- Another big week ahead from some high profile tech companies, though the calendar is not quite as packed as it was last week
- Last week Apple (NASDAQ:AAPL) guidance disappointed, Amazon (NASDAQ:AMZN) excelled one again
- Among those reporting this week: NYSE:GM, SNAP, DIS, CMG, TSLA, TWTR, NVDA, GILD, CVS and BP
Though earnings season will continue beyond this week, it's the final week of back-to-back, high profile company reports. Many of the most closely watched companies including Apple, Amazon, Alphabet (NASDAQ:on our earnings calendar.
This week's reports come on the heels of Friday's 666 point, 2.5% Dow decline, which stole the thunder from Thursday's big earnings reports: Apple posted a good quarter but disappointed on its outlook for Q1 2018, when it announced it expected between $2.5 to $2.7 in EPS, lower than Wall Street's $2.79. Amazon beat on revenue and earnings, with $60.5 billion and $2.16 compared to the expected 60 billion and $1.85, which is why it was one of the rare stocks to actually gain on Friday.
Here are the five earnings reports we'll be keeping an eye on during the week of February 5 to February 9:
Tuesday
1. Snap, Inc.
Reports Tuesday, February 6, after the Close
Revenue Expectation: $251M, EPS: - ($0.17)
We often think of Wall Street as a ruthless place with little collective patience, where any deviation from analyst consensus expectations is met by fury followed by a wave of selling. That's true...for the most part. But sometimes stocks become Wall Street darlings, even when they continue to lose money. That generally happens only if Wall Street believes there’s real potential for great riches in future earnings.
In other words, Wall Street will make an exception for certain industry disrupters, especially if said disrupters come from the tech sector. We've seen this with Amazon and more recently Tesla. In both cases the Street was willing to tolerate infrastructure losses in anticipation of future great rewards. Add Snap to that list.
Snap (NYSE:SNAP) is the parent of social media app Snapchat. As we've noted previously, SNAP is still very far from being a business with a viable growth plan, and it's decidedly not a profitable company. With quarter-over-quarter user growth of 5% or less during the past four quarters, Snap hasn't done anything to convince us that it will be able to make money—even at some point in the future.
Its technology, once its greatest asset, has been widely cannibalized by competitors, most especially Facebook's (NASDAQ:FB) Instagram. Between April and September of 2017, Instagram added 100 million users and grew by 14%. Snapchat's user growth would have to reach 10% QoQ for at least a few quarters straight to simply begin to justify SNAP's current $13.5 price per share, let alone its $16 billion market cap. We don't see any of this happening any time soon.
2. Walt Disney Company
Reports Tuesday, February 6, after the Close
Revenue Expectation: $15.2B, EPS: $1.62
For two-and-a-half years now, shares of Disney (NYSE:DIS), the global entertainment giant, have struggled to break through $122, the stock's all-time high. The stock has been trading sideways and compared to the S&P 500's returns over the same period (+34%), DIS gets an F when it comes to delivering shareholder value.
The reason for all this is pretty clear, and it's something we pointed out almost 18 months ago: Disney's top and bottom line results have stagnated. The company hasn't been able to top $15B in quarterly revenue since December 2015. Its quarterly year-over-year revenue growth since June varies between +3% and -3% every quarter.
In order to break through, the company has to return to consistent growth. Disney's growth doesn't need to be explosive; 5% annually will do just fine. Box office results in January for the most recent release from the Star Wars franchise, The Last Jedi, probably aren't going to provide a boost either; sales of tickets for the film fell short of analyst expectations by $200 million.
In other dire news for the entertainment behemoth, total number of subscribers to ESPN dropped to a 14-year low in November. Disney is planning to go all-in on streaming in order to compete with Netflix (NASDAQ:NFLX) as a pathway toward resuming growth, which is a high risk / high reward move. However, any breakthrough isn't likely to be visible until 2019.
At $108 a share Disney is stuck in no-man's land—not cheap enough to be a value play, but not growing fast enough to be considered a growth play. We would pass.
