Earnings season: Netflix plays the Squid Game, wins subs beat

Netflix leverages a content backlog into millions of new subscribers according to its Q3 2021 earnings report.

Netflix earnings

Netflix’s headline stats

It’s been a good quarter for Netflix. New subscribers keep flooding in, seemingly attracted by new event TV shows, such as the global smash Squid Game. What’s more, Netflix’s EPS beat estimates too.

The key takeaways from Netflix’s third quarter earnings report are:

  • Revenues – $7.48 billion vs $7.48 billion forecast
  • Earnings per share (EPS) – $3.19 vs $2.56 estimated
  • New global paid subscription additions – 4.4 million vs 3.84 million forecast

The important thing to note here is the growth of new paid subscribers. These are Netflix’s bread and butter. Users may have been attracted to the streaming platform thanks to a large chunk of new shows and movies finally hitting Netflix. The pandemic appears to have created a significant backlog of content which is now making its way onto release schedules.

South Korean dystopian horror series Squid Game is the standout here. The show has been getting rave reviews and may become a significant draw going forward. According to Netflix, 142 million households watched Squid Game in its first four weeks.

“Like some of our other big hits, Squid Game has also pierced the cultural zeitgeist, spawning a Saturday Night Live skit and memes/clips on TikTok with more than 42 billion views,” the company said. Demand for consumer products related to the show is high, it added.

Netflix’s official guidance for subscriber numbers in Q4 is eight million – nearly double that of Q3. Is that overly optimistic? Maybe, but we are approaching winter in the Northern Hemisphere. Shorter days and colder temps may lead to an uptick in subscribers as people stay inside during winter conditions.

There is yet more content to come.

“We’re in uncharted territory,” Netflix co-CEO Reed Hastings said. “We have so much content coming in Q4 like we’ve never had, so we’ll have to feel our way through, and it rolls into a great next year also.”

Netflix share performance

As we can see, Netflix’s earnings per share levels beat expectations in Q3, coming in at $3.19 against $2.56 forecast by Wall Street.

Shares did drop 1% after the bell yesterday, however. It’s interesting. Achieving sustainable subscription growth is one of the cornerstones of Netflix’s business. You would have thought, after posting subscription and EPS beats, the firm’s shares would have grown.

As of Wednesday morning, Netflix shares are back in the green, trading for around $640.88 at the time of writing.

Where next for Netflix?

Netflix’s next frontier is gaming.

The streamer said it has begun testing video game streaming, possibly in a similar way to Microsoft’s cloud-based Game Pass service, in certain countries.

It’s still very early days for this, but Netflix subscribers may soon be able to play some form of video games via their TVs. It’s unlikely Netflix will be launching a console to compete with Sony, Nintendo, or Microsoft.

Personally, I can’t see them making great strides in this sphere. Gaming is already a highly competitive environment as it is, and Microsoft’s Game Pass has been a bit of a major market disruptor.

It would take a lot for Netflix to really make an impact on the gaming world, at least in the form of triple A titles, in my view. Mobile and app-based games are probably the way to go.

But with 200 million subscribers – double Xbox Live’s 100 million – and a competitive price point, some casual gamers might find a home with Netflix.

US Q3 earnings season is in full swing. Stay tuned for more updates. In the meantime, check out our earnings calendar to see which megacaps are reporting and when.

Tesla stuff, Squid Games

Tesla stuff: Haters hate, regulators regulate: don’t confuse the two. Duke University engineering and computer science professor Missy Cummings is set to become a new senior adviser for safety at the National Highway Traffic Safety Administration. Many Tesla fanboys and girls are crying foul. Cummings, a former pilot and robotics expert, is seen as ‘anti-Tesla’. Now that’s kind of interesting in the first place: you’re either definitely for Tesla or definitely a hater. No room for a middle ground. That’s kind of odd for a carmaker. Most people are not anti or pro Ford, or GM. They maybe like/dislike their cars, think they’re doing a good/bad job with the tech and think management are capable/useless. No one would say they’re anti-Ford. They might have an objective, rational view on the cars and/or the stock, but not a creed. But rational objectivity and Tesla seldom go hand in hand. And I’m not sure if you could say she’s anti-Tesla per se, just sceptical about the level of technology that is being touted around by some companies. But, particularly Tesla. 

 

For instance, last year she tweeted“LMAO…there is NO WAY Tesla will have a viable robo-taxi service this year. My lab has been running controlled experiments on Tesla Autopilot & I can say with certainty that they are not even close to being ready. My student on this project should get hazardous duty pay.”  In one 2018 tweet she said “The only killer robot out there is @elonmusk’s Tesla.” There are lots of examples on the feed.

 

It’s fair to say Cummings is a vocal critic of the ability of self-driving systems to cope with bad weather, and authored plenty of research that calls into question some of the main claims that companies like Tesla make when they market their ‘full self-driving’ systems. There are numerous papers, some choice tweets and essentially you can say she doesn’t buy the tech being anything like close enough to be objectively safe for the roads.  

 

After news of her appointment broke Elon Musk tweeted today: “Objectively, her track record is extremely biased against Tesla.”  

 

Tesla’s self-driving technology is already being investigated by the NHTSA. The company must provide the regulator with extensive data about its Autopilot system by Friday. Tesla has been getting away with marketing ‘Full Self Driving’ technology for a while; Cummings could mark time for a much tougher stance. Steven Cliff, deputy administrator since February, has also been nominated by the White House to lead the NHSTA. He’s currently in charge of the Tesla investigation. Another Tesla ‘hater’, according to many. Regulators are maybe finally going to regulate.

