For anyone watching Netflix, recent moves by streaming services to cut costs could mean fewer movies, lower budget shows and, depending on your subscription, more ads. For anyone who buys a Tesla, its price-cutting measures will make it easier for customers, but harder for profit-seeking investors.
With both companies reporting results this week, Wall Street will see who still wants a Tesla, amid growing competition, and what kind of growth and viewership everyone can expect from Netflix as it recalibrates its streaming ambitions and is more focused on profitability after years of rapid growth.
Netflix Inc.
NFLX,
which reports first-quarter results on Tuesday, is trying to crack down on shared accounts, and analysts polled by FactSet see subscriptions coming in well below average. However, BofA analyst Jessica Reif Ehrlich said first-quarter results would “likely mark the low point” of the year, “reflecting the initial impact of password-sharing efforts in some markets.” .
Netflix will report as the growing influence of shareholders in the streaming universe raises questions about which shows and movies are being streamed, and for how long, as Wall Street tries to squeeze more net profits from an industry that boomed before and during the pandemic but burned cash and bogged down in the process. Netflix, with Walt Disney Co.
SAY,
laid off employees, while Warner Brothers Discovery Inc.
WBD
merges its holdings continuously.
“We expect Netflix to continue to limit spending, including seeking alternatives to past practices,” Wedbush analysts Alicia Reese and Michael Pachter wrote in a research note Thursday. “The company seems to us to be producing fewer feature films, which we’ve always considered a bad investment, and seems to be focusing on lower cost television content.”
“We’re also encouraged that Netflix is considering low-cost content such as workout videos, which we believe will be of great value to very low-cost subscribers,” they later added.
Analysts said they believe Netflix is well positioned as other streamers rethink their approach to expansion and finances. And they said Netflix “should be considered an extremely profitable, slow-growing company.” They also said Netflix’s decision to launch a cheaper ad-supported option was a “great move” after growth stalled in the US and Canada and the company’s business in Europe, the Middle East and Africa have reached saturation point.
For Tesla Inc.
TSLA,
which reports results on Wednesday, investors will focus on the price drop and its impact on margins. Still, Potter, an analyst at Piper Sandler, said Tesla was on a “warpath” and “maintained its aggressive approach to pricing,” and said investors “should expect declines in incessant prices continue”.
Base prices for Tesla’s Model S and Model X have fallen about $5,000, MarketWatch noted, as the electric vehicle maker attempts to stimulate demand. The company also sells a more affordable Model Y SUV.
“Tesla concerns over pricing and a run to the bottom persist as overall sentiment on the stock deteriorates given recent price declines after a brief period of stabilization,” said TD Cowen analyst Jeffrey Osborne. , in a footnote.
Tesla will report as the Biden administration tries to take a tougher stance on auto pollution. The EPA recently proposed new emissions restrictions intended to accelerate the use of electric vehicles, gradually reducing tailpipe emissions each year for vehicle model years 2027 through 2032. However, some analysts have said that the measures would drive up the prices of regular and electric vehicles.
This week in gains
The first-quarter earnings season will ramp up in the week ahead, with 60 companies in the S&P 500, including six in the Dow Jones Industrial Average
DJIA,
reporting quarterly results, according to FactSet. These companies will report as Wall Street analysts remain pessimistic about the quarter’s results and the prospect of another so-called “earnings recession” in which profits contract for at least two consecutive quarters.
“To date, the S&P 500 is reporting a -6.5% year-over-year earnings decline for the first quarter, which would mark the largest earnings decline reported by the index since the second quarter of 2020 (-31.6%) and the second consecutive quarter, the index has signaled lower earnings,” John Butters, senior earnings analyst at FactSet, said in a report Friday.
After investors cheered JPMorgan Chase & Co.
JPM
quarterly results on Friday — despite the collapse of Silicon Valley Bank and broader recession concerns — other banking giants, like Bank of America Corp.
BAC,
Goldman Sachs Group Inc.
GS
and Morgan Stanley
MS
report over the coming week. Just like Johnson & Johnson
JNJ,
after agreeing to pay up to $8.9 billion to settle dozens of lawsuits alleging its talc-based baby powder was linked to cancer. Charles Schwab Corp.
SCHW,
United Airlines Holdings Inc.
LAU
and AT&T Inc.
J
also report during the week.
Calls to put on your agenda
Supply chain update, anyone? Delivery prices have gone down. Social tensions have increased. Railway safety is under surveillance. Elsewhere in this sector, hedge funds are exerting pressure. Memories of the 2021 supply chain collapse are still fresh after causing shipping delays and putting a spotlight on the low-labor workforce that powers much of this distribution network.
Regardless, trucking and logistics company JB Hunt Transportation Services Inc.
JBHT
reported Monday, while railroad giant CSX Corp.
CSX
reports Thursday. Both companies report a decline in demand for goods last year as inflation changed consumer buying habits. They are also reporting after railway workers threatened to strike over what they said were inadequate sick leave policies. More recently, a group representing terminal operators at the Ports of Los Angeles and Long Beach alleged that dockworkers were disrupting day-to-day operations at the two huge import gates, as the workers’ union and terminal operators tried to hammer out a deal. Quarterly financial reports and earnings calls will offer a glimpse of what the year ahead has in store.
The number to watch
Credit card transactions, charges: Credit Card Providers Explore Financial Services
DFS
and American Express Co.
AXP
report on Wednesday and Thursday, respectively. Firms to report after Discover was hit in January after forecasting net credit card charges – a measure of debt a company doesn’t believe it will recover – that were worse than Wall Street expected expected. Similar to the results from the big banks, the results from American Express and Discover will tell us how much consumers are still spending and whether others are behind on their bills as recession worries prevail.