The first-quarter earnings season, which started last week with the big banks, gets into full swing this week, led in part by a host of blue-chip tech companies.
And the tech sector certainly is hoping it will fare as well as the major financials did last week.
The Standard & Poor’s 500 index’s companies are broadly expected to have a miserable first-quarter earnings season, with corporate earnings set to fall 7 percent from a year ago. The two sectors expected to lead that drive into the ground are financials and technology, at losses of 7 percent and 5 percent, respectively. However, while the banks did mostly report declines, three of the “Big Four” managed bottom-line beats, leading to a couple of booming days for the sector.
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These five stocks report this week and can only hope for similar results:
International Business Machines Corp. (ticker: IBM). The name of the game at IBM is “shrinking” — as in shrinking revenues, shrinking earnings and shrinking headcount. IBM is expected to report a first-quarter earnings drop of 28 percent on revenues that are expected to slide 7 percent, which would extend IBM’s streak of sales declines to 16 consecutive quarters. And that fall in profits is what’s expected to fuel the company’s disappointing 2016 outlook; last quarter, IBM’s announcement that it expected operating earnings of $13.50 per share was well shy of the consensus estimate of $15.
IBM’s weapon for fighting off its sluggishness? Layoffs — and lots of ’em. IBM has reportedly shed roughly as many people (70,000) as it hired last year, according to Business Insider, and the losses are continuing this year, with the company last month continuing a round of “massive” layoffs.
Investors looking for actual avenues of growth, rather than IBM just cutting its way to success, should be focused on IBM’s analytics and software-as-a-service businesses, among others, which are increasingly becoming a bigger part of the company’s story. According to CEO Ginny Rometty, last year, “our strategic imperatives of cloud, analytics, mobile, social and security grew 26 percent to $29 billion and now represent 35 percent of our total revenue.”
IBM reports earnings after the closing bell Monday.
Netflix (NFLX). While Netflix is set to announce a slight decline in earnings for the first quarter, the real story is the expected 25 percent boost to revenues thanks to the company’s massive international expansion efforts.
International growth impressed analysts during Netflix’s fourth quarter, and the company’s global push was expected to help tack on an additional 6 million total subscribers during Q1. That seemed all the more likely in early January, when the company announced it launched in 130 new countries, bringing its country count to more than 190. In fact, a Goldman Sachs analyst sees NFLX topping that 6 million figure, with an expected 4.4 million international adds and 1.8 domestically.
Netflix also has pushed the pedal on original programming, with a Morgan Stanley survey saying the company is the “original programming front-runner,” at 29 percent of the vote, leading HBO, which declined drastically to 18 percent. Netflix has ramped up original content spending as an alternative to rising costs for acquiring content elsewhere, but the company also believes viewers will watch original content for longer and more often. So, look for more news on this front — but also about where costs for original programming are headed.
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Netflix did make headlines recently about existing customers’ high-definition rates being hiked to $9.99 per month to meet new-subscriber pricing, but that won’t take effect until May, and thus it won’t be a factor in this quarter’s earnings. Netflix reports earnings after the closing bell on Monday.
Intel Corp. (INTC). In 2015, Intel’s core unit saw its computer chip business slump 8 percent from the previous year, thanks in large part to a decline in overall PC sales, which was pegged at -8 percent to -10.6 percent. Well, that weak PC trend isn’t going anywhere; Gartner says PC shipments declined 9.6 percent in this year’s first quarter, marking the sixth consecutive quarter that the metric has fallen.
That’s the bad news.
The good news, though, is that Intel is expected to report plenty of good news in Q1 regardless. Profits are expected to improve 17 percent on an 8 percent uptick in revenues, thanks in part by continued growth in its data center business, as well as the add-on business from its 2015 purchase of Altera.
But the biggest thing that anyone following Intel will want to pay attention to is INTC’s new reporting structure, which will involve the following operating segments: client computing group, data center group, Internet of Things group, Intel security group, new technology group, non-volatile memory solutions group and programmable solutions group. Intel reports earnings after the market’s closing bell Tuesday.
Yahoo! (YHOO). Yahoo is certainly a big tech stock, and it’s certainly reporting earnings this week, but profits will hardly be the primary focus of this particular announcement.
For the record, Yahoo projected some truly hideous numbers for the current quarter, including operating income that could range from a $50 million loss to a $30 million gain. Analysts believe adjusted earnings will tumble from 15 cents per share in the year-ago period to 7 cents — an increasingly common result that has put CEO Marissa Mayer’s feet to the fire. Her merger and acquisition track record in particular has been called into question, as the company wrote down more than $1 billion in goodwill related to Mayer acquisitions.
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Mergers will be the hot topic of this quarter’s report — but this time, people will be looking for news about Yahoo not as the predator, but the prey.
The lineup of potential suitors is almost comically large. Among those believed to have interest — whether it’s for a total buyout of Yahoo, or just pieces of the business — are Alphabet (GOOG, GOOGL), Microsoft Corp. (MSFT), Verizon Communications (VZ), Time (TIME), KKR & Co. (KKR) and the Daily Mail. If anything is likely to move shares on Wednesday morning, it will be news on this front.
Yahoo reports earnings after the closing bell Tuesday.
Microsoft Corp. Microsoft’s expectations for the quarter aren’t much to be jazzed about, with analysts predicting MSFT stock will see earnings at 5 percent on less than 2 percent revenue growth. Much like Intel, Microsoft can thank a shrinking PC market for its tepid estimates.
One factor that could help Microsoft hurdle over estimates is a suddenly weak U.S. dollar. The U.S. Dollar index declined roughly 5 percent during the first quarter, which is good news for multinationals like Microsoft, which derives more than half of its revenues from outside the U.S. A weaker dollar not only helps make Microsoft’s products a little cheaper in foreign countries, but it also is favorable for currency conversion back into dollars when the company reports its revenues.
Also watch for continued strong results in Microsoft’s cloud offerings … though maybe not as strong as Azure’s 127 percent revenue boom last quarter.
Microsoft reports earnings after the closing bell Thursday.
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5 Tech Earnings to Watch This Week (MSFT, NFLX, YHOO, IBM, INTC) originally appeared on usnews.com
