What to expect from earnings this week (hint: investors love Netflix)

BUSINESS

This story originally appeared on Best Stocks

Netflix stock (NFLX) reports Tuesday evening 

While Netflix undoubtedly benefited greatly from the pandemic, the key question for investors has always been whether the company could sustain its growth.

Analysts believe that the streaming behemoth will need to demonstrate significant subscriber momentum in order to satisfy shareholders and send the stock higher.

Analysts are now signaling to investors that they believe Netflix will do just that as it continues to release a trove of content, such as the hot South Korean drama “Squid Game.”

Other key areas that investors and analysts will be watching closely include gaming initiatives, merchandising, and competition from services such as Disney+ and other streaming services.

The company’s stock is up nearly 8% in the last month and 16 percent this year.

“We believe that the global popularity of South Korean-sourced Squid Game reflects Netflix’s unique value proposition to content creators and consumers worldwide,” Guggenheim analyst Michael Morris said.

The firm reaffirmed Netflix as a best idea, adding that the streaming giant has “emerged from a period of pandemic-driven disruption as the clear global video content leader.”

However, other analysts, such as JPMorgan’s Doug Anmuth, wrote in a client note that the stock’s recent upward trend indicates that the second half recovery is happening faster than expected.

Anmuth rates the stock as a top pick and believes it has more upside due to shows like “Squid Game.”

“NFLX shares have recovered from their early-year selloff as the market has begun to recognize just how many advantages this streaming video powerhouse possesses,” analyst Joseph Bonner wrote.

“We don’t need superlatives when it comes to Netflix’s mega-hit Squid Game – its obvious success has raised investor 3Q/4Q subscriber expectations accordingly,” Mitchelson said.

“We continue to see Netflix’s ability to grow as global content investment strengthens its value proposition,” he stated emphatically.

Whatever happens, according to Baird analyst Will Power, the Netflix thesis remains firmly intact.

“If ‘Squid Game’ is any indication,” he stated succinctly, “content is still king.”

“Even after the recent stock move, we remain bullish on NFLX shares due to further strengthening of the content slate in 4Q, increased distance from pandemic pull forward, stronger seasonality, and the potential for greater traction in APAC, where NFLX has low penetration.”

NFLX stock
Source: Getty Images

If there is any upside, it could come from the Korean original Squid Game, which NFLX has stated could be the company’s biggest show ever. Squid Game was most likely a driving factor in NFLX’s late-September download surge, which included 22 percent Y/Y growth in APAC.”

Argus has a Buy rating.

NFLX shares have recovered from earlier this year’s selloff as the market has begun to recognize just how many advantages this streaming video powerhouse possesses.” Nonetheless, we believe that a strong release schedule through 2022 will drive subscriber acquisition, revenue, and profit.”

Guggenheim has a Buy rating.

“We believe that the global popularity of South Korean-sourced Squid Game reflects Netflix’s unique value proposition to content creators and consumers worldwide.” As previously stated, the company’s emphasis on developing a sustainable global asset base should strengthen its content development leadership position, driving member growth and pricing power.

“While NFLX had spent the previous quarters working through the pull forward of sub ads from the pandemic, the 2H21 original content volume is accelerating and, in our opinion, is likely to drive higher engagement and potentially lower churn.”

KeyBanc has an overweight rating.

“Netflix’s 2H recovery appears to have started faster than expected, reflecting the unexpected global success of Squid Game.” We have increased our 2H paid net add estimates to 11.6 million, and we are more confident that guidance will fall between our estimate and consensus of 12.1 million.”

“The long-term growth story remains intact; maintain Buy.” Despite short-term tough comps and increasing competition, we believe Netflix will continue to see long-term sustainable growth.

Credit Suisse has an outperform rating.

Its obvious success has raised investor 3Q/4Q subscriber expectations accordingly.” Our recent discussions with investors indicate that we should expect 4m/8m net adds for the 3QA/4Q guide, but only because management is widely expected to be overly conservative…. While we acknowledge that the set-up for earnings is heady, a 3Q miss appears to be out of the question, the 4Q slate is fantastic, and management commentary is likely to be quite optimistic, with Squid Game the latest evidence proving the company’s international content strategy.”

