Earnings season has officially kicked off, meaning things will get VERY chaotic over the coming weeks, with a lot of price movement for stocks.
Depending on the number of companies I want to cover in any given week, I’ll either include all earnings within these Sunday Market Update posts, or as separate “Company Earnings” posts. Keep an eye out for these!
With that in mind, let’s jump in.
Key Events
UK CPI (Inflation) Data for December
UK Inflation data for December came in on Wednesday.
We saw a 10.5% reading year-over-year, down slightly from November’s 10.7% read.
Month-over-month, we saw a 0.4% reading. While inflation is slowing compared to previous months, it is still particularly high, at a 4.8% annualised rate (0.4 x 12).
Food and household services (including energy) are the main culprits for inflation, which is likely unsurprising to most. Unfortunately, this results in the lowest-income households taking the biggest hit. Household bills and food take up a much larger proportion of their total budget, thus they pay ‘more’ inflation compared to someone on a higher income.
The headline figure for inflation should start to plummet between now and the summer, though. That’s because the data will be directly comparing today’s prices to the skyrocketing prices seen in the beginning months of the Ukraine war. It’s important to remember, then, that even if we were to see a 0% inflation reading over the summer, it simply means prices remained the same as 12 months ago. Still very elevated.
Stock Market News
Mass Layoffs Continue
Once again, we’ve seen announcements of company layoffs from some of the largest companies in the world.
- Microsoft – Reducing its workforce by ~5%, or 11,000 employees
- Alphabet (Google) – Reducing its workforce by ~6%, or 12,000 employees
Morgan Stanley (MS) – Q4 Earnings
On Tuesday, Morgan Stanley surprised analysts and beat expectations. With a difficult macroeconomic environment and a slowdown in deal-making, Morgan Stanley have seen large declines in revenue. However, the wealth management segment of the business recorded record revenues. Trading revenues also rose dramatically, increasing over 26% compared to a year ago. The stock price rose over 5% in after-hours trading, following the earnings report.
Key Points:
- Revenue of $12,749m, down from $14,524m (-12.2%) a year ago
- Investment banking revenue down 48.9% YoY, to $1,318m
- Asset management revenue down 11% YoY, to $4,803m
- Commissions & fee revenue down 10.6% YoY, to $1,169m
- Trading revenue up 26% YoY, to $3,017m
- Net interest revenue up 11% YoY, to $2,319m
- Profit before tax of $2,794m, compared to $4,884m a year ago
- Profit after tax of $2,113m, compared to $3,592m a year ago
- Basic earnings per share of $1.28
- Dividend of $0.775 per share approved, to be paid on 15th February 2023
- The company has significantly increased its provision for credit losses to $85m, compared to $5m a year ago
Goldman Sachs (GS) – Q4 Earnings
Goldman Sachs also reported on Tuesday… With very different results to other banks this quarter. The company missed analyst expectations on revenue, while also missing on earnings; with the biggest earnings miss in 10 years. Unsurprisingly, the stock was down ~6% in after-hours trading.
Key Points:
- Revenue of $10,593m, down from $12,639m (-16.2%) a year ago
- Investment banking revenue down 48.0% YoY, to $1,873m
- “Market making” revenue up 33.7% YoY, to $3,051m
- Commissions and fees revenue up 13.5% YoY, to $968m
- Asset management revenue up 0.9% YoY, to $2,258m
- Net Interest revenue up 15.5% YoY, to $2,074m
- Other revenue down 80.3% YoY, to $369m
- Operating profit of $2,502m, down from $5,369m (-53.4%) a year ago
- Profit before tax of $1,530m, compared to $5,025m a year ago
- Profit after tax of $1,326m, compared to $3,935m a year ago
- Basic earnings per share of $3.35
- Dividend of $2.50 per share announced, to be paid on 30th March 2023.
