The first-quarter earnings season gathered pace this week. Whilst overall the trend so far has been positive, pricing power is key as profit margins are squeezed with businesses facing cost pressures from rising inflation.
The biggest high-profile loser was Netflix, which saw its share price tumble 35% on Wednesday. Netflix user numbers fell by 200k, and the company predicted a further fall of some 2 million this quarter. Having been the first major mover into the streaming space, there is now fierce competition from the likes of Disney+, Amazon Prime and Apple TV. It now appears a matter of time before the company cracks down on the frequent password sharing between friends and family (estimated to be as many as 100 million accounts), which could help see the user numbers grow once again. Netflix CEO Reed Hasting also revealed during the earnings call that they were considering changing their subscription model, “allowing customers who would like to have a lower price, and are advertising-tolerant, get what they want.”
Consumer goods supplier Procter and Gamble (owner of brands including Gillette, Pampers, and Ariel) made gains after it reported its biggest jump in sales in two decades and raised guidance for the year ahead. The results gave a boost to the sector with UK names Reckitt Benckiser and Unilever both higher ahead of their formal announcements next week.
In the week ahead, many of the large technology companies are due to report, and investors are keen to see if they can continue the strong revenue growth seen through the pandemic. On Tuesday, we will hear from Microsoft and Google owner Alphabet, while on Wednesday we will learn if the declining user base at Facebook continues as Meta reports. Thursday sees Apple, the largest company in the world, update earnings and offer insight as to how the lockdowns in China are affecting their supply chains. Whilst the numbers are important, investors will be keeping a close ear on the conference calls that follow for management guidance on the year ahead.
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John Naylor, Chartered FCSI – Head of Investment Committee