A few weeks back, Wall Street was talking about how a robust earnings season was going to save the market. The theory was that really strong quarterly earnings would offset the macro headwinds which have weighed on stocks, and that the market would head higher as a result.
Earnings season is now here. The numbers have been very good, as expected. First-quarter earnings growth has run at 24% thus far, the best growth rate since the third quarter of 2010. Nearly 80% of companies are reporting earnings above Street expectations, the highest “beat rate” on record (dating back to 2008).
And yet, despite those strong numbers, stocks haven’t made much of a move. Over the past month, the S&P 500 is up just 2%. While that is positive, it isn’t the type of big rebound a lot of investors were looking for.
Nonetheless, earnings are good and stocks are heading higher. Thus, this week will be critical to see if the last leg of the earnings season can be as good as the first few legs.
With that in mind, here are three earnings reports to watch this week.
Earnings Reports to Watch: Disney (DIS)
Entertainment giant Walt Disney Co (NYSE:DIS) is due to report earnings after the bell on Tuesday. This could be one of the more highly anticipated earnings reports from Disney in recent memory for several reasons.
First, this is the first time we will hear from management about how the company’s new ESPN Plus product is faring in the streaming market. Remember, ESPN Plus is essentially part one of this company’s major pivot into streaming, which is supposed to help offset cord-cutting headwinds. If ESPN Plus is doing well, that bodes well for this company’s streaming plans. If it’s doing poorly, then investors could lose faith.
Second, this is also the first time we will hear numbers against the backdrop of maybe the company’s most promising movie line-up ever. “Avengers: Infinity War” is breaking box office records left and right — some which were just recently set by the studio’s movie “Black Panther” — and the high consumer and critic reviews have only increased anticipation for next year’s second Infinity War movie. There is also a new Star Wars movie set to release this month, and another one set to release later this year.
It will be interesting to see management’s commentary surrounding this powerful movie line-up. In particular, management is prepping a Disney streaming service for launch in late 2019. This movie line-up will presumably be featured on that streaming service, so commentary surrounding these movies is especially important in this quarter’s call.
Third, pay-TV providers continue to throw up duds in terms of subscriber losses. Disney’s numbers will likely reflect this. But on the flip-side, NBA playoff TV ratings (which are mostly aired on Disney-owned EPSN and ABC) are at multiyear highs. It will be interesting to see if ESPN starts to separate itself from the pack in the cord-cutting crisis.
For these reasons, DIS is a stock to watch this week.
Earnings Reports to Watch: Roku (ROKU)
Shares of streaming platform maker Roku Inc (NASDAQ:ROKU) are almost guaranteed to have some big swings after the company reports its quarterly earnings after the bell on Wednesday.
ROKU was this red-hot IPO that took off like a rocket ship after the company reported its first earnings report as a public company. The numbers surpassed expectations, and everyone hopped on the bandwagon, thinking that this stock was destined to follow in the streaming footsteps of Netflix, Inc. (NASDAQ:NFLX).
ROKU stock went from $20 to nearly $60.
But that all came crumbling apart after the company gave a weak first-quarter guide in its next earnings report. The stock dropped — big time. It now sits in the lower $30’s.
This coming report is huge for the company’s long-term growth narrative. There are really two outcomes from this report.
One, the numbers are outstanding. Bulls buy back into the theory that this is a company with Netflix-like growth potential, and the stock takes off like a rocket ship.
Two, the numbers are just good. Bears point out that the numbers are much weaker than the numbers Netflix reported, and thus, the Netflix parallel gets thrown out the window. ROKU stock drops like a rock.
I’m not sure which of these outcomes is more likely at this point. Roku is a content-neutral provider of streaming service capabilities, and that does seem to have long-term value in the steaming market. But competition is fierce, and Roku has the least amount of resources when it comes to players in this space.
Thus, this is a high-risk, high-reward earnings report that could fundamentally change the company’s long-term growth narrative.
Earnings Reports to Watch: Nvidia (NVDA)
Secular growth technology giant Nvidia Corporation (NASDAQ:NVDA) is set to report earnings after the bell on Thursday. Considering how big the company is ($150 billion market cap) and how influential the markets it’s exposed to are (data-centers, autonomous driving, artificial driving, and cryptocurrencies, so on and so forth), NVDA’s numbers could have a broad impact on numerous stocks.
Fortunately, it looks like the numbers will be quite good.
A few weeks back, Intel Corporation (NASDAQ:INTC) and Advanced Micro Devices, Inc. (NASDAQ:AMD) both reported really good quarterly numbers. The theme across both of the reports was still-robust demand from cloud data-centers. Meanwhile, it appears that these companies are largely shielded from erosion in the cryptocurrency mining tailwind.
That is good news for NVDA.
Nvidia is the leader in the cloud data-center space. If AMD and INTC reported good numbers there, chances are that NVDA will report great numbers. Also, bears have been worried about the lack of a cryptocurrency boost. But AMD, which was seen as having a bigger crypto reliance, reported great numbers. Thus, Nvidia likely shook off crypto headwinds this past quarter, too.
NVDA stock, however, has already rallied more than 15% since AMD and INTC reported. Clearly, investors are buying in anticipation of good numbers.
Therefore, it will be interesting to see how the stock reacts to good numbers. If it goes up, then that is a good sign for valuations in the hyper-growth sector. If it does down, then that is a bad sign for valuations in the hyper-growth sector.
It is that simple. As such, this will be a report that investors will want to watch closely.
As of this writing, Luke Lango was long DIS, INTC, and AMD.