“If ‘Squid Game’ is any indication, content reigns supreme.” Google trends and app download data suggest a subscriber boost in late Q3, which we believe should support solid Q3 results and Q4 guidance.

“After more than a year of sideways trading, NFLX stock has risen 22% in less than two months, despite little movement in estimates.” In fact, NFLX is now trading at 8.5x 2022 revenue estimates, the highest level in its three-year range, despite revenue growth estimates of 14.7 percent vs >24 percent when valuation peaked last. Street is either baking in a beat or becoming more at ease with his competitive positioning. We anticipate that paid net ads will be the key metric, as in previous quarters.”

Evercore ISI has an outperform rating.

“And, while we fully acknowledge the stock’s recent price appreciation (up 20% since Disney’s June Q EPS on 8/12 to all-time high territory), we believe Netflix Net Adds returning to pre-COVID cadence will likely serve as a positive catalyst for the stock.”

Goldman Sachs’ rating is neutral.

Netflix stock underperformed the market modestly in the week preceding the Q3 ’20 earnings print and significantly the following week on weaker-than-expected results and forward guidance.” For Q3 ’19, it outperformed the market slightly the week before its earnings print but significantly underperformed the following week due to in-line sub results and a weaker-than-expected guide.”

Wedbush has an underperform rating.

However, if we assume that Netflix can increase its content spending at a slower rate than revenue growth, as its internationalization efforts may allow, the company is likely to deliver sustainable free cash flow growth.”

Evercore ISI has an outperform rating.

“We fully acknowledge that expectations are high heading into print, and Netflix has gapped up 23 percent to all-time high territories since Q2:21 earnings (which we viewed as a clearing event).” While we believe the likelihood of significant price appreciation on the print is low, we believe that given the continued strength of the content slate heading into 2022, the risk-reward balance favors the upside and any potential weakness in share prices on the print would be short-lived.”

Piper Sandler has an overweight rating.

“We are bullish on NFLX due to a back-half weighted 2021 content slate and ii) the recent success of Squid Game.” In addition, the note includes a proprietary Squid Game survey and a broader ‘Content Refresh’ analysis. ……. NFLX fell after the second quarter of this year due to a weaker subs guide, but it is now up more than 20% since mid-August. The Squid Game and a more robust slate of original content could be the key drivers.”

“We maintain our OW rating and expect 2022 to be a year of healthy and accelerating net additions as the rebuilt content pipeline hits the service in 4Q.” We continue to regard Netflix as the global streaming leader, a company with significant customer growth ahead of it and the potential to generate highly attractive returns. This translates into a financial profile with an EPS CAGR of 35-40% and even higher FCF growth.”

Q3 2021 earnings this week: what to expect 

Netflix (NFLX) stock forecast
Source: Getty Images

Investors will be looking for updates on airline volumes and labor shortages from United, American, and Southwest. The carriers, along with Chipotle and Procter & Gamble, are also expected to provide insight into supply chain challenges and rising costs that may affect consumers in the coming quarters.

Tuesday

Johnson & Johnson is scheduled to release earnings at 6:45 a.m. ET, followed by an analyst call at 8:30 a.m.

This quarter, Wall Street anticipates earnings to be about 7% higher than the previous year.

Under outgoing CEO Alex Gorsky, Johnson & Johnson will report under the cloud of criticism for how it handled the opioid crisis and the development of a comparatively less-effective Covid vaccine. Nonetheless, revenues in the company’s core segments have returned to pre-Covid levels, with the pharmaceutical segment benefiting from the one-shot vaccine. Immediate risks in the future include supply chain snafus and rising costs.

According to Bespoke Investment Group, J&J has a great track record on EPS reports, beating estimates 95 percent of the time, with particular success during the third quarter. On three of the last four reports, the stock has gained ground.

Procter & Gamble will release earnings for the fiscal first quarter of 2022 shortly before 7 a.m. ET, with an investor call scheduled for 8:30 a.m. ET.

Last quarter: PG exceeded earnings per share projections, but warned that cost pressures would weigh on future profits.

This quarter: Earnings are expected to be slightly lower than in the same period last year, according to analysts.

“This is the first quarter when Procter & Gamble will begin to see the impact of price hikes on products like Pampers diapers,” says restaurant reporter Amelia Lucas. The higher commodity and freight costs that caused the price increases are expected to cost the company $1.9 billion in fiscal 2022 earnings, so investors will be watching to see if the company’s outlook on inflation has changed. It’s also the last quarter under CEO David Taylor’s leadership before Chief Operating Officer Jon Moeller takes over.”

