With the US reporting season kicking into high gear next week, investors will first get to digest earnings from streaming giant Netflix and electric-car maker Tesla.
After a mixed week for the big Wall Street banks – especially JPMorgan, the industry leader, the fate of the March season will be set 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 Thursday, adding to the downbeat note from JPMorgan’s 42% slump. Citi saw a drop of 46%, Goldman Sachs fell 42%, Morgan Stanley dropped 11% and Wells Fargo fell 21%.
Bank of America was due to report Monday with earnings expected to follow its peers lower. Investors will also be watching twitter and the continuing odd behaviour of Elon Musk.
Consensus analyst forecasts are for just a 4.3% year on year rise in earnings for the quarter (down from a 6.1% early estimate) but the AMP’s chief economist, Shane Oliver wrote at the weekend that it’s likely to come in at around 10% year on year, with the main focus likely to be on cost and margin pressure.
According to data group, FactSet, analysts expect S&P 500 companies to report average year-on-year earnings per share growth of 5.2%, taking into account companies that have already reported and estimates for those that have not.
That would be a sharp slowdown from the 32% growth rate in the December quarter of 2021 and represent the slowest growth since the final three months of 2020.
The energy sector is expected to lead the S&P 500 as surging oil prices boost revenue and earnings.
The industry is forecast to report earnings growth of 255%, while revenue is predicted to rise nearly 45% compared with a year earlier, bolstered by the sharp rise in crude prices which accelerated in the final 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.
Earnings will not be the main consideration in the quarterly reports from Tesla and Netflix this week (see below).
Netflix’s report is all about subscriber numbers for the quarter just passed – the company forecast a rise of just 2.5 million in the three months to March – and about the current quarter – ending June 30.
The weak estimate for the March quarter sparked a huge sell-off in Netflix shares and the entire streaming tech sector from January onwards.
Tesla’s report won’t be looked at for how much money the company earned in the March quarter, but for comments and figures on the outlook for the June quarter given the impact of the lockdown in Shanghai could cut more than 40,000 units from deliveries this quarter.
Some defensive sector companies reporting this week such as healthcare giant Johnson & Johnson and staples stalwart Procter & Gamble will test investor ideas that this sector is the place to be amid the worries about Fed rate rises, a looming recession and Covid plus the weakness in China.
Despite the gloom, many economists still see March quarter growth as turning out stronger than the market expects. That will depend on earnings reports from resource giants, of which there are several majors this week – Newmont, the world’s biggest gold producer (with some copper) and Freeport McMoran, a big copper producer with some gold interests.
The energy sector will see oil service giants, Halliburton, Schlumberger and Baker Hughes reporting their quarterly figures and all three will do well (because when oil and gas prices are high energy companies spend more on production and other services, which they are doing now.
US oil and gas rig use is up strongly so far in 2022 and oil production has risen to 11.8 million barrels a day in the past fortnight, the highest level since late 2021. That’s also up 800,000 barrels a day since this time last year.
…………
The quarterly results from Netflix and Tesla will set the tone for the season – even before we see quarterlies from Apple, Amazon, Facebook and Alphabet.
It will be all about whether the sector that drove the long rebound from early 2020’s steep sell-off still has enough juice to help markets pick up this quarter and into the third.
They kick off a concentrated two weeks of reports. Analysts will be watching closely for any impact of the slowdown in China (thanks to Covid) on production and sales – Apple especially.
Netflix shares have been weak since the December quarter report in late January and the low forecast for subscriber growth in the March quarter.
The world’s largest streaming service projected it would add 2.5 million customers from January through March, less than half of the 5.9 million analysts had forecast. That saw the shares tank near 20% in a day.
The company’s global subscriber total 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 anticipated content such as the second season of “Bridgerton” and the Ryan Reynolds time-travel movie “The Adam Project.” Both and other new content have flowed since mid-March.
That means the company should have ended March with around 224.6 million subscribers in total. That will be up 8% from 207.6 million the year before and a tepid 1.3% higher than at the start of 2022.
Subscriber growth is expected to have stalled in North America following a recent price hike and it is forecast to add just thousands of new users in the region. Growth is expected to remain strongest in Asia and mild in both EMEA and Latin America.
The key metric will be the subscriber estimate for the June quarter.
There are forecasts for the current quarter for around 4 million more subscribers, but the company is losing subs in Russia and Ukraine because of the invasion.
Wall Street believes Netflix will add just 4.9 million subscribers in the first half of 2022, but they expect growth to accelerate in the second half when it is forecast to add 16.4 million subscribers – suggesting a weak start to 2022 could be followed by a stronger finish to the year. We will know more about the weak start idea on Wednesday morning, our time.
…………
Tesla’s report will be overshadowed by the (botched so far) assault on Twitter by Elon Musk.
So far Wall Street has given Musk’s bid for Twitter the thumbs down and seem to be making very clear they would like to see him taking a greater interest in Tesla given the problems in Shanghai which has seen Covid close the company’s factory.
Tesla has already reported that it delivered (Tesla’s way of describing sales) 310,048 EVs in the March quarter, up from 184,800 in the first three months of 2021 and made 305,407 units, up from 180,338 vehicles a year earlier.
The company said it produced 4,641 fewer cars than it delivered during the quarter citing “ongoing supply chain challenges and factory shutdowns” – that’s an early impact of what was happening in China with Covid lockdowns towards the end of the month outside Shanghai.
Analysts expected deliveries of 317,000 vehicles for the first three months of 2022, according to estimates compiled by FactSet as of March 31. The 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 had a ribbon-cutting ceremony on March 22. Tesla hosted a grand opening and “cyber rodeo” event on April 7, at another new vehicle assembly plant it’s building in Austin, Texas.
Tesla moved its headquarters to Austin officially (in low tax Texas) as of December 1, but still operates its first electric car factory in Fremont, California.
Like the rest of the auto industry, Tesla has also been hurt by widespread parts shortages, and inflation. Critical components like semiconductors remain in short supply, and prices have increased for raw materials like nickel and aluminium after Russia launched its brutal invasion of Ukraine in late February.
In the US, Tesla has been upsetting buyers by leaving them waiting for months before filling their car orders.
CEO Musk warned in mid-March of inflationary pressures on the business, and hiked the prices of its cars in both the US and China.
Covid-related events in China are making it hard for analysts to forecast Tesla’s performance in the quarter and in coming months.
Don’t be surprised if a new policy towards re-opening of businesses in Shanghai from the Communist Party government sees the Tesla factory back in action this week.
