Earnings Tidbits

Earnings season has kicked into high gear. Netflix (NFLX) reported mixed fourth quarter results yesterday and yet the stock is up about 7% this morning. Revenue growth slowed to just 2% y/y, and earnings per share plunged 90%. That sounds a bit shocking, but it shouldn’t. After all, the stock plunged 76% from November 2021 to May 2022 as subscriber growth screeched to a halt. Even now, despite a strong recovery, the stock is still 50% down from its peak. That prices in a lot of risk. But back to last quarter’s results. Subscriber growth recovered to a very strong 7.66 million. And management confirmed it is transforming the business to re-accelerate growth by putting an end to password sharing, and creating cheaper ad-supported subscription tiers. Finally, I should point out that investors got far to too pessimistic about Netflix’s future growth prospects. Last year, their new shiny toy was Disney. But now that we know Disney isn’t making money with its steaming service, investors’ thinking has changed.

Google’s parent company Alphabet (GOOGL) announced it will lay off about 12,000 employees. That figure represents 6% of the total workforce. Management admitted that during the Covid era it over-invested and now must adjust to a lower level of economic and business activity. For some perspective, I’ll point out that Alphabet’s headcount surged by over 30% from the end of 2019 to the end of 2021.

Oilfield services provider SLB—formerly known as Schlumberger—posted 27% y/y revenue growth and noted increased capital spending by energy exploration companies. In fact, management is predicting a global energy “super cycle.” This comes despite their expectation that Russian oilfield activity will dive as much as 10% year as a result of international sanctions. SLB plans to boost its own capital spending to increase capacity overseas. And this is precisely why investors are selling off the stock today. Over the past decade plus, the energy sector has been a value destroyer from the perspective of investors. Chronic overspending and extreme volatility in commodity prices are the main reasons.