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This week, the second-quarter earnings season will accelerate, giving investors a more complete picture of the extent of the rebound in corporate earnings as social distancing standards soften. Housing market data will also be the focus of attention.
So far, companies have exceeded already high expectations for second quarter results. About 8% of S&P 500 companies have released results so far, mostly banks. And of those who did report, 85% exceeded estimates, according to FactSet data.
One of the most watched quarterly reports this week will come from Netflix (NFLX) on Tuesday. As the first of the “FAANG” names to release results, the report will set the tone for other big tech companies yet to release their quarterly results.
Investors are nervously eyeing Netflix’s second quarter earnings report after a highly disappointing first quarter, in which the streaming giant added less than 4 million new paying subscribers compared to an expected 6.3 million. At its peak during the pandemic, Netflix had added nearly 15.8 million new subscribers in a single quarter. In April, Netflix attributed the lack of first quarter subscribers to “COVID-19’s big breakthrough in 2020 and a lighter content roster in the first half of this year, due to COVID-19 production delays. “.
Netflix said it expected to add just one million new subscribers for the April-June quarter. The company added more than 10 million new paid users during the same period in 2020, when the pandemic still kept consumers confined to their homes in search of entertainment.
But the slowdown in the rate of new subscriber additions for Netflix has been accompanied by the maturation of the platform in major markets. With nearly 208 million subscribers worldwide, Netflix is still the undisputed American leader in streaming content, followed by a large margin by Disney + with 103.6 million subscribers. And Disney’s streaming competitor also missed estimates for new subscriber additions earlier in the year, highlighting the industry-wide slowdown after record customer registrations at the height of the pandemic.
“Netflix has a significant first-in-place advantage, with nearly 210 million subscribers worldwide. This figure, however, contradicts the fact that Netflix is approaching market saturation in North America, with its nearly 75 million subscribers. members making up about 60% of all households, ”Wedbush analyst Michael Pachter wrote in a note.
“His pioneering advantage will not take him further, because he must continue to produce new content in order to retain existing subscribers, and must continue to renew licensed content in order to attract new subscribers,” he said. he adds. “Netflix’s overseas opportunities remain attractive, and we believe this will support high single-digit user percentage growth for the foreseeable future.”
But in terms of new content, Netflix is reportedly working to expand its content outside of its core TV and movie programming. The company announced last week that it hired Mike Verdu, former executive of Electronic Arts (EA) and Facebook (FB) Oculus, as vice president of game development. According to a Bloomberg report, Netflix aims to bring video games to users next year. Investors are ready to check out Netflix’s earnings report this week for more details on the strategy for the new business offering.
According to Truist Securities analyst Matthew Thornton, Netflix’s foray into gaming is “an extension of their content strategy,” as are the streaming platform’s other recent initiatives in unscripted content, premium movies. and children’s programming.
“There is an opportunity here, at least at the margin, to differentiate the service from some of their direct peers and help drive engagement, retention and, of course, subscriber growth and growth. revenue, ”Thornton told Yahoo Finance Live. “What the content strategy will be here remains to be seen. Are they going to keep this just for their own first party content, creating their own content? “
“I think, you know, that the biggest opportunity, of course, would be to open up to third-party content as well, which would put them a bit more one-on-one and comparable to the platforms Microsoft offers, or Sony, or Nintendo, Google, Amazon and others, “he added.
In terms of bottom line and bottom line, Netflix is expected to earn $ 3.16 per share on revenue of $ 7.32 billion, which would represent a 19% growth from last year.
Shares of Netflix have fallen about 1% year-to-date, underperforming the S&P 500’s nearly 16% rise in the same time frame.
Housing data
Plenty of housing market data is also expected to be released this week.
These will include the Commerce Department’s Housing Starts and Building Permits report, highlighting the pace of new home construction and future construction as tight inventory levels continue to weigh on activity in the housing market. Housing starts are expected to rise 1.2% m / m in June for a consecutive monthly gain, although slowing from the 3.6% monthly increase in May.
Lower lumber prices after a spring surge should help reduce construction costs and fuel construction. However, last week’s retail sales report showed that furniture and building material sales fell in June, extending May’s decline. The declines, however, may at least partially reflect declines in the real price of construction inputs such as lumber, rather than or in addition to a decline in sales volume.
Other closely watched housing data this week will include the National Association of Realtors’ monthly existing home sales report for June. This will likely record the first monthly sales increase since January, with sales of previously owned homes set to rise 1.7% in June, according to Bloomberg consensus data. In May, sales of existing homes fell 0.9%.
“We are taking a positive signal from the 8% increase in May in pending home sales, which hit their highest level since 2005. Existing home sales fell for the fourth consecutive month in May, in part due to high house prices crowding out potential buyers from the market, “Michelle Meyer, US economist at Bank of America, wrote Friday.” The median price of an existing home in May marked the highest on record at $ 350,000, 23.6% more than in May 2020. That said, rising inventories in June and falling lumber prices could bode well for buyers, which could ease the pressure from persistently high prices and lower prices. stocks tight. ”
Earnings calendar
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Monday: NAHB Housing Market Index, July (82 expected, 81 in June)
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Tuesday: Housing starts, month on month, June (+ 1.2% expected, + 3.6% in May); Building permits, month on month, June (+ 1.0% expected, -2.9% in May)
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Wednesday: MBA mortgage applications, week ended July 16 (+ 16.0% the previous week)
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Thursday: Chicago Federal Reserve National Activity Index, June (expected 0.30, 0.29 in May); Initial jobless claims, week ended July 15 (350,000 expected, 360,000 in the previous week); Continuing claims, week ended July 10 ($ 3.241 million in the previous week); Leading index, June (0.9% expected, 1.3% in May); Sales of existing homes, June (5.90 million expected, 5.80 million in May); Kansas City Federal Reserve Manufacturing Activity Index, July (25 expected, 27 in June)
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Friday: Markit US Manufacturing PMI, July preliminary (62.0 expected, 62.1 in June); Markit US Services PMI, July preliminary (64.5 expected, 64.6 in June); Markit US Composite PMI, July preliminary (63.7 in June)
Economic calendar
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Monday: AutoNation (AN) before the market opens; IBM (IBM) after market close
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Tuesday: Synchrony Financial (SYF), Philip Morris International (PM), Halliburton (HAL), Ally Financial (ALLY) before the market opens; Netflix (NFLX), Chipotle Mexican Grill (CMG), United Airlines (UAL) after market close
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Wednesday: Anthem (ANTM), Johnson & Johnson (JNJ), Nasdaq (NDAQ), Coca-Cola (KO), Harley-Davidson (HOG), Verizon (VZ) before the market opens; Las Vegas Sands (LVS), Whirlpool (WHR), Texas Instruments (TXN), Equifax (EFX) after market close
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Thursday: Danaher (DHR), DR Horton (DHI), AT&T (T), Newmont Corp (NEM), Dow Inc. (DOW), Abbott Laboratories (ABT), Alaska Air Group (ALK), Biogen (BIIB), American Airlines ( AAL), Domino’s Pizza (DPZ), The Blackstone Group (BX), Crocs (CROX), Southwest Airlines (LUV), Union Pacific (UNP), Capital One Financial (COF), Intel Corp (INTC), Boston Beer Co ( SAM), Twitter (TWTR), Snap (SNAP)
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Friday: American Express (AXP), Schlumberger (SLB), Honeywell (HON), Kimberly-Clark (KMB) before market opens
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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