Head of Equity Strategy
Summary: Netflix disappointed investors yesterday with a fiscal outlook for operating margin that was 3-4%-points below consensus and the punishment was harsh with the stock down 20% in extended trading. It highlights how important it is for companies to meet profit expectations now that interest rates are on the rise. Peloton, another pandemic darling, came out yesterday with the announcement that it is delaying a factory opening and considering laying off employees in a sign that demand is coming off. Finally we take a look at Siemens Gamesa which is getting hit hard by inflation and logistical issues, and highlights the most important earnings releases next week including Microsoft, Tesla, and Apple.
Pandemic darlings under pressure
Netflix and Peloton were among the big losers in yesterday’s session. They were the pandemic darlings, but reopening headwinds have hit both companies on top line growth. Netflix shares were down 20% in extended trading on Q4 earnings on a weak outlook. Q4 EPS was $1.33 vs est. $0.81 and revenue in line with estimates, but the outlook was disappointing with net subscriber additions in Q1 guided at 2.5mn vs est. 6.3mn and EPS of $2.86 vs est. $3.37. But the most disappointing against consensus was the fiscal year operating margin target of 19-20% vs 23% expected. The market reaction is a replay of DocuSign in December where investors are punishing companies that cannot meet operating margin expectations. The narrative will short-term focus on lack of subscriber growth so Netflix should begin focusing less on user metrics and more on free cash flows going forward.
Peloton was a pandemic darling as people favoured their tread bikes to exercise during the lockdown in the US. But as society has reopened sales growth has stalled and yesterday’s preliminary Q2 figures (ending 31 Dec), showed revenue in line with estimates but is delaying an opening of a $400mn factory which was expected to meet demand and the delay and management talks about layoffs can only be viewed as signs that demand is coming off rapidly.
Siemens Gamesa shows how real inflation is
The world’s largest manufacturer of offshore wind turbines published FY22 Q1 (ending 31 Dec) earlier this morning which was grim reading for investors. Underlying operating profit was negative €309mn and the fiscal year guidance is now -4% to +1% on underlying EBIT margin which significantly below where consensus was looking for €206mn in EBIT which is an EBIT margin of a little more than 2%. The problems for the industry has persisted for more than a year which includes difficulties sourcing components, factory delays due to Covid-19, logistics nightmare, and generally rising input costs such as rising steel prices. Wind turbine manufacturers are raising prices to offset rising input costs but it has the negative consequence of reducing order intake creating a double whammy for investors. While the green transformation will continue to ensure high long-term growth for this industry the narrative is clearly negative in the short-term.
Earnings season shifts gear next week
Next week 177 companies report earnings out the around 2,500 companies we track during the earnings season. The list below shows the most important earnings releases measured against interesting themes to watch and those that can either move the overall market or an industry. The three most important earnings releases are from Microsoft (Tuesday), Tesla (Wednesday), and Apple (Thursday).
Monday: IBM, Philips, Halliburton
Tuesday: Coloplast, Atlas Copco, Ericsson, Microsoft, Johnson & Johnson, NextEra Energy, Texas Instruments, American Express, General Electric, 3M, Moderna,
Wednesday: Christian Dior, Nidec, FANUC, Lonza Group, Tesla, Abbott Laboratories, Intel, Boeing, Freeport-McMoRan, Southern Copper
Thursday: LVMH, STMicroelectronics, Sartorius, SAP, Deutsche Bank, Unicredit, Diageo, Apple, Visa, Mastercard, McDonald’s
Friday: Volvo, H&M, Givaudan , Chevron, Caterpillar, Colgate-Palmolive
The end of the road
Emboldened by surging crude oil prices, Saudi Arabia makes waves on the international stage, as Crown Prince Mohammed bin Salman manages to create a World Champions League, after buying the UEFA Champion League franchise.
As the world embraces GLP-1 obesity wonder drugs, the people next in line to get a prescription stop caring about dieting and exercising, figuring that the drug will later solve all of their weight-related health problems.
With the US budget deficit spiraling above 10% of the GDP, the government is desperate to foster demand for US Treasuries. Under intense pressure from the White House, Congress makes income from government bonds tax-free.
After a criminal group deploys the most deceptive AI deepfake ever seen, generative AI becomes a national security threat. With public distrust soaring, governments crack down with harsh new laws, puncturing the AI hype.
To fix the divergence in the global trade and financial system, the largest deficit countries unite to negotiate new world trade terms. For surplus countries, the reset of the global economic model is a painful adjustment.
As discontent with Biden and Trump rises to fever pitch, Robert F. Kennedy Jr sees his support rising inexorably in the polls. On November 5, Kennedy wins the US presidential election, ushering in a new era in US politics.
Stepping up Japan's economic transformation in 2024, PM Kishida brings in a host of populist policies to boost domestic demand. As the GDP growth rate hits 7%, the BoJ is forced to abandons its yield curve control policy.
As people wake up to how little tax Europe’s billionaires are actually paying, the EU Commission implements a wealth tax of 2%. The tax sends shockwaves through Europe's luxury industry, with luxury giant LVMH plunging 40%.
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)
