies — interest in the reopening of the economy and a permanent end to the coronavirus pandemic are paramount at the present time.

The Nasdaq and Russell 2000 hived off roughly 0.7% Thursday, -76 points and -10 points, respectively. The Dow sold half a percentage point on the day, down 135 points, with the S&P 500 faring the best, only down 0.34% or 11 points total. For all the jobless claims, retail sales, and urban productivity data (Philly Fed) we saw today, let alone earnings reports from Johnson & Johnson JNJ, Bank of America BAC and others, there wasn’t much news to pull indexes out of their mild lull to the downside.

After the bell, Netflix NFLX reported mixed Q2 earnings results, missing notably on the bottom line — $1.59 per share versus $1.84 expected (though still well above the 60 cents per share from the year-ago quarter) — while outpacing estimates on the top — $6.15 billion in quarterly sales compares favorably to the $6.08 billion expected. This is Netflix’s second-straight earnings miss, following beats for 8 straight quarters.

The main problem for investors in the after-market trading on Netflix’s earnings, however, had to do with subscription adds. While the 10.1 million came in hotter than expected for the quarter, these were pulled forward from future quarters. Guidance for Q3 net adds is 2.5 million, beneath consensus estimates, and this weakness apparently does not jibe well with a stock that has bid up 63% year to date. Netflix shares sold off 12% initially upon the Q2 release.

Forward revenue growth is present, but relatively slight, and Netflix has no immediate plans to raise subscription rates. Growth appears to be slowing in demand for streaming services as the U.S. attempts to revive from its months-long quarantine, when Netflix was among the most valuable companies in America. At 77x forward earnings, these new earnings figures are giving analysts and investors a moment to reflect on the company’s valuation.

One news item from the Q2 report is that Chief Content Officer Ted Sarandos is being promoted to co-CEO along with founder Reed Hastings, as well as being named to the Board of Directors. Sarandos is considered largely responsible for Netflix’s substantial original programming content, overseeing a budget of more than $6 billion per year. Netflix original content has also garnered legitimate respect, having won 27 Emmy awards in 2019. Sarandos has reportedly been with Neflix for 20 years. For more on NFLX’s earnings, click here.

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