 

Meanwhile, in other Tesla ‘stuff’. Get a load of Elon Musk, who told a customer apparently not impressed with the look of the side mirrors on the cyber truck, that it’s OK to remove them. “They’re required by law, but designed to be easy to remove by owners,” he tweeted. I am ‘absolutely sure’ that is not irresponsible or unsafe…

 

Tesla earnings are due out today: the company hit record deliveries in Q3 as it found chips no one else seems to be able to find. EPS is seen around $1.50, on revenues of $13.6bn. Looking for updates on the Berlin Gigafactory, competition in China, internal chip production, Cyber truck and Semi releases, and, of course, the beta FSD progress. Let’s hope for some analyst questions around the NHSTA today.

 

Squid Games: Netflix posted solid subscriber growth in the third quarter of 4.4m, well ahead of the 3.84m expected. A deluge of hit new content that had been delayed by the pandemic is helping to drive interest such that the company anticipates 8.5m net adds next quarter. Earnings per share were a handsome beat at $3.19 vs $2.56 expected. In Q3, revenue grew 16% year over year to $7.5 billion, while operating income rose 33% vs. the prior year quarter to $1.8 billion. Content and subscribers are in good shape, but free cash flow remains elusive as it reported a second consecutive quarter of negative free cash. Still when you have low-cost, high margin content in multiple languages, you think Netflix will be able to drive non-US subscriber growth substantially in the coming years. Shares fell slightly in after-hours trade.

 

Markets: Stocks are flat again this morning in early trade in Europe, with the FTSE 100 hovering around the 7,200, looking like it has decent support.  The S&P 500 rallied three-quarters of one percent yesterday to close within 0.4% of its record high. Megacap tech had a decent day despite rising bond yields. If it’s stagflation then growth is still a premium.  

 

US 10-year rates rose to a 5-month at 1.67% as the Fed’s Waller said tapering should start in November and that if inflation keeps rising “a more aggressive policy response” might be required in 2022. Bitcoin at or around all-time highs post the ProShare ETF launch.

 

Inflation: UK inflation has fallen! But before we rejoice too much, it’s probably a one-off. CPI fell to 3.1% in September from 3.1% in August. The end of the Eat Out to Help Out scheme at the end of August last year, which led to restaurants raising prices in September, is a big factor. The surge in energy prices and ongoing supply chain problems are still expected to drive inflation to 4% this year. Moreover, the RPI rose 4.9%. 

 

As we said in yesterday’s note on Will the Bank of England actually raise rates in November?, the reading of the inflation print is important: the consensus remains firmly on the MPC voting to raise rates in two weeks’ time. But, as stressed in the same commentary, it’s not a slam dunk given the make-up of the MPC right now. 

Meanwhile, German produce price inflation surged – rising 2.3% month-on-month vs the +1% expected. That took the annual rate to 14.2%. Supply chain and capacity problems abound. Underlines that rising cost pressures are not going away. 

 

Sterling just eased back on the inflation miss. GBPUSD retreated to test the support offered at 1.3770, the OCt 15th swing high, where sits the 50hr SMA. Recent price action indicates this is the chief support before resumption of the uptrend, though we are less convinced that GBP can rally with rate expectations now they are baked in. However, I do see further dollar weakness likely to support further gains for cable following the topping pattern on the last 3 weekly candles.

Afternoon wrap: Shell loses emissions court case, Amazon inks MGM deal

A bit of a dreich day for European equity markets with nothing moving much at all. All the main bourses have traded flat. US markets are mildly higher as Wall Street’s bank chiefs testify in front of Congress. Oil recovered $66 as inventory data showed a bigger-than-expected draw in inventories as well as stocks of gasoline and distillates. US 10s at 1.55%, gold above $1,900 and Bitcoin is weaker in the afternoon session below $39k again.

The dollar caught a big bid into the London fix. Dovish comments from the ECB’s Panetta – too early to taper bond purchases – had already set the EUR on a downwards trajectory through the session. EURUSD retreated to 1.2210 where it seems to have found some support. GBPUSD has tried several times to breach 1.4120 on the downside today but the level is holding well. The dollar index had a run up to 90 but ran out of steam at 89.95.

Doubling Dutch emissions cuts: A court in the Netherlands has ruled Royal Dutch Shell must cut carbon emissions by more than twice the company’s current target of 20% by 2030. The Dutch ruling compels Shell to reduce emissions by 45% from 2019 levels by 2030. Currently, Shell has a goal of achieving this 45% target five years later in 2035, and to be net neutral by 2050.

Shares had been trading a little higher all day before the ruling saw them turn mildly negative, before turning back above the flatline towards the end of the session. Shell says it will appeal the ruling. It comes as Chevron and Exxon also face their own climate campaign fight in AGMs today. What does the ruling mean for Shell and peers?

It undoubtedly sets an important precedent that ties corporate actions to global and national policy in a way that has not been seen before. It’s acknowledgment that you cannot abstract the likes of Shell and other ‘polluters’ if you like from the legally-binding treaties and obligations nation states have signed up to. Similar judgments may start to emerge that compel polluters to better align their strategy with government policy (eg the Paris treaty). It could also have implications for other sectors (eg Utilities) though that is less clear right now.

It is not yet clear to what extent this really changes whether you want to own Shell stock right now. True it could face fines if it doesn’t meet the targets, rather than just shareholder disapprobation. It may also need to increase the near-term capex for ‘greening’. But really this is speeding up a process already in motion. Indeed, the recent investor vote on setting more ambitious carbon reduction targets highlighted the extent to which investors are fully behind Shell doing more, quicker, not less, slower. Which kind of says most investors will be comfortable with the ruling, in of itself. Worries about higher capex and lower returns are another matter. The quicker Shell moves on this, the sooner fund managers with ESG-criteria to box tick will take a kinder view to the stock. Shell will have to act on this, and it could speed up divestments and potential deal activity if it is looking to use its current scale to swallow up some green energy assets.

Ford shares rallied 7% as it announced a $30bn investment in electric vehicles through to 2025. Investors lapped up the ambition. The company says it expects 40% of its sales globally to be EVs by 2030. It’s the first investor day under new CEO Jim Farley and there seems to be a real buzz about Ford’s EV plans now – watch out Tesla.

