First-quarter earnings season ramps up this week, with several closely watched technology companies set to report results. This week's economic data reports will be relatively light, and members of the Federal Open Market Committee will enter their quiet period before their next meeting and monetary policy decision at the end of the month.
So far, corporate earnings have exceeded Wall Street's already elevated expectations. Last week's reports were dominated by the big banks, with JPMorgan Chase (JPM), Goldman Sachs (GS) and Morgan Stanley (MS) each reporting record results as strong stock and bond trading demand and rising interest rates boosted results.
Heading into last week, FactSet estimated that S&P 500 companies would report aggregate earnings per share growth of 28% for the first quarter, for the biggest jump in more than a decade. Of the handful of S&P 500 companies that reported results last week, none issued negative earnings per share guidance for the second quarter, while five offered positive guidance, according to FactSet's John Butters.
This week, some of the major technology companies will post results.
For 2021 to date, tech stocks cooled their gains after last year's rally, in a reversal from these stocks' leadership in 2020. Traders rotated away from the high-growth names that already saw strong run-ups last year, turning instead to cyclical and value stocks that might start to see some upside as the economy recovers. Through Friday's close, the energy, financials, materials and real estate sectors were the top performers in the S&P 500.
Netflix (NFLX) and Snap (SNAP) will be among the major names reporting results this week. The former especially has become synonymous with the "stay-at-home" trade, or the cohort of stocks that have benefited from consumers spending more time indoors during the pandemic, and which might be at risk for some slowing momentum once more areas of the economy reopen.
"Our data points indicate solid, if not spectacular, demand for the service, though we see increased near-term risk from pandemic reopenings and recent price increases," Raymond James analyst Aaron Kessler wrote in a note Friday.
"While we continue to view Netflix as a long-term winner in the video-on-demand space, we remain hesitant around near-term factors including 1) risk to the pace of subscriber additions post-pandemic; 2) the pandemic's effects on content releases into 2021; and 3) the impact of price releases on subscriber retention, especially given scaling of competing direct-to-consumer services, most of which are priced at a discount to Netflix," Kessler added.
Disney (DIS), for instance, recently raised its U.S. prices for Disney+, one of the most formidable streaming competitors to Netflix, to $7.99 per month. But even after the price hike, the service remains cheaper than the $13.99 per month for Netflix's most popular standard streaming plan. And Disney+ topped 100 million subscribers as of early March, ballooning to about half of Netflix's more than 200 million subscribers within a year-and-a-half of launch.
Netflix's own subscriber guidance for its first quarter results assumes a sharp slowdown in growth compared to the same period last year, when the start of COVID-19 lockdowns helped fuel a surge in sign-ups. The company said it expected to see 6 million new subscribers for the first quarter of 2021, compared to the quarterly record of 15.8 million new paying users added in the first three months of last year.
"While 'tough comps' have kept Netflix in check, we think their passing will refocus investors on the 'new plateau' in streaming and the emerging FCF [free cash flow] and capital return story," BMO Capital Markets analyst Daniel Salmon wrote in a note Friday.
According to Bloomberg data, consensus analysts expect Netflix to post GAAP earnings of $2.97 per share on revenue of $7.13 billion for the first quarter, representing top-line growth of 24% year-over-year. Thirty-three analysts rated Netflix's stock as a Buy, while seven rated it as Hold and five as Sell. Netflix shares have risen 0.5% for the year-to-date, following a 67% jump in 2020.
For social media company Snap (SNAP), the impact of the economic reopening on the company's stock is equivocal. Though Snapchat's usage got a boost with users staying inside on their devices during the pandemic, the company's operating results also stand to benefit from a pick-up in advertising spending and live events that would require marketing.
Taken together, Wall Street is still expecting to see another strong quarter for Snap, albeit with some possible slowing momentum compared to 2020. Revenue is expected to grow 60% year-over-year to $742.13 million, slowing only slight from the 62% rate in the fourth quarter of last year, which had marked Snap's biggest sales jump since going public in 2017. And daily active users are expected to grow another 20% to 275.3 million, after growing by the same margin in the first quarter of last year.
According to Cowen analyst John Blackledge, some of the key drivers of Snap's first-quarter results will be persistently strong user growth and ramping direct response advertising, which is centered on engagement and has helped drive higher pricing for Snap's ad business. Blackledge rates the stock as Outperform with a price target of $88.00, implying additional upside of more than 40%.
"Per our most recent ad buyer survey, Snap is benefiting from increased auction pricing and strong interest in its direct response offering," Blackledge wrote in a note released on April 15. "We expect daily active users to grow 7% annually '21-'26, coupled with rising advertising monetization of the platform, to drive revenue growth and higher incremental margins over time."
Tuesday: Johnson & Johnson (JNJ), Harley-Davidson (HOG), Abbott Laboratories (ABT), Procter & Gamble (PG), Lockheed Martin (LMT), Philip Morris (PM) before market open; Netflix (NFLX) after market close
Wednesday: Anthem (ANTM), Nasdaq (NDAQ), Halliburton (HAL), Verizon Communications (VZ) before market open; Whirlpool (WHR), Chipotle (CMG), Spirit Airlines (SAVE), Las Vegas Sands (LVS) after market close
Thursday: Dow Inc (DOW), DR Horton (DHR), Alaska Air Group (ALK), Blackstone (BX), AT&T (T), Quest Diagnostics (DGX), American Air Lines (AAL), Valero Energy (VLO), Biogen (BIIB), Southwest Airlines (LUV), Union Pacific (UNP) before market open; Boston Beer Company (SAM), Snap (SNAP), Intel (INTC) after market close
Wednesday: MBA Mortgage Applications, week ended April 16 (-3.7% during prior week)
Thursday: Chicago Fed National Activity Index, March (-1.09 in February); Initial jobless claims, week ended April 17 (638,000 expected, 576,000 during prior week); Continuing claims, week ended April 10 (3.731 million during prior week); Leading index, March (0.7% expected, 0.2% in February); Existing home sales, March (-0.3% expected, -6.6% in February); Kansas City Fed Manufacturing Activity Index, April (26 in March)
Friday: Markit U.S. Manufacturing PMI, April preliminary (60.3 expected, 59.1 in March); Markit U.S. Services PMI, April preliminary (61.5 expected, 60.4 in March); New home sales, March (875,000 expected, 775,000 in February)
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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