According to Bespoke, P&G has beaten EPS estimates and increased its share price in five of the last six quarters.

Netflix will release its earnings report at 4 p.m. ET, followed by its traditional pre-taped analyst interview at 6 p.m. ET.

Last quarter, NFLX outperformed on paid subscriber growth but fell short on earnings per share.

This quarter: The Street anticipates a nearly 50% increase in earnings per share over last year.

“This quarter is all about the ‘Squid Game’ effect,” says media reporter Alex Sherman. Netflix has advised investors to be patient following a slow first half of the year, claiming that its content in the second half of the year would be stronger due to pandemic shutdowns that delayed new series production. However, no one could have predicted how popular the Korean dystopian series would become. The question now is, “How many new subscribers did Netflix add as a result of its popularity?”

What history demonstrates: The stock has a difficult time meeting investors’ expectations. According to Bespoke, Netflix stock has traded lower in the session following earnings in nine of the last twelve quarters. The fourth quarter is typically the most profitable for the company, while the third quarter is the most volatile for the stock.

United Airlines will report earnings after the market close, but the company’s investor call will not take place until 10:30 a.m. the following day.

Last quarter, UAL reduced its quarterly loss and detailed plans to increase flight capacity.

This fiscal quarter: Analysts anticipate that United will continue to reduce its per-share quarterly losses this quarter and next.

What airlines reporter Leslie Josephs is keeping an eye on: “How will a rise in fuel prices affect United’s ability to turn a profit?” Delta warned last week that rising fuel costs would cause it to lose money in the fourth quarter. The good news is that travelers are returning, and international travel restrictions are gradually being lifted. That’s great news for United, which still has a sizable international network. Another thing to keep an eye on: the status of United’s grounded fleet of two dozen Pratt & Whitney-powered Boeing 777-200s, which have been out of commission since February due to engine failure near Denver.”

What history shows: The third quarter is United’s roughest for estimated comparisons, with the airline only meeting EPS and revenue projections 36% of the time. According to Bespoke, the stock has dropped after six of the last eight reports.

Wednesday

IBM is set to release its earnings report shortly after 4 p.m. ET, followed by an investor call at 5 p.m.

Last quarter, IBM reported its highest revenue growth in three years and outperformed on both the top and bottom lines.

This quarter, Wall Street expects earnings per share to be slightly lower than last year.

“The big news for IBM is the upcoming spinoff of its managed infrastructure business into a new company called Kyndryl,” says technology editor Ari Levy. However, IBM’s problem remains: where is the growth? While tech behemoths Microsoft, Amazon, and Google continue to drive cloud service adoption, IBM is on the outside looking in, with low-single-digit growth. Red Hat, which IBM purchased for $34 billion in 2019, has the remaining glass half-full investors excited because it is a real thriving software business. It remains to be seen whether IBM can successfully integrate it.”

What history demonstrates: IBM hasn’t missed EPS projections in seven years, but revenue comparisons are more mixed. According to Bespoke, the stock falls more often than it gains in next-day trading.

Tesla is expected to release quarterly results sometime between market close and 5 p.m. ET, followed by a conference call with analysts at 5:30 p.m. ET.

Last quarter, TSLA reported record net income and revenue growth of 74%.

This fiscal quarter: Analysts anticipate that Tesla’s earnings per share will more than double this quarter.

What Tesla reporter Lora Kolodny is keeping an eye on: “Last quarter, CEO Elon Musk stated that he would no longer lead these quarterly updates going forward, so he may choose not to speak at all on Wednesday.” Investors will want to know more about the now-delayed Cybertruck, Tesla’s progress on driverless technology following clashes with federal regulators, and whether CEO Elon Musk’s $25,000 electric car, which he teased last year, is still in the works. Supply chain issues, which have been a source of concern for all automakers, will also be discussed, as will the company’s custom 4680 battery cells and cryptocurrency strategy.”

What history demonstrates: According to Bespoke, the third quarter is typically strong for Tesla: the company beats on EPS 80 percent of the time and the stock gains an average of nearly 6 percent following Q3 reports.

