Netflix (NFLX) is set to report earnings after the bell Tuesday, and investors are cautiously optimistic that the world’s largest streaming service can continue to keep its competitors at bay. But that task is growing increasingly difficult.
What’s happening: Netflix has 158 million subscribers worldwide, dwarfing its competition. For years, it was able to put plenty of sunlight between it and its rivals by spending big money on original content and using computer wizardry to determine just what kind of shows its customers wanted to watch. (People seem to like true crime documentaries, social media sleuths and cats.)
That competition has hurt Netflix’s stock.
Netflix’s stock is down nearly 4% over the past year, a particularly dreadful performance given the S&P 500 gained about 29% in 2019. The stock has rebounded significantly in the past several months, however: It’s up 5% in January and has gained nearly 16% since late October.
The competition: The company restored some confidence in investors after posting relatively solid subscriber additions in the third quarter. But that was before Disney+ launched in November and “The Mandalorian’s” Baby Yoda character warmed the hearts of millions of Star Wars’ fans.
So the fourth quarter — the first in which Netflix went head-to-head with Disney+ — was the true test. The company is optimistic: It estimated that 7.6 million new subscribers signed up for Netflix during the last three months of 2019.
What investors are watching: Wall Street will pay close attention to whether or not Netflix can hit that lofty target. But it will also keep a close eye on Netflix’s profit margin. The company spent $18 billion on original content over the past year. Although Netflix remains profitable, it’s not exactly churning out earnings.
If Netflix misses its targets, the stock could go on a bumpy ride: The stock rose or fell by an average of 7% the day after it posted earnings over the past four quarterly announcements, according to Refinitiv. That includes a more-than-10% dip in the second quarter after the company said it missed its subscriber targets. So take something to soothe your stomach this afternoon.
Asian markets rocked by coronavirus
China confirmed that the Wuhan coronavirus — a disease that has killed at least six people and sickened hundreds in the country — can be transmitted between humans.
There have been no confirmed cases of the virus in Hong Kong. But there have been 14 cases in neighboring Guangdong province, including one in nearby Shenzhen. Taiwan has reported its first case after a woman fell ill after stepping off a flight from Wuhan.
Asian markets took a beating Tuesday: China’s Shanghai Composite (SHCOMP) slumped 1.4%, while South Korea’s Kospi (KOSPI) and Japan’s Nikkei 225 (N225) closed down 1% and 0.9%, respectively.
More pain: Adding to pressure on Hong Hong stocks was a credit-rating downgrade by Moody’s, which cut the city’s long-term rating by one notch to Aa3 from Aa2.
“The absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody’s had previously assessed,” Moody’s said.
Global growth expectations are … growing
A day after the International Monetary Fund slashed its global growth forecast, Bank of America released a survey of investors who say they are increasingly bullish on the world economy.
The net percentage of investors who expect growth to improve this year grew by seven percentage points to 36% in Bank of America’s January survey, the bank said Tuesday morning. That’s the highest percentage since February 2018.
The IMF now expects 3.3% growth in 2020, down from its 3.4% projection in October.
Capital One (COF), IBM (IBM), Netflix, and United Airlines (UAL) report results after US markets close.Coming tomorrow: Earnings season marches on with results from Johnson & Johnson (JNJ) and Texas Instruments (TXN). The latter will shine a light on the health of American chipmakers.
Correction: An earlier version of this story incorrectly described the percentage of investors in the Bank of America survey.