Two of this year’s coolest corporations will try to keep their energy alive as profits reporting season kicks into high gear this week.
Netflix Inc. (NFLX) has been one of the largest heirs of the COVID-19 crisis as more people congregated to streaming services amid quarantine standards and a deficiency of traditional new T.V. programs in the first half of the year. Now the mystery is whether easy growth is in the past.
After adding nearly 27 million new paying subscribers in the first six months of 2020, Netflix advised investors to brace for a slowdown. Analysts anticipate only 3.8 million new paid subscribers for the third quarter when Netflix reports results today afternoon. That would mark its weakest quarterly pickup in more than a year.
Nevertheless, there’s more to Netflix than subscribers increase, and some analysts are enthusiastic about other parts of the company’s story. As Morgan Stanley’s Benjamin Swinburne claimed, the streaming giant seemed less impacted than other media companies by pandemic-induced production halts. Both he and Jefferies analyst Alex Giaimo are also encouraged by a recent price hike in Canada, which implies a strong engagement with the Netflix platform and could signal a future price hike in the U.S. as well.
The current Coronoavirus pandemic hasn’t been quite as kind to Tesla Inc. (TSLA), requiring factory closedowns earlier this year, but you wouldn’t know that by looking at its stock, which has rocketed more than 400% higher so far in 2020. Even if Tesla cannot meet its previously stated sales target of 500,000 vehicles throughout 2020, investors may blame the shortfall on the pandemic and give the company a pass, per CFRA’s Nelson Garrett.
An indispensable issue for Tesla’s Wednesday afternoon earnings call is how its demand is holding up. Tesla delivered 124,100 Model 3 and Y vehicles combined in the third quarter, despite having the capacity to make at least 150,000, as claimed by Bernstein analyst Toni Sacconaghi. That utilization rate was less “than what we have seen in prior quarters, pressing the question of whether demand or production was the constraint,” he wrote.
Netflix and Tesla highlight the busiest earnings reporting slate so far this quarter, with 84 members of the S&P 500 (SPX) and eight Dow Jones Industrial Average (DJIA) components due to report this week. Here are some other significant themes.
Chip’n
Intel Corp.’s (INTC) Thursday afternoon report follows a frustrating showing three months back when the company disclosed a delay for its next generation of chips and said it might look for a third party to manufacture them.
Intel exec will be looking to restore confidence this time around, and Wedbush analyst Matt Bryson argued that the company “should handily exceed expectations” after issuing a forecast that he deemed conservative. The company could also benefit from improved P.C. and automotive demand, but it remains to be seen how much reassurance the company will give on its long-term roadmap.
Fellow chipmaker Xilinx Inc. (XLNX) reports Wednesday. Its results will be in the spotlight more now that Advanced Micro Devices Inc. (AMD) is reportedly interested in purchasing the company.
iPhone charger missing
Telecommunications rivals Verizon Communications Inc. (VZ) and AT&T Inc. (T) may give some early indication about iPhone demand when they report Wednesday morning and Thursday morning, respectively. Preorders for Apple Inc.’s (AAPL) iPhone 12 and iPhone 12 Pro began Friday last week.
The two companies could also shed light on their promotional strategies for this year’s launch. AT&T, in particular, took an aggressive approach in offering $800 in bill credits to both new and existing customers who trade in an iPhone 8 or newer model. Verizon’s most attractive deal also comes out to an $800 subsidy, an analyst said, but it was limited to new subscribers.
AT&T’s existing-subscriber promotion could help the company retain subscribers at a time when rival T-Mobile U.S. Inc. (TMUS) is improving the quality of its network. Still, history has shown that generous subsidies don’t necessarily pay off for carriers when the whole industry offers the same sorts of deals.
Travel Adventures
After United Airlines Holdings Inc. (UAL) and Delta Air Lines Inc. (DAL) reported significant losses and warned of prolonged recovery timelines due to the pandemic, Southwest Airlines Co. (LUV) and American Airlines Group Inc. AAL will offer their views of the situation Thursday morning. “Southwest’s main goal is to avoid furloughs, but it seems increasing unlikely,” Cowen & Co. analyst Helane Becker wrote.
An even more dire view of the travel landscape could come from the Royal Caribbean Group (RCL), which has sailings on hold in nearly every market. The company is optimistic that it could see the sailings resume later this year. Still, William Blair analyst Sharon Zackfia considers uncertainty in the timing and expects Royal Caribbean to see a fourth-quarter capacity of 5% with occupancy levels of 50%.
Techy-ness
International Business Machine Corp. (IBM) already announced in-line preliminary results for the September quarter. Still, Morgan Stanley’s Katy Huberty said that stands in contrast with “improving I.T. spending data points.” She expects that the company will continue to lag peers as tech spending rebounds. She’s mostly focused on trends in the company’s cloud and cognitive software businesses when IBM reports Monday afternoon.
Snap Inc. (SNAP) follows with its report Tuesday, and its story will serve as the first signal on social-media advertising trends. Stifel analyst John Egbert expects that the company’s revenue growth “accelerated materially” from second-quarter levels as ad demand recently snapped back. “Despite a thin feature film slate in recent months, data / anecdotes from large agencies and advertisers regarding directional trends in the ad market have been largely positive since August,” he wrote.
DOW shall not forget
IBM’s Monday report kicks off a full week of earnings reports for stocks in the Dow Jones Industrial Average. Procter & Gamble Co., (PG) and Travelers Cos. Inc. TRV, both statement Tuesday, followed by Verizon Wednesday morning. Coca-Cola Co. (KO) and Dow Inc. (DOW) are on the schedule for Thursday morning, with Intel that afternoon. American Express Co. (AXP) rounds out the week Friday morning.
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