Weekly Preview: Earnings To Watch This Week 4-16-23 (IBM, NFLX, TSLA)
Upbeat first quarter earnings result and guidance from some of the world's largest banks such as JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) suggests that the recent loss of confidence from regional banks had a limited impact on the broader financial sector. Although stocks declined Friday as investors assessed weak retail sales data, the three major averages were on track to book positive gains for the week, thanks to stronger-than-expected start to corporate earnings. Friday’s retail sales data, which declined by 1% in March, showed consumer spending fell twice as much as expected and more than the 0.5% decline expected. This continues the trend of declining inflation, driven in part by lower gas prices.
Evidenced by last week’s market performance, adding to risk is now the go-to strategy, especially at a time when inflationary pressures have begun to moderate. There is now a firm belief that the Federal Reserve should begin cutting rates, not prolonging the rate increases. On Friday the Dow Jones Industrial Average declined 143.22 points, or 0.42%, to close at 33,886.47. Leading the decline on the Dow were, among others, Apple (AAPL), Microsoft (MSFT), Intel (INTC) and IBM (IBM).
The S&P 500 Index ended down 8.58 points, or 0.21%, to close at 4,137.64, while the tech-heavy Nasdaq Composite declined 42.81 points, or 0.35%, to close at 12,123.47. Investors have been looking for reasons to jump head-first back into the market, particularly to scoop up some oversold names within technology such as FAANG cohorts Amazon (AMZN), Apple Meta Platforms (META) and Google parent Alphabet (GOOG , GOOGL) which have been ravaged by high interest rates.
For the week, the Dow rose 1.19%, logging its fourth-straight positive week of gains. The S&P 500 index added 0.80%, while Nasdaq Composite index gained 0.29% for the week. Both secured their fourth week of gains in the past five weeks. Whether the winning streak continues will depend on the earnings results that are released in the next several weeks. Entering the quarter, earnings estimates have been aggressively reduced, creating a low bar for companies to beat. Netflix is one of several names that is worth watching this week, along with IBM and Tesla.
Netflix (NFLX) - Reports after the close, Tuesday, Apr. 18
Wall Street expects Netflix to earn $2.85 per share on revenue of $8.17 billion. This compares to the year-ago quarter when earnings were $3.53 per share on $7.87 billion in revenue.
What to watch: Netflix stock has been one of the better performing names in large-cap tech, rising almost 50% in the past six months, besting the 13% rise in the S&P 500 index, while also outperforming the Nasdaq 100. With shares already rising more that 17% year to date, the market has confidence that the streaming giant can regain its growth momentum. But is there still a buying opportunity? While there was a noticeable revenue slowdown in the Q4 results which rose just 1.9%, the company guided for Q1 revenue to re-accelerate to 4%, albeit slightly on a year-over-year basis. In a Q4 letter to shareholders, Netflix management expressed confidence in their growth strategy, saying, "We believe we have a clear path to reaccelerate our revenue growth: continuing to improve all aspects of Netflix, launching paid sharing and building our ads offering.” The company’s growth initiatives have begun to pay dividends. Not only is the company’s efforts to grow its ad-supported tier working, management has also implemented ways to crack down on password sharing. Regarding the ad-supported tier, which was launched in twelve global markets in November, it exposes Netflix to an estimated $140 billion of brand advertising spending. Combined with the company’s upcoming content launches, there is a compelling case to remain invested in the stock. These assumptions will be answered when Netflix issues its guidance forecast for the next quarter and full year.
IBM (IBM) - Reports after the close, Wednesday, Apr. 19
Wall Street expects IBM to earn $1.26 per share on revenue of $14.35 billion. This compares to the year-ago quarter when earning were $1.26 per share on $14.2 billion in revenue.
What to watch: Shares of IBM have been rangebound over the past six months, while falling 9% year to date compared to 8% rise in the S&P 500 index. This suggests investors are still waiting for the company’s transformation to produce sustainable revenue results. Although progress has been made from an earnings perspective, revenue growth has come to a standstill. In an effort to simplify the business, the company is reportedly looking to divest the weather business, which includes weather.com. Reports suggest the sale could be valued at more than $1 billion, which would be roughly half of what the company paid for the business when it was purchased in 2015. From an investor perspective, it appears that the company has been in a perpetual transformation cycle, struggling to grow revenue over the past decade. The good news is that the company no longer relies heavily on its legacy business with its hybrid cloud platform accounting for more than 70% of total software revenue in the most recent quarter. The hybrid cloud provides IBM the foundation to run any application. But for the shares to show more signs of life, beyond the appeal of the 5.16 dividend yield, the company on Wednesday will need to demonstrate continued operating leverage and revenue growth acceleration.
Tesla (TSLA) - Reports after the close, Wednesday, Apr. 19
Wall Street expects Tesla to earn 86 cents per share on revenue of $23.34 billion. This compares to the year-ago quarter when earnings came to $1.07 per share on revenue of $18.76 billion.
What to watch: How much higher can Tesla stock go? The shares are up 51% year to date, besting the 8% rise in the S&P 500 index. Just as impressive, since reaching 52-week low of around $101, the stock has risen tow-fold, surging more than 104% to $207 on March 31. The electric vehicle maker is benefiting from both record vehicle production and deliveries. However, the company has gone through a series of price cuts, which could impact not only revenue and profits, but also the guidance for fiscal 2023. Given these factors, analysts will be keeping a close eye on Tesla's segment financials. In the fourth quarter, roughly 86% of Tesla’s total revenue came via automobile sales and regulatory credits. As such, investors are curious to see the level of impact that the recent price cuts might have on average revenue that Tesla recognized per vehicle. The company’s profit margin profile as well as customer deposits will be closely-watched. While Tesla has not been the only high-growth tech stock to rise so far this year, its surge, particularly to start the year, appears more pronounced when compared to other high-growth tech stocks. Understandably, investors are somewhat nervous about what action to take ahead of the upcoming earnings report. The company’s increased focus on its growth strategy, namely production and profit margins, have been a major factor in the company’s historical success. These factors will be the main driver of the stock for the just-ended quarter and the rest of the year.