Amazon shares were mildly higher as the company confirmed it is acquiring MGM for $8.45bn. Like just about any big Amazon deal, on the face of things this looks like bad news for competitors, all else being equal. It gives Amazon significantly more firepower in terms of its Prime streaming platform. The impressive catalogue from MGM (James Bond etc) will help Amazon drive further up-selling of content in the Prime mix. Owning MGM also allows Amazon to benefit from having more control in the content output from the studio, which puts more squarely in a straight fight for eyeballs with Netflix/Disney. Of course, we cannot like-for-like Netflix subs with Prime membership, but, on the margins, it could make Prime compete more fully for eyeball time, which a) makes it stickier with users and b) reduces consumer propensity to have another streaming service.

Netflix tracked the move in Amazon shares but this could be more about the broad 0.55% rally for NDX today. Disney shares rose 1%. Comcast rallied 3% as it’s not seen in a rush to do any further deals. We are seeing significant consolidation in the streaming space that acknowledges the requirement for scale in order to survive – only last week AT&T spun off Warner Media to merge with Discovery. A major deal but hardly transformational for Amazon.

Finally, meme stocks are back – GameStop shares rose 14% and are now up 35% on the week. AMC added another 12%. Both jumped yesterday as Redditors on /wallstreetbets renew their interest in their old favourites.

Stocks stage mild fightback after Tuesday’s drop, Juventus down 10% as ESL plans collapse

Stocks suffered yesterday as the reopening trade took a hit. We could look to surging cases in India for a sense of alarm or unease, whilst tensions around the Ukraine and Russia are arguably adding a dullness to trade. But a technical pullback from aggressively overbought positioning seems to be more of a factor. I don’t think that the macro picture has altered much since Friday; US 10 year yields are subdued around 1.55-1.60%. Earnings are coming in better than expected or at least in line, and clearing a very high bar in the process. But investors seem content to park gains for the moment and reassess. It’s all about the E bit of the PE ratio now as we can no longer rely on optimistic margin expansion driven by the Fed – it’s all in already. True, travel stocks were badly affected – it looks more and more that international travel is several months behind where we thought it might have been at this stage. The fact that the US State Department plans to slap “do not travel” advisories on 80% countries underlined the way in which vaccines are only going to deliver a true return to normal once the world is inoculated. Earnings are by and large very strong but that’s already been discounted by a stock market that hit a record high last Friday. Similar story for the DAX. The FTSE has a longer path to travel hit its all-time highs again but this only offers hope for progress.

How markets respond over the coming weeks will depend a lot on the vaccine programme and the path of new cases, as well as signals from central banks. The ECB meeting tomorrow carries some degree of risk for markets, particularly if the GC or Lagarde offers any hints of hawkishness – it’s too easy to underestimate the strength of the hawks and the ECB’s willingness to exit pandemic emergency mode before the Fed. The euro will have a free pass to rise if markets think the ECB will exit PEPP before it runs its full course. Bank of Canada rate decision is due today and the Bank of England governor Andrew Bailey is speaking later this morning.

Fiscal stimulus remains a crucial support but this has largely been priced in – albeit not entirely, particularly in Europe. And this morning the German constitutional court dismissed a legal challenge to ratify the EU recovery fund. So a year on we may be about to see if the long-awaited funds can be dispersed. Very little, very late. In comparison with the US it’s paltry. Nevertheless, if we are looking at stock market sectors and markets then the fact is that retail sales growth of almost 10% in the US shows that the US bazooka creates a lot of spillover for the global economy, including Europe.

On Wall Street, the Dow declined by 256 points, its worst day in a month, while the S&P 500 dropped 0.7% and the Nasdaq fell 0.9%, respectively. The Vix closed above 18 after hitting a 14-month low last week. Not exactly elevated, but on the way up. In Europe, the FTSE 100 fell 2% to under 6,900, while the DAX dropped 1.55%. This morning we are seeing something of a bounce with the FTSE 100 up 0.5% in the first 30 minutes of the session, but there is a lot of ground to make up and gains so far look a little tentative. We continue to see the churn – IAG back up today after a drubbing yesterday, JustEat is down over 4%. PensionBee didn’t buzz on its first day with shares flat in early trade. At least it is doing better than Deliveroo, which is steady today at 244p, down from its IPO price 390p. Having tried to consolidate pensions in the past, I am sure anything that actually makes it easier is sure to be in demand. But the market is a little wary of new IPOs at this stage in the cycle.

Total football, total shambles: Shares in Juventus and Manchester Utd fell as the wheels came off the ESL quicker than you can shout ‘sack the owners’. It’s been a total debacle for the clubs – investors may be cautious about investing in football teams; they usually are. Whilst the ‘big’ six English clubs have pulled out, the Italian and Spanish teams are still committed on paper – I wonder how long they can eke this out. Juventus shares tumbled 10% in early trade on Wednesday, taking the stock back almost to where it was closed on Friday as traders saw blood. After dropping 6% yesterday and a further 2% after hours, Man Utd stock is also back to where it was before the weekend bombshell.

Netflix stumbled after hours, plunging 9% after missing on net subscriber adds and offering soft Q2 guidance. Netflix added 4m new customers in the first quarter, short of the 6m expected. Management guided just for just 1m net adds in Q2 and warned of ongoing uncertainty due to the pandemic. The company – and the Street – seem to have overestimated the continuity of demand from a record-breaking 2020. Still, it’s position looks strong even if sequential growth rate is slowing, which was always to be expected anyways. Revenues jumped 24% from the same quarter a year ago to $7.2m. Earnings were up by $1bn from last year to $1.7bn because of production delays lowering costs, but also the significant revenue jump.

On the data front, UK inflation came in at 0.7%, a little lighter than expected but notably up from 0.4% in February as base effects from the pandemic start to enter the data. Higher fuel and clothing costs were the chief drivers of the increase.

