Netflix and Tesla kick off US season – ShareCafe

As the US reporting season kicks into high gear next week, investors may first digest earnings from streaming giant Netflix and electric car maker Tesla.

After a mixed week for major Wall Street banks – particularly industry leader JPMorgan – the fate of the March season will be determined by reports from the two tech giants on Tuesday, Netflix early Wednesday Sydney time and Tesla later that night.

Citibank, Goldman Sachs, Morgan Stanley and Wells Fargo all announced large year-over-year profit declines in their first-quarter earnings reports on Thursday, adding to the pessimistic note of the 42% drop in JPMorgan. Citi fell 46%, Goldman Sachs 42%, Morgan Stanley 11% and Wells Fargo 21%.

Bank of America was due to release its report on Monday with earnings expected to follow its peers lower. Investors will also be watching Twitter and Elon Musk’s continued odd behavior.

Consensus analyst forecasts call for just a 4.3% year-over-year increase in earnings for the quarter (vs. an initial estimate of 6.1%), but AMP Chief Economist Shane Oliver said wrote this weekend that it should come in at around 10% per year. over the year, the main focus probably being on cost and margin pressure.

According to the FactSet data group, analysts expect S&P 500 companies to post average earnings per share growth of 5.2% year-on-year, taking into account companies that have already published reports and estimates for those who have not.

That would be a sharp slowdown from the 32% growth rate in the December 2021 quarter and represent the slowest growth since the last three months of 2020.

The energy sector is expected to top the S&P 500 as soaring oil prices boost revenues and earnings.

The industry is expected to record 255% profit growth, while revenues are expected to rise nearly 45% year-on-year, supported by the sharp rise in crude prices that has accelerated over the past month of the quarter.

Other companies reporting in the US this week include IBM, Johnson and Johnson, Lockheed Martin, Halliburton, Schlumberger, Baker Hughes, Nucor, United Airlines, Procter and Gamble, Amex, Volvo, Verizon, Dow, Abbott Labs , Hasbro.

Revenue won’t be the primary consideration in Tesla and Netflix’s quarterly reports this week (see below).

Netflix’s report only covers subscriber numbers for the quarter just ended – the company projects an increase of just 2.5 million in the three months to March – and the current quarter – ending June 30.

The low estimate for the March quarter sparked a huge selloff in Netflix stock and the entire streaming tech industry starting in January.

Tesla’s report will not be reviewed for how much money the company made in the March quarter, but for comments and numbers on the outlook for the June quarter, given the impact of the lockdown to Shanghai, this could reduce deliveries by more than 40,000 units this quarter. .

Some defensive sector companies reporting this week, such as healthcare giant Johnson & Johnson and commodities stalwart Procter & Gamble, will test investors’ ideas that this sector is the place to be in the middle. concerns about the Fed rate hike, a looming recession and Covid plus weakness in China.

Despite the gloom, many economists still consider March quarter growth to be stronger than market expectations. That will depend on earnings reports from the resource giants, including several majors this week – Newmont, the world’s largest gold producer (with copper) and Freeport McMoran, a big copper producer with gold interests. .

The energy sector will see oil services giants Halliburton, Schlumberger and Baker Hughes release their quarterly figures and all three will do well (because when oil and gas prices are high, energy companies spend more for production and other services, which they do now.

U.S. oil and gas rig utilization has risen sharply so far in 2022 and oil production has risen to 11.8 million barrels per day in the past fortnight, the highest level ever. high since the end of 2021. This also represents an increase of 800,000 barrels per day since this time last year.

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Quarterly results from Netflix and Tesla will set the tone for the season – even before we see quarterly results from Apple, Amazon, Facebook and Alphabet.

It will be a question of whether the sector that drove the long rebound from the early 2020 selloff still has enough juice to help markets recover this quarter and into the third.

They are launching two concentrated weeks of reports. Analysts will be watching closely for any impact of the slowdown in China (thanks to Covid) on production and sales – Apple in particular.

Netflix shares have been weak since the December quarter report at the end of January and weak subscriber growth forecasts in the March quarter.

The world’s largest streaming service predicted it would add 2.5 million customers from January to March, less than half of the 5.9 million analysts had predicted. This saw shares fall almost 20% in one day.

The company’s total global subscribers at the end of 2021 reached 221.8 million after adding 8.3 million in the three months to December and 18 million for all of 2021.

Netflix tempered its growth expectations, citing the late arrival of expected content such as the second season of “Bridgerton” and Ryan Reynolds’ time travel film “The Adam Project.” Both and other new content have been leaking since mid-March.

That means the company should have ended March with around 224.6 million total subscribers. That will be an increase of 8% from the previous year’s 207.6 million and a tepid 1.3% more than at the start of 2022.

Subscriber growth is expected to have stalled in North America following a recent price hike and only thousands of new users are expected to be added in the region. Growth is expected to remain strongest in Asia and moderate in both EMEA and Latin America.

The key indicator will be the estimated number of subscribers for the June quarter.

There are forecasts for the current quarter for about 4 million additional subscribers, but the company is losing subs in Russia and Ukraine due to the invasion.

Wall Street believes Netflix will only add 4.9 million subscribers in the first half of 2022, but they expect growth to accelerate in the second half when it is expected to add 16.4 million subscribers – suggesting that a weak start to 2022 could be followed by a stronger end. year round. We’ll know more about the idea of ​​a weak start on Wednesday morning, when our time comes.

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Tesla’s report will be overshadowed by Elon Musk’s (so far botched) onslaught on Twitter.

So far Wall Street has rejected Musk’s offer on Twitter and seems to be making it very clear that they would like to see him take more interest in Tesla given the problems in Shanghai which saw Covid shut down the factory. business.

Tesla has already reported delivering (Tesla’s way of describing sales) 310,048 electric vehicles in the March quarter, down from 184,800 in the first three months of 2021 and manufacturing 305,407 units, down from 180,338 vehicles a year. earlier.

The company said it produced 4,641 fewer cars than it delivered in the quarter, citing “ongoing supply chain challenges and plant closures” – this is an early impact of what was happening in China with the Covid lockdowns towards the end of the month outside of Shanghai.

Analysts forecast deliveries of 317,000 vehicles for the first three months of 2022, according to estimates compiled by FactSet as of March 31. Estimates ranged from a low of 278,000 vehicle deliveries to a high of 357,000.

Tesla opened a new factory in Brandenburg, Germany, and held a groundbreaking ceremony on March 22. Tesla held a grand opening and “cyber rodeo” event on April 7, at another new vehicle assembly plant it is building in Austin, Texas.

Tesla officially moved its headquarters to Austin (in low-tax Texas) on December 1, but still operates its first electric car factory in Fremont, California.

Like the rest of the auto industry, Tesla has also been hit by widespread parts shortages and inflation. Critical components like semiconductors remain in short supply and prices rose for raw materials like nickel and aluminum after Russia launched its brutal invasion of Ukraine in late February.

In the United States, Tesla has upset buyers by leaving them waiting months before filling their car orders.

CEO Musk warned in mid-March of inflationary pressures on the company and raised the prices of its cars in the United States and China.

Covid-related events in China prevent analysts from predicting Tesla’s performance in the quarter and in the months ahead.

Don’t be surprised if a new policy of reopening businesses in Shanghai from the Communist Party government sees the Tesla factory back in action this week.

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