Wednesday
3. Tesla, Inc.
Reports Wednesday, February 7, after the Close
Revenue Expectation: $3.44B, EPS: - ($3.75)
Tesla (NASDAQ:TSLA), the electric car manufacturer founded and headed by Elon Musk, has been a provocative stock to watch over the past few years. We've argued repeatedly that their fundamental valuation simply can't be justified. The company has less than $11 billion in TTM revenue, net income of -$1.4 billion, $10 billion in long-term debt of which $5 billion was raised over the past 12 months, and yet the company is somehow worth $58 billion dollars.
We've also noted in past articles that we do not recommend shorting the stock, which is currently selling for $343 per share, since Tesla stock doesn't respond to fundamental principles of valuation the way most other stocks do. Therefore, keep in mind that old adage, 'the market can remain irrational longer than you can remain solvent.'
If you consider Musk's recent Twitter activity, lately he appears to be more eager to sell hats and flamethrowers rather than meeting previously stated production targets for Tesla vehicles or turning around the struggling company.
The goal of delivering 5000 Model 3s weekly was pushed back to the end of Q2, after Tesla disappointed yet again during its last quarterly delivery report. We continue to find Tesla's extraordinary valuation totally unfathomable.
Thursday
4. Twitter, Inc.
Reports Thursday, February 8, before the Open
Revenue Expectation: $690M, EPS: $0.14
Once again, like a phoenix, Twitter's (NYSE:TWTR) stock has risen from the ashes! The social media company's share price seemed to be on a race directly to the bottom for years, but no longer. Since August, when its price per share spiked from $16 to $25.7, it has gained 60%.
After all these years the stock seems to finally be back on its feet, finally having mastered the primary metric needed to boost investor confidence. However, we continue to remain skeptical on the stock and the company. Twitter's user base may have expanded by 4 million users quarter-over-quarter in their last report, but that's only good news because the Q2 report showed a drop in users.
The case for Twitter remains more about potential than anything else. However, unlike Snap and Tesla, which have a greater number of negatives working against them (debt, cannibalization, stiffer competition, etc.) Twitter continues to be a platform that has immense social and political potential, without any real competition.
Undoubtedly, some of the credit for Twitter's growth over the past year belongs to US President Donald Trump's closely followed habit of uncensored tweeting. That's all well and good as a marketing ploy, but there remains one giant negative for the company: Twitter's future path to monetization. That significant fundamental remains murky, even though it's the ultimate benchmark upon which businesses are judged. Just take a look at Snap's case.
When a stock's valuation is based on something other than the business case, trading surrounding earnings reports tends to be volatile. Investor hopes and emotions continue to run pretty high on Twitter, particularly at its current $26 price per share. We expect Twitter volatility to increase after the report. Still, whatever the move post its earnings report, a price point of $20 or above seems unreasonable to us given the state of the business.
5. NVIDIA Corporation
Reports Thursday, February 8, after the Close
Revenue Expectation: $2.66B, EPS: $1.16
Knowing what you know today, if you were told on January 1, 2014 that we were giving you $1000 dollars which you could put into either Bitcoin or the global, computer maker NVIDIA (NASDAQ:NVDA), in which would you have chosen to invest?
If you went with Bitcoin, well, you lost out on 395% in additional returns. Sounds crazy, but since that date, NVIDIA outperformed Bitcoin, up 1366% versus 970% respectively.
Over the past two years, NVIDIA has doubled its quarterly revenue and tripled its net profit. Back in August 2016, when NVIDIA shares were trading under $60, we concluded our analysis by saying that NVIDIA "is one of the few expensive companies we believe is positioned to benefit from technological advances and computing needs over the long-term."
But that was then. Today, with shares trading at $233.52 as of Friday's close, the stock is risky.
The cryptocurrency mining craze that's fueled equipment sales, including NVIDIA's GPU, seems to be tapering off as cryptocurrency returns continue to disappoint. NVIDIA's PE ratio is currently at 61, an all-time high, 50% higher than it was in August 2016.
As well, the quarter for which the company is now reporting, October to December, appears to have been the peak in digital currency interest among general investors, which makes it difficult to believe NVIDIA will disappoint during its current report. However, if cryptocurrencies continue to underperform—which seems likely—NVIDIA's growth won't be as explosive in the upcoming two-to-three quarters. We'd wait and see before advising anyone to step in.