Netflix dived more than 35% at yesterday’s trading session, as the unexpected announcement that the company lost 200’000 subscribers in the first quarter and lose 2 million more didn’t please investors although the latest quarterly revenue hit a record of $7.9 billion, up by $2.4 billion compared to the pre-pandemic levels.
Even though the selloff of 35% seems gigantic, we already witnessed 20-30% fall or jump after the big tech results; the size of reaction hints at how prices are ballooned due to the cheap liquidity and easy financial conditions of the pandemic months and raises a couple of eyebrows regarding the potential losses for other tech companies on the back of soft earnings announcements for the weeks to come.
Plus, the macroeconomic conditions are not favourable for tech companies this year, with the Federal Reserve (Fe) expected to raise the interest rates relatively rapidly to tame inflation and start shrinking the size of its huge balance sheet by relatively big chunks.
Although we haven’t seen a shocking migration from tech to value names, the tech companies that have shaky future earnings, and that can’t pass inflation on to their customers will likely suffer more than their peers.
P&G, for example, said that consumers have so far shrugged off inflation, which drove, in Q1, the biggest sales gain for P&G products in two decades.
Tesla surprises
Tesla rallied more than 5% post-market on the back of strong quarterly results, after the company reported better-than-expected results. Unlike Netflix, Tesla clients didn’t walk away due to higher car prices; Tesla could pass on the higher costs, due to rising raw material prices and the supply chain crisis, on to its customers. And if Tesla didn’t rally more than 5%, it’s because the company warned that their ‘factories have been running below capacity for several quarters and that the supply chain became the main limiting factor and is likely to continue through the rest of 2022’. Still, Elon Musk thinks that Tesla could post a 60% delivery growth this year, and 50% growth in deliveries for the years to come.
Overall
Zooming out, besides Netflix which weighed heavily on Nasdaq and pulled the index more than 1% lower yesterday, most US stocks rose.
US and European futures trade in the positive before the European open, yet the escalating tensions with Russia could hit the sentiment, as Russia test-fired a new intercontinental missile that could carry multiple nuclear warheads.
In commodities, the positive pressure in oil prices is fading, but the buyers pile in approaching the $100pb level, as the supply side problems weigh heavier than the demand side easing.
In the FX, the US dollar softened yesterday, and the softer greenback pushed the EURUSD above the 1.0850 mark. Final inflation read due this morning should confirm a rise in the Eurozone inflation to 7.5% in March and revive the European Central Bank (ECB) doves, but the clear divergence between a more hawkish Fed and the relatively dovish ECB hints that a further depreciation of the euro against the greenback is not impossible and we could see the pair advance toward parity sometime this year. Investors will be listening to Fed Chair Powell, ECB President Lagarde and the BoE Chief Bailey speaking today.