Sterling pulled back as the dollar made gains following Monday’s move lower. After touching 1.40 in early trade yesterday, GBPUSD trades pretty steady to start the session at 1.3920, testing the old resistance of the top of the Apr 6th outside daily candle. As explained earlier, Monday’s sharp move way beyond the top Bollinger called for a pullback, which we have seen. Momentum remains with the bulls just but could swing if it turns under 1.39. As long as this holds we ought to see a return to the 1.40 area and break out may be forthcoming. EURUSD trades lighter at 1.20250, whilst USDJPY dropped further under 108 to its lowest since early March.

Tobacco stocks fall, Netflix earnings on tap, Cable touches 1.40

A soft start to Tuesday’s session after stocks in Europe closed lower yesterday as the early promise of the green boards fizzled. Stocks on Wall Street were lower, with the Dow Jones closing more than 100 points below Friday’s record high and the S&P 500 down 0.5% from its all-time high also set at the end of last week. These are not strong directional moves but there is not a lot of dry powder on the side lines in investors pretty well all-in on stocks. The macro story seems well understood for now vis-à-vis vaccines, the pandemic, the Fed, stimulus – really the question mark is over whether earnings can keep up with expectations to support current valuations. In the current setup it’s hard to see room for multiple expansion – compression is way more likely as rates rise (although this trade has taken a breather for now) – so we need the ‘E’ bit of the PE bit to hold up or we will see losses. Given the reopening this year, a large global savings glut and all the fiscal and monetary largesse, earnings should be strong. But expectations are already pretty high. Where there does seem room for manoeuvre is in the rotation out of growth and into value and back again.  

 

Netflix earnings today will provide a vital guide to this. The Street expects about 6m net subscriber adds and the market should look beyond the guidance for Q2 since it’s skewed by comps. Content remains king – Netflix needs to continue to produce the goods to remain the number one – primus inter pares – streaming app among households (the last to be ditched if cloth needs to be cut). Long term it remains a structural winner and the accelerated gains from the pandemic should be now be discounted. Focus should be on churn rates, password sharing crackdown, the content pipeline and competition.

 

Shares in GameStop rose 6% after news the CEO George Sherman would step down by the end of July. This is all playing into the hope and expectation that Ryan Cohen will lead a resurgence in the firm’s fortunes on a wave of ecommerce growth. There have already been several big board moves and this is the latest sign that the activist investor is making his presence felt. Meanwhile famed Redditor Roaring Kitty – aka Keith Gill (‘I’m not a cat’) has doubled his stake GME by exercising 500 $12 call options and purchasing an additional 50,000 shares. 

 

Following moves in stocks like Altria and Philip Morris in the US yesterday, shares in British American Tobacco and Imperial Brands tumbled after reports the Biden administration is looking to cap nicotine levels in cigarettes. Officials are also looking at whether they will pursue a ban on menthol cigarettes, and whether this ought to be pursued together or separately, according to the Wall Street Journal. I remember a similar report back in 2017 on a proposal from the FDA to lower nicotine levels sending tobacco stocks plunging. Would it really make as big a difference as the share price moves suggest? Lower nicotine cigarettes may be less addictive – so the rationale is that this would make it easier for smokers to quit or switch to other ‘safer’ products and therefore be a ‘good thing’. However, consumers may be tended to perceive lower nicotine cigarettes as safer, which could make them easier to sell, which would be the precise opposite of what the administration intends. A ban on menthol cigarettes is a much more straightforward policy. Both BATS and IMB fell 5-6% in early trade on the developments.

 

Despite resuming its dividend, AB Foods shares slipped as it offered a very cautious outlook on slower reopening of Primark sites, higher costs at the food business and FX headwinds. Following an ‘exceptional’ performance in the first half of the year, management expect Grocery, Sugar, Agriculture and Ingredients businesses to be softer in the second half. At Primark, ABF expects to be trading from 68% of its retail selling space, (or 79% if stores with restricted trading are included) by the end of April. Reopening dates for France, Ireland and the remaining stores in Germany are yet to be confirmed. 

 

The real action yesterday was in FX as the dollar continued to unwind its recent gains. Sterling rallied for a sixth day on the bounce, its strongest daily move since January, and is holding onto gains this morning, with GBPUSD touching 1.40 in early trade. The move is very extended and susceptible to a pullback before the next leg back to the recent highs at 1.42. The weaker dollar extended to the EURUSD pair, which is flirting with the 100-day simple moving average at 1.2050. A sustained breach to the upside calls for a return to the 1.22 handle. 

 

On the sterling story, there are clear signs the UK is getting back to business. Normality, no; but activity is picking up. Hiring is up 17%, unemployment is down from last quarter. Retail footfall and consumer spending is picking up rapidly. Of course, all this data is massively skewed by interventions – furlough masks the true employment situation, arbitrary reopening dates skew spending to the first few days and weeks as the pent-up demand is let out. Nevertheless, these are encouraging signs. 

 

Oil is drifting higher as markets look to dwindling global inventories and the expected uplift in demand as US driving season comes into view. The success of the vaccination programme in the US is a big plus for the world’s largest consumer. Refinery runs are picking up and stockpiles globally are at their 5-year average. It’s looking like the glut developed last year is over. Reports yesterday pointed to OPEC+ downgrading the April 28th scheduled ministerial meeting to just a JMMC monitoring meeting. Given OPEC+ has already agreed production levels through to July this would make sense as the market remains fairly calm and well supported for now. 

 

As flagged in yesterday’s note, gold pulled back a touch, hit by rising Treasury yields. The 50-day SMA at $1,750 may offer an area to rest should the move in yields gather steam. The softer dollar is a support but yields matter more for gold.

Gold pulled back a touch, hit by rising Treasury yields.

Can Netflix shares rebound on earnings update?

Netflix (NFLX) reports on Jan 19th, with average earnings per shares (EPS) estimated at $1.40 on revenues of $6.6bn, up 20% year-on-year.

