Netflix, Qualcomm, Facebook, Apple and Amazon
A number of high-profile stocks have already made headlines this earnings season. But arguably the most important reports are yet to come, given that big names in technology are set to report over the next two weeks.
Even if you think you’re not a tech investor because you’re in index funds, you want to pay attention to these reports.
The S&P 500 SPX, -0.16% is now dominated by big tech stocks, with just five megacap tech stocks representing almost 14% of the entire index. The Nasdaq-100 NDX, +0.02% is even worse, with Apple Inc. AAPL, +0.09% alone sucking up nearly 12% of the weighting.
These five companies are particularly worth watching because they are poised to move big on upcoming results. And depending on the numbers, that move may not be in an upward direction. Mark your calendar.
Netflix on Jan. 22
Netflix Inc. NFLX, +0.19% is coming off an amazing report last quarter, with higher-than-expected subscriber numbers lifting the stock to a new all-time high. All indications are that earnings will be tremendous yet again, which could fuel a continued rally for the stock.
Netflix has forecast 6.3 million additional subscribers, which would set another record. As always, this number is the most important for investors to watch because Wall Street is focused on scale right now and not necessarily profits.
However, the bottom line may be worth paying attention to as well. Netflix recently raised subscription costs to fuel its international expansion efforts and fund new content like “Stranger Things” and “The Crown” that have been so successful. It will be interesting to see the impact of this move.
For the record, I’m worried Netflix faces some serious risks in the next year or two as competition heats up. However, the deck is stacked nicely in the short term, and I expect another beat and a continued rally in the coming weeks.
Qualcomm on Jan. 31
Qualcomm Inc. QCOM, +0.04% has been up and down over the last two years, but largely a disappointment to investors who didn’t time the uptrends right. That’s very disappointing, seeing as chip stocks have been on a tear lately, with the iShares PHLX Semiconductor ETF SOXX, +0.45% up an amazing 48% in the last 12 months.
Some of the recent trouble includes a $1 billion lawsuit filed by Apple over royalties, the inability to close a proposed buyout of NXP Semiconductors NV NXPI, +0.55% and unfavorable rulings and fines from regulators overseas. Throw in a hostile takeover bid from Broadcom Ltd. AVGO, +1.50% and things look ugly.
But the clouds recently have started to part. In fact, one analyst said the Broadcom move is a “gun to the head” of management to get their act together. And some continue to hold out hope that the NXP deal will close very soon. That may set the stage for a move higher, if only the numbers are solid in this upcoming report.
Qualcomm stock has surged 30% since November thanks in part to renewed optimism. But it will be crucial for the company to reinforce that positive narrative — or else we could see the bottom drop out again.
Facebook on Jan. 31
Facebook Inc. FB, -0.11% has softened up lately on the announcement that it will be making some big changes in user newsfeeds, in part a reaction to the presence of fake and misleading articles on its platform over the last few years. But in the coming earnings report, investors will be more focused on how it did last quarter then how the social media portal may change going forward.
That may also create some trouble, but for different reasons. Back on Nov. 1, Facebook blew away expectations with its best earnings ever… but warned investments “will impact our profitability” going forward. That includes spending on security measures as well as hiring as many as 10,000 additional workers.
The biggest boon to investors in Facebook has been the company’s continued growth in profitability now that it has reached what is arguably critical mass for its social network. After all, with some 1.4 billion daily active users worldwide and over 2 billion folks logging in daily, it’s getting really hard to imagine Facebook scaling up significantly.
Facebook stock has been in a prolonged uptrend, so it will be interesting to see if earnings reinforce that long-term narrative, or if softness adds to recent declines.
Apple on Feb. 1
Apple always is an important stock to watch around earnings season, but it’s particularly important to pay attention when numbers are delivered each January. That’s because Apple has gotten accustomed to launching new iPhones at the end of the year, and the gadget represented roughly 61% of net sales in fiscal 2017.
The iPhone X went on sale in November to reasonably good buzz, but not without supply-chain issues. There were fears that initial demand may not have been met in December, so it will be important to see whether Apple delivers — and, if not, whether that demand gets pulled forward.
Perhaps even more interesting to investors is the prospect of higher dividends and a more aggressive buyback strategy. The massive corporate tax cuts passed by Congress late last year is a boon to cash-rich profit machines like Apple, and Wall Street expects the tech giant to share its good fortune with shareholders.
A one-two punch of strong earnings and a big return of capital could spark an impressive rally for the stock.
Amazon on Feb. 1
This earnings report from Amazon comes on the same day as Apple’s. And after a killer end to 2017, investors are looking for some impressive results in Amazon’s fiscal first-quarter report.
It’s not just because Amazon is the default choice for many Americans doing their holiday shopping. It’s also because its Amazon Prime subscription service continues to prove it is increasingly a way of life for many consumers.
Last year, Amazon started revealing sales booked under its “subscription services” arm that includes Prime memberships. Last quarter, that tally was $2.4 billion — up roughly 60% from $1.5 billion a year ago — and we’re sure to see continued growth yet again here. An impressive trend here could result in an impressive move for the stock.
To a lesser extent, investors will also be watching the bottom line. Profits have never been the top priority as Amazon spends aggressively on growth, but it’s noteworthy that the highly profitable Amazon Web Services division is what previously drove real earnings for shares. However, after leveling off overall spending in 2016 it was off to the races again in 2017 thanks to both the acquisition of Whole Foods, a big investment in a Kentucky cargo hub and other efforts.
Scale and growth is still the biggest driver for Amazon. But spending and investment trends are still worth watching, too, since they have a tendency to really create volatility in earnings per share and move the stock price.