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For anyone who watches Netflix, the streaming services’ recent moves to cut costs could mean fewer movies, lower-budget shows, and — depending on your subscription — more advertising. For anyone buying a Tesla, price-cutting measures will make it easier for customers but harder for for-profit investors.
With both companies reporting results this week, Wall Street will be taking a look at who still wants a Tesla despite growing competition, and what kind of growth and viewership everyone can expect from Netflix as it recalibrates its streaming ambitions and expands years of rapid growth focused on profitability.
Netflix Inc.
NFLX
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which reports first-quarter results on Tuesday is trying to crack down on shared accounts, and analysts polled by FactSet are seeing subscriptions well below average. However, BofA analyst Jessica Reif Ehrlich said first-quarter results would likely mark “the bottom” of the year, “reflecting the initial impact of password-sharing efforts in select markets.”
Netflix will report that shareholders’ growing grip on the streaming universe is raising questions about which shows and movies are streaming and for how long, as Wall Street seeks to squeeze more profits from an industry that was booming before and during the pandemic, but burned cash and was overfilled in the process. Netflix and Walt Disney Co.
DIS
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have laid off employees while Warner Brothers Discovery Inc.
WBD
merges its streaming holdings.
“We expect Netflix to continue to rein in its spending, particularly by seeking alternatives to its 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-length films, which we’ve always viewed as a bad investment, and appears to be focusing on lower-cost television content.”
“We are equally encouraged that Netflix is looking for low-cost content such as training videos, which we believe will offer great value to subscribers at a very low cost,” they later added.
Analysts said they think Netflix is well-positioned while other streamers are reconsidering their approach to expansion and finances. And they said Netflix “should be valued as an immensely profitable, slow-growing company.” They also said that Netflix’s decision to introduce a cheaper ad-supported option was a “great decision” after growth stalled in the U.S. and Canada and the company’s business in Europe, the Middle East and Africa reached saturation point have achieved.
For Tesla Inc.
TSLA
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which released results on Wednesday, investors’ focus is on price cuts and their impact on margins. Still, Potter, an analyst at Piper Sandler, said Tesla is on a “warpath” and “maintains its aggressive approach to pricing,” and said investors “should expect unrelenting price cuts.”
Base prices for Tesla’s Model S and Model X have fallen by around $5,000, according to MarketWatch, as the electric vehicle maker tries to stimulate demand. The company also sells a lower-priced Model Y SUV.
“Tesla’s concerns about pricing and a race to the bottom continued as general sentiment towards the stock eased after a brief period of stabilization given recent price cuts,” said Jeffrey Osborne, analyst at TD Cowen, in a statement .
Tesla will report as the Biden administration tries to take a tougher stance on car pollution. The EPA recently proposed new emissions limits intended to accelerate the adoption of electric vehicles by incrementally reducing tailpipe emissions each year for vehicle model years 2027 through 2032. However, some analysts said the measures would push up prices for both regular and electric vehicles.
This week in the result
The first quarter earnings season will pick up steam in the coming week with 60 S&P 500 companies including six from the Dow Jones Industrial Average
DJIA
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Reporting quarterly results as per FactSet. These companies will report as Wall Street analysts remain bearish on quarterly earnings and the prospect of another so-called “earnings recession,” in which earnings contract for at least two straight quarters.
“As of today, the S&P 500 is reporting a -6.5% year-on-year earnings decline for the first quarter, which would represent the largest earnings decline the index has reported since the second quarter of 2020 (-31.6%) and the second quarter For the third quarter, the index reported a decline in earnings,” said John Butters, senior earnings analyst at FactSet, 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 fears — have other banking giants including Bank of America Corp.
BAK
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Goldman Sachs Group Inc.
GS
and MorganStanley
MS
report next week. So does Johnson & Johnson
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after agreeing to pay up to $8.9 billion to settle numerous lawsuits alleging its talc baby powder has been linked to cancer. Charles Schwab Corp.
BLACK
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United Airlines Holdings Inc.
UAL
and AT&T Inc.
T
also report during the week.
The calls that you can enter in your calendar
Supply chain update, anyone? Shipping costs have gone down. Working tensions have risen. Railway safety is under scrutiny. Elsewhere in this industry, hedge funds are exerting pressure. Memories of the 2021 supply chain collapse are fresh after it led to shipping delays and spotlighted the low-labor work that drives much of this distribution network.
The freight forwarding and logistics company JB Hunt Transportation Services Inc.
JBHT
reported Monday while railroad giant CSX Corp.
CSX
reports on Thursday. Both companies report a decline in demand for goods over the past year as inflation changed consumer spending habits. They also report after rail workers threatened to go on strike over what they believed to be inadequate health insurance policies. More recently, a group representing terminal operators in the ports of Los Angeles and Long Beach allegedly that dockers disrupted daily operations at the two giant import gateways while the union and terminal operators try to negotiate a deal. The quarterly financial reports and conference calls on the results provide an outlook for the coming year.
The number to watch
Credit card transactions, debits: Credit card provider Discover Financial Services
DFS
and American Express Co.
AXP
Report Wednesday or Thursday. The companies will report after Discover suffered a setback in January after forecasting net credit card charges — a measure of debt a company doesn’t think will be repaid — that were worse than Wall Street 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 more are falling behind on their bills on the back of recession fears.