Whilst the company has been a big winner from the pandemic as subscriptions leapt with consumers stuck at home, there are worries about the service going forward.

One, is it as good as it used to be? The library content is shrinking and competition is far more intense these days. Churn is a big concern with one survey showing 32% of respondents indicating they are likely to cancel Netflix in the next three months. This is well up on previous levels and indicates perhaps a degree of subscription fatigue among consumers. Whilst Netflix remains first among equals (people with more than one VOD subscriptions almost invariably have a Netflix account), it’s facing much sterner competition from the likes of Disney, which is throwing some serious effort into new content and has the advantage of established brands and intellectual property like Star Wars.

Two, we’re heading into the other side of the massive pull-forward in demand that really drove the 2020 subscriber growth. Paid net adds hit 26m in the first half but had declined to just 2.2m in Q3. Netflix ended Q3 with 195m paid subscribers and expects a further 6m net adds in Q4 to reach 201m in total. Key will be the subscriber growth in Latin America and Asia Pacific, where growing broadband penetration rates are supportive of ongoing growth. Whilst Netflix has had some notable local-language successes, it will need to keep repeating these to keep growing – content remains king.

Netflix pay adds year to date.

Netflix Sentiment Analysis

Netflix sentiment

Stock price analysis

The price action has been very range-bound since July amid ongoing uncertainty about whether Netflix can kick on and build on its pandemic growth, or whether growth rates will never be the same again. Hugging the 50-day SMA at present and looking for breakouts either side of $560 and $470 to be chased.

Netflix price movements

Volgende week: Geven de resultaten Tesla en Netflix de techsector een injectie?

De cijfers van het derde kwartaal komen op stoom deze week met Tesla, dat zijn kwartaalresultaten bekend maakt na levering van een recordaantal auto’s gedurende dit kwartaal. Netflix, dat profiteert van het coronavirus, komt eveneens met kwartaalcijfers en een update over het aantal abonnees. Verder is er relatief weinig data deze week en ligt de focus op de flash PMI’s vrijdag.

Tesla

Het aandeel Tesla steeg dit jaar ongeveer 450% als gevolg van stijgende verkoop en hogere winst, terwijl het bedrijf zorgen over zijn balans wist te sussen. Tesla maakt zijn kwartaalresultaten woensdag bekend, en investeerders verwachten stevige winst omdat een recordaantal auto’s werd afgeleverd in het derde kwartaal. Tesla leverde in het derde kwartaal 139.300 auto’s en produceerde er 145.036. Dat is een significante stijging ten opzichte van de pakweg 90.000 in het tweede kwartaal.

Baird-analist Ben Kallo verhoogde recentelijk het prijsdoel van TSLA met 25%. In een notitie waarin hij zijn neutrale rating van het aandeel sinds januari herhaalde, verhoogde hij het prijsdoel van $360 naar $450. Hij denkt dat het bedrijf zich opnieuw kan gaan richten op investeringen in groei, na de rally van het aandeel.

„Er is groeiende belangstelling voor TSLA, wat iets blootlegt over de bull/bear-sentimenten,” schreef Kallo. „Het is interessant om te zien dat investeerders zich steeds meer richten op positieve scenario’s na 2025, in sterke tegenstelling tot enkele maanden geleden, toen de focus vooral lag op het volgende kwartaal.” Analisten blijven verdeeld over Tesla, 7 analisten adviseren kopen, 10 verkopen en 13 houden/neutraal.

 

Netflix

Zeer interessante informatie voor de markt is het aantal abonnees dat Netflix in het derde kwartaal wist te winnen. Lockdowns wereldwijd leidden tot een sterke abonneegroei in de eerste helft van 2020; het netto aantal betaalde abonnementen steeg naar 26 miljoen, ten opzichte van 12 miljoen in dezelfde periode vorig jaar. Het bedrijf rekent op 2,5 miljoen extra betaalde accounts voor het derde kwartaal, versus 6,8 miljoen een jaar geleden. De eerste helft van het jaar heeft waarschijnlijk een deel van de vraag uit de tweede helft naar zich toegetrokken. Dit kan echter een zeer conservatieve schatting zijn en Netflix zou die zomaar kunnen overtreffen.

Investeerders zullen ook kijken naar de cash burn, nu de productieschema’s zich weer vullen; de investering in content kost geld maar wordt ook gezien als een belangrijke hefboom voor Netflix om rivalen te overwinnen in een zeer concurrerende markt. „Dankzij investeringen in content kon Netflix zich ontwikkelen van een platform waar je herhalingen bekeek tot een bron van kwalitatief goede nieuwe content, waar nu ook filmpremières plaatsvinden, waarmee de dienst een essentieel onderdeel is geworden van entertainmentbundels voor consumenten,” stelden analisten bij Cannacord eerder dit jaar.

Goldman Sachs, dat eerder opmerkte dat de „grote investeringen in content, het wereldwijde distributiesysteem en de verbeterde concurrentiepositie de financiële resultaten zullen opstuwen tot boven de algemene verwachtingen”, verhoogde recentelijk het prijsdoel voor het aandeel van $600 naar $670, en noemde beter dan verwachte derdekwartaalresultaten als een mogelijke katalysator.

Denk ook aan onze dagelijkse winstcijfer-specials op XRay voor meer updates.

Economische gegevens

Wereldwijde economische data zijn behoorlijk dun gezaaid. De kwartaalresultaten op Wall Street moeten de markt richting geven. Het bbp, de industriële productie en investeringen op vaste activa van China, het land dat dit jaar zo ongeveer als enige groei verwacht, verwachten we maandag en zullen de markt wat richting geven aan het begin van de week. De detailhandelsverkoop en inflatiecijfers in het VK zullen doorvorst worden op aanwijzingen over een mogelijk besluit tot negatieve rente door de Bank of England, die via een brief aan de banken heeft gevraagd of zij daarop voorbereid zijn. Vrijdag volgt de publicatie van productie- en diensten PMI’s voor de VS, het VK, de eurozone, Japan en Australië. Die geven een indicatie of het heropeningssentiment inderdaad zo snel aan het verdwijnen is als de pessimisten vrezen.

