Netflix misses earnings, drops more than 20% after hours

For the first time in its history, Netflix reported a 200,000 count subscriber loss on Tuesday. That’s compared to the 2.73 MILLION that they were expected to add! The CEO blamed the losses on conflict in Eastern Europe (though, as we covered in this article, Russia only accounts for 0.45% of Netflix’s total subscribers), as well as growing competition in the space, and password sharing. The pain doesn’t stop there — Netflix expects to lose two million paid subscribers in the second quarter. On EPS and revenue:

EPS BEAT by $0.64: $3.53 vs. expected $2.89.

REVENUE MISSED by $0.15B: $7.78 billion vs. expected $7.93 billion.

The stock is currently down more than 25% after-hours — on it’s way to set a new 3 year low.

Source: Google Finance

Netflix, Tesla, Snap: The First Week Of Big Tech Earnings Begins

Source: Earnings Whispers

Tonight, Netflix will report earnings, followed by Tesla on Wednesday and Snap on Thursday. This will be just an appetizer before next week’s main course, where the four largest companies in the market (Apple, Microsoft, Google and Amazon) will be reporting their earnings. 

Last week saw a mixed set of reports for banks, where the effects of the Russian war and subsequent sanctions took a toll on some (JP Morgan) more than others (Bank of America). 

Netflix

The so-called “Russia effect” will be in full focus yet again this week as investors look for continued subscriber growth in Netflix.

It’s anyone’s guess what the effect might be. However, it’s worth noting that only about 1 million of Netflix’s subscribers come from Russia — only 0.45% of Netflix’s 221.8 million subscriber base. 

Netflix bulls will want to avoid any semblance to their last earnings report in January, where the stock fell more than 20% in a single day. Currently trading down more than 50% from its November high, a positive earnings surprise here could help Netflix cover some of that ground. 

Netflix’s implied move at the time of writing was 10.04%, compared to a prior earnings move of -21.79%. The street expects Netflix to post an EPS of $2.92 and Revenue of $7.94B.

Tesla

One business that likely won’t suffer from the “Russia Effect” is Tesla. The top EV business is one of the only mega cap companies not to cut ties with Russia — despite requests from many to stop doing business with Russia, with some even asking Elon Musk to deactivate Tesla’s in Russia. 

That said, against the backdrop of a continually tightening supply chain, many automakers have had trouble securing enough semiconductors for their vehicles. Thus far, a tight supply chain has not been an issue for Tesla. The company has taken several in-the-moment decisions for this to be possible, from cutting steering components to securing private deals for precious metals.

As a result, Tesla posted massive year-over-year net income growth last quarter (759.63%), as well as a firm beat on EPS and Revenue (6.88% and 6.49% respectively). Still, the stock ultimately fell the day after the report. 

Tesla’s implied move at the time of writing was 5.98%, compared to a prior earnings move of -11.55%. The street expects Tesla to post an EPS of $2.27 and Revenue of $17.84B.

Snap Inc.

One stock that is no stranger to outsized earnings reactions is Snap. In October of 2021 (the massive gap down in the chart above) the stock lost 26.59% of its value after missing revenue expectations by just 2.91%. After its most recent earnings report, the stock gained 58.82% in a single day. 

Despite its propensity for strong earnings moves, the implied move in this name is just 18.02%. That’s still higher than Netflix or Tesla, but considerably lower than either of its recent earnings moves. The street expects Snap to post an EPS of $0.01 and Revenue of $1.07B.

With roughly 8 million Russian users, it will be interesting to see whether the company’s halt in Russian and Belarus-based revenue takes a toll this Thursday. 

The Bottom Line

This is an important week representing the earnings outlook not only for the tech sector, but for growth stocks as a whole. The potential for growth stocks to continue satisfying their high earnings expectations has been called into question as of late, particularly against the backdrop of rising rates and red-hot inflation. 

These three companies carry a combined average price-to-earnings ratio of roughly 101x — compared to a US market average of 17.1x. So the results of this week, whether positive or negative, will likely cause cascading price action in similarly high-P/E stocks.