Thursday

Southwest Airlines is scheduled to release earnings at 6:30 a.m., followed by an investor call at 12:30 p.m.

LUV struggled with cancellations and operational snags in the previous quarter, and warned that higher fuel prices would drive up costs in the third quarter.

This quarter: Wall Street expects another quarter of per-share losses before reaching a break-even point in the fourth quarter.

Leslie Josephs, an airline reporter, is keeping an eye on the following: “How much did Southwest’s meltdown earlier this month cost the airline?” The airline canceled over 2,200 flights, citing staffing shortages, bad weather, and air traffic control constraints. It’s scrambling to hire more people, but the chaos raises concerns about how it schedules crews and flights, which leaves little room for error. Another important question is how the airline is progressing in meeting a federal Covid-19 vaccine mandate for employees.”

According to Bespoke, Southwest shares have sold off after earnings for the past two quarters, snapping a fairly consistent streak of next-session gains.

American Airlines will release its earnings report at 7 a.m. ET, followed by an analyst call at 8:30 a.m. ET.

Last quarter: AAL ended a five-quarter losing streak, thanks in part to federal assistance.

This quarter: The Street anticipates a narrower per-share loss than the previous quarter.

“Investors will be watching how higher fuel prices and other costs associated with higher travel demand will weigh on America’s bottom line toward the end of the year,” says the airline’s reporter Leslie Josephs. Staffing levels are also critical as the United States races to hire to meet increased travel demand. Staff shortages contributed to summer disruptions, which the airline does not want to repeat during the peak holiday travel season. As the company scrambles to comply with a federal mandate that takes effect on December 8, executives will be pressed on how many employees have been vaccinated so far.“

What history shows: According to Bespoke, American has the best track record against EPS comparisons of any of the airlines reporting this week, beating analyst estimates 87 percent of the time. Nonetheless, on average, the stock trades essentially flat the day after an earnings report.

INTC beat estimates for EPS and revenue in the previous quarter, but guided toward lower margins in the third quarter.

This quarter, analysts predict earnings per share to be exactly the same as the previous quarter.

“Intel is in a period of large capital expenditure, as it builds new factories to manufacture its own chips and provide capacity for its burgeoning foundry business,” says technology reporter Kif Leswing. Lower margins may be acceptable to investors if Intel continues to outperform expectations in terms of earnings and sales, owing to strong demand for PCs. Last quarter, Intel reported a 33% increase in PC sales, but that trend may be changing as pandemic-driven PC sales for working and attending school from home begin to slow.”

According to history, Intel stock typically suffers a significant drop the day after an earnings report. According to Bespoke, shares have fallen in next-day trading in 8 of the last 12 quarters. Seven of the eight declines were greater than 5%.

Snap’s earnings report will be released at 4:10 p.m. ET, followed by an analyst call at 5 p.m.

Last quarter: SNAP outperformed Wall Street forecasts across the board, propelling the stock into the double digits.

This quarter: Wall Street anticipates a significant increase from Snap’s 1 cent EPS in Q3 2020.

“Investors will want to see Snap continue the good vibes from its blow-out quarter in July, when user growth and revenue far exceeded expectations,” says CNBC technology reporter Salvador Rodriguez. However, investors will be interested to see how Snap navigates Apple’s iOS 14.5 privacy changes and their implications for the company’s advertising business.”

What history demonstrates: Snap is by far the most volatile stock ahead of this week’s earnings. Shares have gained double digits the next day in 5 of the last 12 quarters.

Chipotle Mexican Grill will release earnings at 4:10 p.m. ET and hold an investor conference call at 4:30 p.m. ET.

Last quarter, CMG saw an increase in sales as dine-in customers returned to restaurants.

This fiscal quarter: Earnings are expected to be nearly 70% higher year over year, according to Wall Street.

“Chipotle’s sales have returned to pre-pandemic levels, but the burrito chain faces the same challenges as the rest of the restaurant industry,” says restaurants reporter Amelia Lucas. Food costs, labor shortages, and the impact of the delta variant on Chipotle customers’ behavior will be top priorities for investors.”

What history shows: Chipotle stock is at its lowest after an earnings report in the third quarter. According to Bespoke, shares drop an average of 1% in next-day trading, compared to 1% gains every other quarter.