Amerikaanse verkiezingen

Tot slot doen investeerders er goed aan de Amerikaanse verkiezingen nauwlettend te volgen, nu aandelenmarkten al rekening houden met het scenario van een „blauwe golf” met winst voor de Democraten en een vloedgolf aan nieuwe fiscale stimulansen. In de opiniepeilingen ligt Joe Biden ruim voor op Donald Trump, maar zijn voorsprong in de belangrijkste swing states is een stuk kleiner. Sterker nog, Trump deed het vier jaar geleden op dit punt slechter in de swing states. De strijd om de Senaat is interessant gezien de aanname dat Biden die zal winnen – een Republikeinse Senaat kan hervormingspogingen aanzienlijk hinderen. De volatiliteit zal waarschijnlijk toenemen als de verkiezingen naderen, maar zoals onze vrienden bij BlondeMoney vorige week stelden, de angst voor een betwiste uitslag is wellicht overtrokken.

 

Belangrijke economische data deze week

Date  Event 
Oct 19th  China GDP, fixed asset investment, industrial production 
Oct 19th  BOC business outlook survey 
Oct 20th  RBA meeting minutes 
Oct 21st  UK CPI inflation 
Oct 21st  Canada CPI, retail sales 
Oct 21st  US crude oil inventories 
Oct 21st  Fed Beige Book 
Oct 22nd  German Gfk consumer climate 
Oct 22nd  US weekly initial jobless claims 
Oct 22nd  US CB leading index 
Oct 22nd  Nat gas storage 
Oct 22nd  New Zealand CPI inflation 
Oct 23rd  Flash PMIs – AUS, EZ, Japan, UK, US 
Oct 23rd  UK retail sales 

 

Belangrijke cijfers deze week

Denk ook aan onze dagelijkse winstcijfer-specials op XRay voor meer updates.

Date  Company 
Oct 20th   Procter & Gamble 
Oct 20th   Netflix 
Oct 21st  Tesla 
Oct 21st  Verizon 
Oct 22nd  Amazon* 
Oct 22nd  Intel 
Oct 22nd  Coca-cola 
Oct 22nd  AT&T 
Oct 21st   NextEra Energy 
Oct 20th   Lockheed Martin  
Oct 23rd  American Express 
Oct 23rd  Daimler 
Oct 21st  Biogen 
Oct 19th   Philips 
Oct 20th   UBS 
Oct 20th   Snap (Snapchat) 
Oct 19th   IBM 
Oct 22nd  Valero Energy 
Oct 20th   Vinci 
Oct 20th   Reckitt Benckiser 
Oct 21st   Countrywide 
Oct 21st   William Hill 
Oct 21st   Metro Bank 
Oct 21st   Centamin 

*Slated for this date 

 

 

Dutch PM Rutte ‘not optimistic’ ahead of EU summit, Netflix misses

European stocks were choppy and likely set for a volatile finish to the week as EU leaders gather in Brussels for a key summit, with market participants squarely focused on whether the EU can agree to a broad recovery fund as part of the talks over the bloc’s budget for 2021-27.

Whilst the EU seems to be edging closer to a deal and Merkel and Macron should ultimately get the consensus they need for something like a €500bn-€750bn package of support, there is a risk the market has put too much on this particular meeting and is left disappointed if there is no final decision taken this weekend.

We may get an agreement in principle on the fund that will be made up of a mix of grants and loans, with details on the total money value and attached reform requirements to be finessed. Even that might be a stretch though – Merkel warned this week that it could take until the end of the summer to achieve a deal and today said talks would be tough.

Dutch PM Rutte said this morning he’s ‘not optimistic’ ahead of the talks. Indeed, I would not expect much more than a political declaration affirming member states commitment to achieving some kind of a deal.

This not an ordinary summit – what’s being talked about is mutual debt issuance for the first time. A deal would be a major breakthrough for the EU and show that the bloc has the ability to respond to an era-defining crisis with one voice.  Merkel is throwing all her political capital behind the European Recovery Fund, so there more than just EU solidarity riding on it.

The Frugal Four of Sweden, Austria, Denmark and the Netherlands remain the main barrier to achieving a deal as they are still to be convinced on why they should be sharing the burden of weaker states, but most countries will be out to fight their corner too. At least they are all back in a room and can talk through the night to trade horses and get something done – not so easy on Zoom, albeit it’s an absolute hangar of a room.

ECB’s Lagarde dismisses tapering chatter

Yesterday, the ECB left rates on hold as expected and Christine Lagarde appeared to push back against the tapering chatter by saying the ECB would use the full PEPP envelope of €1.35tn ‘barring surprises’. She also seemed confident member states would agree on the fiscal response to the crisis, which gave the euro a little nudge up at the time.

EURUSD is back under 1.14 this morning – a recovery fund deal would likely take it over 1.15 and set it up for further gains. Near term the support is around the 1.12 region.

Stocks on Wall Street finished lower on Thursday, led by a decline in tech. It’s probably too early to say this is part of a rotation out of growth into value – which could be a trade to consider if you assume that a vaccine is coming and things get back to normal – but there may be an element of profit-taking in big tech as investors take stock of events and consider the uncertainty over the pandemic, reopening rates, stimulus, earnings outlooks and stretched valuations in some corners of the market vs many stocks being in the bargain basement, among others.

Netflix subscribers and earnings growth miss

Netflix shares plunged 9% to $480 in after-hours trade as the company signalled weaker subscriber growth and profits missed expectations. Revenues were a tad better than forecast at $6.15bn, and as I expected, net subscriber additions in excess of 10m were ahead of estimates for about 7.5m, but earnings per share were a little soft at $1.59 vs $1.80 expected.

