Your portfolios in brief
Once a beloved stock, Netflix has, like several other names in this sector, lost a lot of value over the past few months. However, it remains a renowned company that has been able to constantly renew itself over the past few years, which makes it a rather attractive stock at its current price.
Investors were eagerly awaiting Netflix’s quarterly results, released Tuesday after the markets closed. The digital platform filed better-than-expected results, increasing its subscribers by 2.41 million combined with a 6% rise in revenue year-over-year to $7.93 billion.
Netflix also announced a new plan with advertising that will cost half the price of the current plan, $7 instead of $15.50. Indeed, an analysis by research firm Insider Intelligence estimates that adding advertising should increase the platform’s revenue. Next year, Netflix is expected to bring in more than $830 million from advertisers in the U.S. alone, and then more than $1 billion in the U.S. in 2024, according to Insider Intelligence. Investors have long analyzed the performance of Netflix based on the number of customers it adds each quarter. However, the company is trying to get them to consider more traditional financial metrics such as revenue.
Its stock lost more than 60% of its value before the publication of its results and gained 13% following its earnings. Offering a superb long-term opportunity following this rise, the stock represents 3.50% of our equity portfolio. Netflix’s performance last quarter created a wave of rising analyst estimates, which should help drive the share’s price higher over the upcoming weeks.
Markets in brief
It was an important week for US markets as earnings from large companies were eagerly awaited to better understand how the US economy is performing. Thus, most of the companies that filed this week announced profits as well as better forecasts for the fourth quarter, bringing a wind of confidence to the markets.
For example, Netflix, Bank of America and United Airlines all reported better than expected quarterly results. United Airlines said airline ticket sales have not slowed in the past quarter as customers have more flexibility to travel has many are still working from home.
“It’s a stronger start to the quarterly earnings season than expected so far both in terms of earnings growth and in terms of ‘surprises’ as we witnessed results beyond analysts’ expectations. This week’s upside results in the manufacturing sector support investors’ enthusiasm, because if there is an increase in industrial production, this could also contribute to lower inflation,” says our president and portfolio manager Philippe Pratte.
Snap’s earnings after the bell on Thursday caused many investors to dump stocks from social media sector as the company reported a drop in advertising revenue. Rising interest rates and inflation have reduced advertising spending by companies that focus on more established platforms such as Facebook or Google. Despite an increase in subscribers, Snap posted lower than expected results. Snap’s stock was down 29% at the open on Friday.
“Despite opening lower on Friday, the indexes regained momentum at the start of the session as short-term interest rates fell following less hawkish comments from some of the Fed’s governors. If the trend continues, we could end the week on a positive note” according to our president and portfolio manager Philippe Pratte.
Here is the average for the week of the three main indexes at 1 p.m. Friday.
And here's the average for the week for the TSX in Canada.
Canada
According to Statistics Canada, the Consumer Price Index in Canada posted an annual increase of 6.9%, compared to 7% in August. For a third consecutive month, inflation growth slowed, thanks in part to lower gasoline prices. However, food prices continued to rise in September, gaining 11.4% year-on-year. This is “the sharpest year-over-year increase since August 1981,” said the federal agency.
This new data has caused analysts to redirect their bets towards a bigger rate hike next week by the Bank of Canada. Indeed, markets now expect a 60% chance that the Central Bank will raise interest rates by 75 basis points.
Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
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