Daily Brief: Netflix Earnings Are A Letdown, So Here’s Hoping Its New Business Ventures Pan Out…

Daily Brief: Netflix Earnings Are A Letdown, So Here’s Hoping Its New Business Ventures Pan Out…

over 2 years ago3 mins

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Netflix announced worse-than-expected quarterly results late on Tuesday, so the streaming giant might be turning to a few new developments – like gaming – to take its business to the next level.

What does this mean?

Netflix warned investors at its last earnings update that it’d add just 1 million new subscribers this quarter, so here’s the good news: the company posted 1.5 million, and its revenue came in ahead of expectations. But its profit fell short of estimates, and its forecast for this quarter wasn’t looking promising either: Netflix admitted it’ll add just 3.5 million subscribers versus analysts’ predicted 5.9 million. And since that number is a proxy for future income, it’d better start churning out some unmissable content – and fast.

Growth choppiness

Why should I care?

For markets: What does Netflix want, a medal?

Netflix’s stock initially fell 2%, and there are a couple of potential reasons why. For one thing, 3.5 million new subscribers isn’t all that many considering the 213 million Netflix already has. And for another, investors had actually been anticipating that the company would do better than it previously promised, and – prematurely, it seems – sent its stock up 6% in the last month.

Netflix stock
Source: Google Finance

The bigger picture: Investors are waiting for Netflix’s next premiere.

Thing is, Netflix isn’t just competing with rival streamers like Amazon Prime Video, but anything that draws potential viewers away. That might be why the streaming giant has been making some big hires in the podcasting space, and why the company is reportedly looking to launch a video game service in the next year. And since it can just bundle all these services together, that should help it answer investors’ age-old question around how many subscription services customers need: Netflix is plenty.

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There Could Be A European Earnings Boom On The Way

EU image

European companies started posting their second-quarter updates last week, and they’re expected to trounce America’s earnings growth.

What does this mean?

Hopes for Europe’s earnings season are high: analysts are predicting a 140% rise in earnings per share compared to the same period last year – more than double the American companies’ forecasted growth. It’s expected to be driven primarily by resurgent carmakers and retailers, as well as energy and mining companies. That makes sense: the post-pandemic economic rebound has sent demand for and the prices of oil and metals soaring. Strange, then, that their stocks haven’t caught up yet: energy stocks in Europe have been trailing the market by 15% since March, and mining stocks by 12% since May.

Going up

Why should I care?

Zooming in: Analysts missed a spot.

The sectors with the highest predicted earnings growth all have one thing in common: their earnings typically ebb and flow with economic growth. But there’s another “cyclical” opportunity out there right now in the form of European banks. For one thing, they look cheap versus history, their US rivals, and the European stock market. And for another, UBS’s results on Tuesday suggested the sector’s profits are back with a vengeance: the Swiss bank announced its second-quarter profit was up 63% from the same time last year.

UBS earnings increase

For you personally: Ignore the news.

If you think this sounds too good to last, you might be right: analysts are expecting earnings growth to slow to 32% in the third quarter and 21% in the fourth. Investors, then, have already priced that potential dropoff into the markets, which leaves room for stocks to rally if they end up outperforming and fall if they don’t. So from here on out, you’d be better off keeping an eye on how investors are positioned than on what companies themselves are saying and doing: that’s what’ll have the biggest influence on the size and direction of any stock price moves.



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