But guidance on future growth in subscribers was soft with the company only anticipating 2.5m net adds in September quarter. Maintaining Covid-era subscriber growth was always a tall order, if not impossible, but 2.5m would represent its weakest growth rate for a long time.

Although EPS was a miss, it was largely down to the timing of a California research and development tax credit charge. Netflix earnings have always been lumpy and net subscriber adds has always been a greater guide. The company expects 16% operating margin in 2020 and 19% for 2021, which CEO Reed Hastings said was ‘tamping down the expectations’.

Competition remains a headwind as new streaming services come online, but increasingly even social media is considered a rival. Netflix cited TikTok as a competitor – good news then that the US wants to ban the Chinese social media app.

There are of course questions about whether Netflix will manage to attract eyes in the way it did during lockdown – cinemas reopening, bars and restaurants luring people off the sofa etc, whilst the impact of Covid-related shutdowns on production is still being understood. Moreover coronavirus has simply pulled forward a lot of net adds from the coming quarters – expect slower growth but the company remains in a very good place.

US jobless claims mixed, homebuilder sentiment climbs

Economic data from the US was mixed. Initial jobless claims hit 1.3m, almost unchanged from the prior week. The improving trend has all but halted and may reflect the spike in coronavirus cases that has coincided with renewed lockdown measures in a number of economically important states such as Texas and Florida. California’s decision to roll back reopening signals worse could be ahead.

Continuing claims fell to 17.3m vs the 18m last week, which was a tad better than the 17.6m expected. The total number of people claiming benefits in all programmes for the week ending June 27th fell to 32m a decrease of 430k from the previous week. What’s clear is the rate of change is not moving in the right direction – getting back to pre-Covid levels will take a long time.

However, homebuilder sentiment rose 14 points to 72 in July, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). That’s where the index reached in March before the crisis hit and it slumped to 30 in April.

Oil and gold are both still in consolidation mode. WTI (August) cannot make a move beyond $41 stick, whilst gold is still crabbing sideways around the $1800 level and appears to set its new low and near-term support at $1796. US real rates (10yr TIPS) made new 7-year lows at –0.79%.

Stocks retreat before ECB, US + UK jobless numbers in focus

European stocks pulled back a little after a rally in the previous session as upward pressure on equities continues to hold firm despite rising case numbers as hopes for a vaccine are the new hopes for a US-China trade deal. Moderna has reported encouraging results from initial trials, while there is a lot of hope being pinned on AstraZeneca’s phase one trials, results of which are due to be published July 20th.

Whilst nothing is certain, it seems things are moving in the right direction for a vaccine to emerge by next year.

Shanghai fell 4% and Hong Kong was down almost 2% overnight after a mixed bag of Chinese economic data. US stocks rallied yesterday with the S&P 500 posting its highest close since the June peak, though futures point to the index opening around 20 points lower. The Dow is seen opening about 200 points lower.

UK jobless data reveals first wage drop in six years

The number of employees on payrolls in the UK fell by 650,000 between March and June, but the worst of the employment is still in front of us. Vacancies are at their lowest level since records began in 2001, earnings fell for the first time in six years, and the ONS noted that the standard definition of unemployment does not include half a million employees temporarily away from their jobs specifically for coronavirus-related reasons, who are receiving no pay while their job was on hold.

Unemployment claims were better than feared but we can pin this on furlough schemes which are extending the pretence, delaying the worst and providing a soft landing; but the jobless numbers clearly do not reflect the true extent of what’s coming. Meanwhile the number of hours worked – a key metric for the nation’s productivity – has collapsed.

China GDP rebounds, consumption lags

Chinese GDP grew 3.2% in Q2, up from the –6.8% contraction in Q1, which was better than forecast, albeit we apply the usual caveats about Chinese economic data. Industrial production rebounded 4.8%, but retail sales were down –1.8% vs an expected +0.3% improvement.  Richemont flagged a strong recovery in China despite sales globally falling 47% in its first quarter, with luxury goods stocks weaker. Burberry shares fell another 3%.

US data was solid enough, with industrial production +5.4% in June whilst the Empire State manufacturing index hit 17.2, a beat on the 10 expected and a big jump from the –0.2 in the prior month. It remains to seen however to what extent the rate of change in the recovery turns lower as data starts to reflect the ‘second wave’ of cases and the imposing of some fresh lockdown restrictions in some key states.

In the Fed’s Beige Book, the Dallas Fed noted that while the outlook has improved, the upward trend in new COVID-19 cases has increased uncertainty. “Economic activity increased in almost all Districts, but remained well below where it was prior to the COVID-19 pandemic,” the national summary read.

US-China tensions are bubbling away – plans by the White House to impose travel restrictions on millions of Chinese Communist party members is the latest in the saga.

Goldman Sachs earnings crushed expectations with a stunning quarter of trading revenues. Bond trading revenue jump 150% to $4.24bn, while equities trading revenue climbed 46% to $2.94bn. For me all it did was underscore the divergence we are seeing between the real economy and the market, which is benefitting hugely from two-pronged monetary and fiscal stimulus.

Oil still rangebound after OPEC agrees to begin tapering production cuts

Oil couldn’t break free from its narrow range as OPEC+ extended cuts but began tapering with production curbs in August down from 9.7m barrels per day to 7.7m bpd, although the total effective cuts will be around 8.1m-8.3m barrels a day as countries which overproduced in May and June would make additional compensation cuts in August and September. OPEC will need to play this carefully – the longer its barrels are off the market the more it could encourage higher cost US oil to come back on.

Inventory data from the States was bullish with the –7.5m drawdown much higher than the –1.3m expected. Gasoline inventories also fell by more than expected at –3m. WTI (Aug) rallied from the medium-term trend support around $39.20 yesterday to press on the $41 handle but it continues to lack momentum – the CCI divergence on the daily timeframe chart points to the rally running out of legs and buyer exhaustion that could call for a further pullback.