- No clear forward guidance provided for Q1 2023
- The company has significantly increased its provision for credit losses to $972m, compared to $344m a year ago. The CFO, Denis Coleman, stated that there are “early signs of consumer credit deterioration”, as more consumers are at risk of missing debt payments
Netflix (NFLX) – Q4 Earnings
On Thursday, Netflix beat on revenue, but reported lower-than-expected earnings. The saving grace for the company was an explosion in new members, blowing analyst expectations out of the water. Bear in mind, this is the first quarter including Netflix’s new ad-supported tier. This was also a quarter with multiple huge hits being released, including: “Wednesday”, “Harry and Megan” and “Glass Onion”.
Key Points:
- Revenue of $7,852m, up slightly from $7,709m (+1.9%) a year ago
- Gross profit of $2,448m, down slightly from $2,470m (-0.9%) a year ago
- Operating profit of $550m, down from $632m (-13.0%) a year ago
- Profit before tax of $39m
- Profit after tax of $55m
- The low net profit here is largely due to a $461m loss recognised, related to euro-denominated debt. This is because of the changes in foreign exchange rates and was expected
- Basic earnings per share of $0.12
- For Q1 2023, guidance suggests revenue growth of 4% (~8% on a constant-currency basis) and an operating margin of around 20%
- Subscribers grew by 7.66 million, compared to the consensus estimate of 4.57 million; a huge beat. The company will not be providing guidance for subscriber growth moving forward, as the new priority metric will be revenue, not subscriber additions
- “Paid sharing”, where users must pay an extra fee if providing their password to a non-household member, will be more widely rolled out in Q1. This is likely to cause an unknown number of net-adds in the first two quarters (with more adds likely in the second quarter than the first). There is expected to be a large fluctuation as a result of users cancelling because of the new sharing charge; some of these users will no doubt return to the service as full members
- The company states that “Today’s widespread account sharing (100M+ households) undermines our long term ability to invest in and improve Netflix”
- Netflix’s founder, Reed Hastings is stepping down as co-CEO and will transition to the role of executive chairman. Replacing him is Greg Peters, the company’s chief operating officer, who will co-CEO alongside Ted Sarandos moving forward
Procter & Gamble (PG) – Q4 (Fiscal Q2 2023) Earnings
On Thursday, Procter & Gamble reported both revenues and earnings that largely met analyst expectations. However, the company saw sales volume fall in every division of the business, resulting in year-over-year declines in revenue and earnings. Raising prices on their products did not fully offset the lower sales volume, particularly when combined with unfavourable exchange rates.
Key Points:
- Revenue of $20,773m, down from $20,953m (-0.9%) a year ago
- Gross profit of $9,876m, down from $10,289m (-4%) a year ago. Gross profit margin fell to 47.5%, compared to 49.1% a year ago
- Operating profit of $4,785m, down from $5,168m (-7.4%) a year go
- Profit before tax of $4,835m, compared to $5,239m a year ago
- Profit after tax of $3,933m, compared to $4,223m a year ago
- Basic earnings per share of $1.63
- Dividend of $0.91 per share announced, to be paid on 18th January 2023
- Guidance for the year remains largely the same, with earnings per share growth unchanged at between 0% to 4% year-over-year. However, the company has raised its sales guidance slightly, from between 3% and 5%, to 4% and 5%, compared to 2022. Unfavourable foreign exchange rates are expected to create a 5% headwind on sales growth in 2023
- P&G is doubling-down on its price-hiking strategy, claiming that customers have responded better than expected, and that “consumers don’t stop washing their hands or doing their laundry,”. As such, the company expects to raise prices further in 2023
Next Week
US GDP for Q4 2022 – 26th January
On Thursday, we’ll get the GDP numbers for October-December 2022.
Expectations are for a reading of 2.6% on an annualised basis. This would suggest to markets that a ‘real’ recession has not yet come into effect.
Company Earnings Reports
Here’s a list of the companies I’ll be covering next week:
- Microsoft (MSFT) – 24th January
- 3M Co (MMM) – 24th January
- Johnson & Johnson (JNJ) – 24th January
- Tesla (TSLA) – 25th January
- Boeing Co (BA) – 25th January
- AT&T (T) – 25th January
- Visa (V) – 26th January
- Intel (INTC) – 26th January
- Diageo (DGE) – 26th January
Let me know your thoughts on this week’s events, in the comments below!
