While the US third-quarter earnings season kicks off this week with reports from six of America’s biggest banks, the most important set of figures for the three months to June will come from Netflix on Thursday morning.
US investors seem resigned to a third consecutive quarter of lower earnings as the sugar hit from Donald Trump’s tax cuts exhausts itself and the weak sectors of the US economy expand.
US financial services group, FactSet currently projects a 4.1% drop in earnings in the third quarter of the year.
If that forecast holds, it would be the biggest drop in earnings per share since the start of 2016 (and before Trump was elected). Other estimates suggest a fall of 3% on a rise of 3% in revenue.
Leading to lower earnings trend will be energy and tech stocks, according to many US analysts.
JPMorgan, Citi, Wells Fargo, Goldman Sachs, Morgan Stanley and Bank of America all report before the market open on Tuesday (US time) and investors are watching to see if lower rates are crimping their net interest margins.
US analysts do not expect much of a lead from the banking sector so far as earnings momentum is concerned.
The most interest investor in the bank results will be Warren Buffett and his Berkshire Hathaway company – it owns stakes in Goldman Sachs and JP Morgan and is the biggest shareholder in Bank of America and Well Fargo.
On October. 8, bank analysts at Jefferies lowered 2019 earnings estimates for 23 of 38 banks, while lowering stock-price targets for 24. Looking ahead, the report “estimated net income growth flips to negative in ’20 before returning to a modest positive in ’21.”
50 S&P 500 companies are due to report this week and the roster also includes IBM, Honeywell, Schlumberger and CSX besides the five big banks and Netflix.
Netflix shares are down 24% in the past three months (they rose by just over 3% last week which trimmed the drop a bit) as investors have come to realise that the Streaming Video Business on Demand (SVOD) business is becoming very competitive as Disney and Apple step up with their own services and the likes of HBO and Amazon lift their offerings and spending on new programming.
Netflix shares fell 10% on one day in July after it badly missed its forecasts and produced a weak outlook for the September quarter.
Netflix said it had added 2.7 million new subscribers worldwide in the June quarter, well below its guidance of 5 million new subscribers and down from 5.5 million for the same period last year.
The company lost 130,000 subscribers in the US from last quarter. It forecasted an extra 800,000 US subscriptions.
It expects 7 million subscribers for the three months to September but the key will be the US figure (against 6.1 million in the three months to September 2018).
In Australia, Atlassian reports its quarterly results on Thursday, while the Bank of Queensland releases its full-year figures, also on the same day.