In focus today: ECB, Netflix, US jobless claims and retail sales

Lots coming up today…

ECB meeting: Following the top-up to the PEPP programme in June to €1.35tn, the European Central Bank should be keeping its powder dry with the key EU summit starting tomorrow to hammer out the budget.

I expect Christine Lagarde to stress the importance of the fiscal side and leave policy unchanged but stress that ECB’s accommodative position – this is not the time for a discussion of tapering or the details of how much of the envelope you need to use.

In a recent interview she said the central bank had ‘done so much that we have quite a bit of time to assess [the incoming economic data] carefully’. The EU recovery fund is more important for EUR crosses right now – agreement this week may push EURUSD beyond the key 1.15 level.

Netflix earnings: The ultimate stay-at-home company, Netflix (NFLX) has made hay in the pandemic, with the stock hitting an all-time high and clearing $520. In the March quarter, Netflix added 15.77m new subscribers, which was more than double the original forecast of 7m net adds.

The company has forecast 7.5m new adds in the June quarter and may easily beat this with around 10m subscriber additions.  Sequentially lower net adds should not weigh on the stock given the exceptional performance in the first quarter. ARPU could benefit from a depreciation in the dollar since it last reported.

As Netflix itself noted in its Q1 report, there is a lot of unknown to its forecasts. “Given the uncertainty on home confinement timing, this is mostly guesswork. The actual Q2 numbers could end up well below or well above that, depending on many factors including when people can go back to their social lives in various countries and how much people take a break from television after the lockdown.”

The market expects $6.1bn in sales and EPS of $1.8, with paid subscribers to hit 190m.

US weekly unemployment claims: Last Thursday’s data was better than expected for the week ending Jun 27th, however the total number of people claiming benefits in all programmes, including both regular state and all others, and including Covid-related programmes, rose 1.4m to 32.9m in the week to Jun 20th.

Initial claims today are seen falling again to 1250k from 1314k the previous week, with continuing claims seen down to 17500k from 18062k last week.

US retail sales: Expect to see continued improvement as the economy recovers off the lockdown lows. Retail sales should print another strong reading as consumers binge on their $600-a-week stimulus checks, which are due to finish this month.

Europe firms as Brent follows WTI’s lead lower

European markets are cautiously higher after yesterday’s decline, but the daily momentum indicators are fading. The reality of economic collapse is being seen in oil markets, but – juiced by central bank support and of course being much more forward-looking than, for instance the June oil contract – equity markets are displaying greater optimism. I’d say oil markets are telling us how bad things are right now, while equity markets tell us how good or bad investors hope/fear things will be next year.

Now it’s the turn for Brent. Turmoil in global oil markets dragged Brent futures under $16, leaving the front month trading at its weakest since 1999. The collapse in WTI at the start of the week has spooked the market and now we see similar concerns about floating storage starting to fill up as physical storage constraints worrying WTI. The roll this Friday could be gappy, although Brent is cash settled, not physically, so in theory it ought not to be as troubled and negative prices are unlikely. That said, if global storage is running out – and that is what the Brent trade is starting to suggest – then there will be no bid and prices could hit zero.

WTI remains under pressure with the June contract suffering a ‘flash crash’ yesterday as it slumped as low as $6.50 before recovering above $10. The June contract, whilst not immediately facing the same liquidity problems as the May contract did on Monday, is going to be under pressure all the way to expiry with nowhere left in the US to take physical delivery. It too could turn negative if paper traders are left holding the baby close to expiry. July is trading around $18.40, August is above $21. Edward Morse, head of commodities at Citigroup, says oil could bounce back to $50 by the end of the year.

Meanwhile the damage is being felt in oil ETFs which are needing to shift their holdings further out in future months. The United States Oil Fund (USO) is ditching its June holdings as it tries to shore its balance sheet, and this will be having an impact on the front month trading. It will also be sharpening the super contango. It becomes a vicious circle as long as no one wants to take delivery. Yesterday saw more than 2m June contracts traded, the CME Group said, the busiest single day for the month ever.

The pain in oil markets is unsettling risk appetite more broadly, with the S&P 500 down 3% and the Dow shedding over 600 points yesterday. It was the worst day for the three main indices since April 1st. Charts and momentum suggesting the rally has lost steam and 50-day SMAs (blue line) almost seem to be frightening the market and forcing it to back off. The question is whether sentiment sours from here and we retest the lows or it’s just a pause in the rally. Earnings are not telling us an awful lot as uncertainty reigns. The key is the emergence from lockdown and restart of economies. And of course, finding a vaccine.

Dow Cash, 1-Day Chart, Marketsx – 08.32 UTC+1, April 22nd, 2020

Whilst European markets are higher today after yesterday’s drop, the momentum is fading and the DAX has broken under trend support. Again the 50-day SMA is major barrier.

DAX Cash, 1-Day Chart, Marketsx – 08.35 UTC+1, April 22nd, 2020

A major boost for Netflix as it added almost 16m new subscribers in the first quarter, well ahead of expectations. The company has been boosted by lockdown measures and should see more net subscriber adds in Q2 but notes in the circumstances it’s all ‘guess work’. But this might be as good as it gets this year – Netflix won’t get a better opportunity to gain new members than now. I’d also be concerned that after such a big runup in the stock to all-time highs, the upside is pretty well discounted now and viewing figures will start to decline as lockdowns end. A stronger dollar is hitting foreign earnings and spending on content is delayed by production shutdowns. EPS was a slight miss but Netflix profits are always a little lumpy due to inconsistent spending on content.

In FX, GBPUSD broke down through near-term horizontal support and out of its range yesterday and with the bearish bias persisting the next level comes in around 1.2160, the Apr 6th and late March swing lows. Near-term though the 1hr MACD is positive after a potentially bullish crossover late yesterday.

GBP/USD, 1-Day Chart, Marketsx – 08.35 UTC+1, April 22nd, 2020

 

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