This week will accelerate the earnings season for the second quarter, giving investors a more complete picture of the magnitude of the corporate earnings recovery as social distancing standards eased. Data on the housing market is also central.
So far, companies are exceeding already high expectations for second-quarter results. About 8% of the S&P 500 companies have reported results to date, mostly banks. And of those who report, 85% have exceeded estimates, according to FactSet data.
One of the most watched quarterly reports this week comes from Netflix (NFLX) on Tuesday. As the first of the “FAANG” names to publish results, the report will set the tone for the other Big Tech companies left to publish their quarterly results.
Investors are nervous about Netflix’s second-quarter earnings report after a sharply disappointing first quarter, in which the streaming giant added fewer than 4 million new paying subscribers, compared to its projected 6.3 million. At its peak during the pandemic, Netflix had nearly 15.8 million new subscribers in one quarter. In April, Netflix the subscriber wrote wrong in the first quarter to “the big COVID-19 gain in 2020 and a lighter content slate in the first half of this year, due to delays in COVID-19 production.”
Netflix said it was expected to add just 1 million new subscribers for the April through June quarter. The company added more than 10 million new paying users in the same period of 2020, when the pandemic still largely kept consumers at home in search of entertainment.
But the slowing pace of adding new subscribers to Netflix has accompanied the platform’s maturation in key markets. With nearly 208 million subscribers worldwide, Netflix is still the clear US leader in streaming content, followed by a wide margin by Disney+ with 103.6 million subscribers. And Disney’s streaming competitor also missed estimates for new subscriber additions at the start of the year, underscoring the industry-wide slowdown following the record flow of customer sign-ups during the height of the pandemic.
“Netflix has a significant first-mover advantage, with nearly 210 million global subscribers. However, this figure belies the fact that Netflix is approaching market saturation in North America, with its nearly 75 million members making up approximately 60% of all households,” Wedbush analyst Michael Pachter wrote in a note.
“The first-mover benefit will only make it this far, as it must continue to produce new content to retain existing subscribers, and continue to renew licensed content to attract new subscribers,” he added. “Netflix’s opportunities abroad remain attractive and we believe this will support high-single digit user growth for the foreseeable future.”
But in terms of new content, Netflix is reportedly pushing to expand its content beyond its core television and film programming. The company said last week that it has hired Mike Verdu, former director of Electronic Arts (EA) and Facebook-owned (FB) Oculus, as vice president of game development. According to a report from Bloomberg, Netflix plans to offer video games to users in the coming year. Investors are ready to keep an eye on Netflix’s earnings report this week for more details on the strategy for the new business offering.
According to Truist Securities analyst Matthew Thornton, Netflix’s foray into gaming would be “an extension of their content strategy,” much like the streaming platform’s other recent moves into unscripted content, premium movies and children’s programming.
“There is an opportunity here, at least on the margins, to differentiate the service from some of their immediate peers and drive engagement, retention and of course subscriber growth and revenue growth,” Thornton told Yahoo Finance Live. “What the content strategy will be here remains to be seen. Are they going to stick with their own first party content, build their own content?”
“I think, you know, of course, the biggest chance would be to actually open up to third-party content, which would make them a little bit more opposing and comparable to the platforms out there that are supported by Microsoft, or Sony, or Nintendo, Google, Amazon and others,” he added.
In terms of top and bottom-line results, Netflix is expected to deliver earnings of $3.16 per share on revenue of $7.32 billion, which would represent 19% growth over last year.
Shares of Netflix are down about 1% so far, underperforming the S&P 500’s nearly 16% rise over the same period.
A slew of housing market data is also due to be released this week.
These include the Commerce Department’s report on housing launches and building permits, which highlights the pace of new home construction and future construction as tight inventory levels continue to weigh on housing market activity. The number of home starts in June is expected to rise by 1.2% month-on-month before a monthly increase, albeit with a slowdown from the monthly increase of 3.6% in May.
A fall in timber prices after a spring wave is poised to help ease construction costs and boost construction. However, last week’s retail sales report found that both furniture and building materials sales declined in June, extending May’s decline. However, the declines may at least partly reflect declines in the actual price of construction inputs such as timber, rather than or in addition to a decline in sales volume.
Other closely monitored housing data this week includes the National Association of Realtors’ monthly existing home sales report for June. This is likely to register the first monthly increase in sales since January, with sales of previously owned homes expected to rise 1.7% in June, according to Bloomberg consensus data. In May, sales of existing homes fell by 0.9%.
“We are taking a positive signal from the 8% increase in May in anticipation of home sales, which reached the highest level since 2005. Existing home sales fell for the fourth consecutive month in May, partly due to high house prices that pushing potential buyers out of the market,” Michelle Meyer, American economist at Bank of America, wrote in a note Friday. “The median price of an existing home in May was the highest ever recorded at $350k, which was up 23.6% Compared to May 2020. That said, June’s inventory increase and lower timber prices could bode well for buyers, potentially adding pressure from continued high prices and tight inventories.”
Monday: NAHB Housing Market Index, July (82 expected, 81 in June)
Tuesday: Home start-up, month-on-month, June (+1.2% expected, +3.6% in May); Building permits, month-on-month, June (+1.0% expected, -2.9% in May)
Wednesday: MBA Mortgage Applications, week ended July 16 (+16.0% during previous week)
Thursday: Chicago Federal Reserve National Activity Index, June (0.30 expected, 0.29 in May); First unemployment claims, week ended July 15 (350,000 expected, 360,000 in previous week); Continuing claims, week ended July 10 (3.241 million in prior week); Leading index, June (0.9% expected, 1.3% in May); Existing home sales, June (5.90 million expected, 5.80 million in May); Kansas City Federal Reserve Manufacturing Activity Index, July (25 expected, 27 in June)
Friday: Markit US Manufacturing PMI, preliminary July (62.0 expected, 62.1 in June); Markit US Services PMI, preliminary July (64.5 expected, 64.6 in June); Markit US Composite PMI, Preliminary July (63.7 in June)
Monday: AutoNation (AN) before the market opens; IBM (IBM) after market closure
Tuesday: Synchrony Financial (SYF), Philip Morris International (PM), Halliburton (HAL), Ally Financial (ALLY) for market opening; Netflix (NFLX), Chipotle Mexican Grill (CMG), United Airlines (UAL) After Market Close
Wednesday: Anthem (ANTM), Johnson & Johnson (JNJ), Nasdaq (NDAQ), Coca-Cola (KO), Harley-Davidson (HOG), Verizon (VZ) before market opens; Las Vegas Sands (LVS), Whirlpool (WHR), Texas Instruments (TXN), Equifax (EFX) after market close
Thursday: Danaher (DHR), DR Horton (DHI), AT&T (T), Newmont Corp (NEM), Dow Inc. (DOW), Abbott Laboratories (ABT), Alaska Air Group (ALK), Biogen (BIIB), American Airlines (AAL), Domino’s Pizza (DPZ), The Blackstone Group (BX), Crocs (CROX), Southwest Airlines (LUV ), Union Pacific (UNP), Capital One Financial (COF), Intel Corp (INTC), Boston Beer Co (SAM), Twitter (TWTR), Snap (SNAP)
Friday: American Express (AXP), Schlumberger (SLB), Honeywell (HON), Kimberly-Clark (KMB) ahead of market opening
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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