Stock week ahead: Netflix’s most consequential earnings report is coming

The streaming giant is set to announce its second-quarter earnings on Tuesday, and it’s shaping up to be one of the most momentous moments in the company’s 25-year history.

Whatever happens on Tuesday could reshape the future of the company as well as the entire streaming sector. Like Netflix, so does streaming.

“It’s going to take hell if they report a number significantly higher than the 2 million losses that’s being thrown around,” Andrew Hare, Magid’s senior vice president of research, told CNN Business.

The streaming market is mature and saturated, Hare noted. So investors will be wondering, “What’s next and where will the growth come from?”

Netflix is ​​pinning its hopes on a possible savior: advertising.

The company announced on Wednesday that it will be working with Microsoft on a new, cheaper ad-supported subscription plan. Though Netflix’s CEO Reed Hastings has been allergic to the idea for years, advertising is now a key part of Netflix’s plans to grow revenue in the future. The new tier will reportedly arrive before the end of 2022, but Netflix admits its burgeoning advertising business is still in the “very early days.”

The company is also focused on curbing password sharing and focusing on creating compelling content to turn the tide.

But does that matter when Tuesday’s numbers are so lackluster that Wall Street is turning its back on Netflix?

“Once Netflix is ​​severely undervalued by the market, all bets are off,” Hare said.

However, the streamer has a few things in its favor.

For starters, it’s still Netflix — the streaming market leader with 221.6 million subscribers worldwide. It also reports numbers in a market that presents factors beyond Netflix’s control, such as: B. rising inflation. So it has these excuses that it can rely on to potentially soften the blow to investors.

“Investors will give them time to put the ship in order, but they need to hear more solid plans for the path to immediate growth,” Hare said. “It’s about communicating how they’re moving the business forward to make sure they keep winning in streaming… Nobody has the stomach for a company that’s losing millions of subscribers every quarter.”

Wall Street CEOs wrestle with the “R” word

Big banks opened earnings season last week, placing executives in front of investors and the media for questioning.

The relationship was fairly predictable: Bank executives want to discuss things like net interest margin and credit reserve building. Everyone else had only one thing on their mind: recession.

There’s no denying the economy is the story, and investors believe banking titans are co-authors. They want to know what happens next.

So here’s what we’ve shined so far on the state of the economy to come.

Jamie Dimon, CEO of JPMorgan:

Geopolitical tensions, high inflation, dwindling consumer confidence, uncertainty about how high interest rates must rise, and unprecedented quantitative tightening and its impact on global liquidity, combined with the war in Ukraine and its damaging impact on global energy and food prices are very likely to have a negative impact on the global economy at some point.

James Gorman, CEO of Morgan Stanley:

We could be headed for some kind of recession – and I’ve tried, like many others, to stall it, but we’re honestly guessing at this point, but I think it’s unlikely, at least in the US, that there’ll be a deep and dramatic recession will I think Asia is lagging behind a bit. It depends on how COVID is introduced and it’s reappearing a bit in some countries. And then Europe is obviously fighting the hardest right now because of the war in Ukraine, because of the pressure on gas and gas prices and so on.

Jim Herbert, CEO and Founder of First Republic Bank:

The Fed needs to catch up. They’re behind and they’re doing it — they probably will be doing it pretty quickly. So I think you’re probably going to see that the recession is likely to come in some form and stabilize a lot of the excesses. I don’t think it’s overly threatening to us… I think we might be in the second or third innings of what it will take to get inflation under control. That would be my personal opinion.

Robin Vince, President and CEO-elect of BNY Mellon:

You’ve all seen these charts. The S&P 500 had its worst first-half performance in over 50 years, and 10-year government bonds had their worst start to the year since the index began in the early 1970s. And with 150 basis points of rate hikes, this is the fastest tightening cycle over six months since the Volcker era in the late 1970s. Amidst these headlines, we see on our platforms that investors are clearly rebalancing and de-risking. We are seeing a reallocation of assets from growth to value, higher than expected cash balances and relatively low market liquidity making it harder for investors to take risk.

Charles Sharp, CEO of Wells Fargo:

You are really looking at a set of scenarios to think about and include in your modelling. And we’ve had a significant downside bias for several consecutive quarters. And some of those scenarios are pretty serious, right? And so you have weights for what some would call a wild recession, more severe recessions, so you could make a lot of labels for them. But there are a number of scenarios that have varying degrees of disadvantage severity.

Citigroup CEO Jane Fraser:

While sentiment has changed, little of the data I see tells me the US is on the brink of recession. Consumer spending remains well above pre-Covid levels, with household savings providing a cushion for future stress. And as any employer will tell you, the labor market remains very tight.

I’ve just come back from Europe where it’s a different story. We anticipate a very difficult winter due to disruptions in the energy supply. There is also increasing concern about second-order effects on industrial production and how this will affect economic activity across the continent. And, of course, the mood is further dampened by the belief that the war in Ukraine will not end any time soon.

Next

Monday: Bank of America and Goldman Sachs announce Q2 results

Tuesday: June building permits; Netflix reports earnings

Wednesday: June Sale of Existing Homes; Tesla reports profit

Thursday: Philadelphia Fed Manufacturing Index

Friday: S&P Global Flash US Composite PMI

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