This week, second-quarter earnings season will ramp up, offering investors a fuller picture of the extent of the rebound in corporate profits as social distancing standards eased. Data on the housing market will also be in focus.
So far, companies have been topping already-elevated expectations for second-quarter results. About 8% of S&P 500 companies have reported results so far, mostly comprising banks. And of those reporting, 85% have topped estimates, according to FactSet data.
One of the most closely watched quarterly reports this week will come from Netflix (NFLX) on Tuesday. As the first of the "FAANG" names to post results, the report will set the tone for the other Big Tech companies still left to post their quarterly earnings.
Investors are nervously eyeing Netflix's second-quarter earnings report after a sharply disappointing first quarter, during which the streaming giant added fewer than 4 million new paying subscribers versus the 6.3 million expected. At its peak during the pandemic, Netflix had added nearly 15.8 million new subscribers in a single quarter. In April, Netflix attributed the first-quarter subscriber miss to "the big COVID-19 pull forward in 2020 and a lighter content slate in the first half of this year, due to COVID-19 production delays."
Netflix said it only expected to add 1 million new subscribers for the April through June quarter. The company added more than 10 million new paying users during the same period in 2020 when the pandemic still kept consumers mostly confined to their homes in search of entertainment.
But the slowing rate of new subscriber additions for Netflix has come alongside the maturation of the platform in major markets. With nearly 208 million global subscribers, Netflix is still the clear U.S. leader in streaming content, followed by a wide margin by Disney+ with 103.6 million subscribers. And Disney's streaming competitor also missed estimates for new subscriber additions at the start of the year, underscoring the industry-wide slowdown following the record droves of customer sign-ups during the height of the pandemic.
"Netflix has a considerable first-mover advantage, with nearly 210 million global subscribers. This figure, however, belies the fact that Netflix is approaching market saturation in North America, with its nearly 75 million members comprising around 60% of all households," Wedbush analyst Michael Pachter wrote in a note.
"Its first-mover advantage will only take it so far, as it must continue to produce new content in order to retain existing subscribers, and must continue to renew licensed content in order to attract new subscribers," he added. "Netflix’s opportunities overseas remain compelling, and we think this will support high single digit percentage user growth for the foreseeable future."
But in terms of new content, Netflix is reportedly pushing to expand its content outside of its core television and film programming. The company said last week that it hired Mike Verdu, former Electronic Arts (EA) and Facebook-owned (FB) Oculus executive, as vice president of game development. According to a report from Bloomberg, Netflix is aiming to offer video games to users in the next year. Investors are poised to eye Netflix's earnings report this week for more details about the strategy for the new business offering.
According to Truist Securities analyst Matthew Thornton, Netflix's foray into gaming would be "an extension of their content strategy," much like the streaming platform's other recent moves into unscripted content, premium films and children's programming.
"There is an opportunity here, at least at the margin, to differentiate the service versus some of their direct peers and help drive engagement, retention, and of course, subscriber growth and revenue growth," Thornton told Yahoo Finance Live. "What the content strategy will be here still remains to be seen. Are they going to keep this to their own first party content only, build their own content?"
"I think, you know, the biggest opportunity, of course, would be to actually open up to third party content as well, which would put them a little more head to head and comparable to the platforms out there that are offered by Microsoft, or Sony, or Nintendo, Google, Amazon, and others," he added.
In terms of top- and bottom-line results, Netflix is expected to deliver earnings of $3.16 per share on revenue of $7.32 billion, which would represent growth of 19% over last year.
Shares of Netflix have declined by about 1% for the year-to-date, underperforming against the S&P 500's nearly 16% rise over the same period.
Housing data
A slew of housing market data is also due for release this week.
These will include the Commerce Department's report on housing starts and building permits, highlighting the pace of new home construction and future construction as tight inventory levels continue to weigh on housing market activity. Housing starts are expected to rise by 1.2% month-on-month in June for a back-to-back monthly gain, albeit while slowing from May's 3.6% monthly rise.
A drop in lumber prices after a spring surge is poised to help alleviate building costs and stoke construction. However, last week's retail sales report showed that both furniture and building material sales dipped in June, extending May's drop. The declines, however, may at least partially reflect drops in the actual price of building inputs like lumber, rather than or in addition to a pull-back in sales volume.
Other closely watched housing data this week will include the National Association of Realtors' monthly existing home sales report for June. This will likely register the first monthly increase in sales since January, with sales of previously owned homes anticipated to rise by 1.7% in June, according to Bloomberg consensus data. In May, existing home sales fell by 0.9%.
"We take positive signal from the 8% surge in May pending home sales, which hit the highest level since 2005. Existing home sales dropped for the fourth consecutive month in May, partly due to the high home prices squeezing out potential buyers in the market," Michelle Meyer, U.S. economist at Bank of America, wrote in a note on Friday. "The median price of an existing home in May marked the highest ever recorded at $350k, which was 23.6% higher compared with May 2020. That said, the inventory uptick in June and lowering lumber prices could bode well for buyers, potentially alleviating the pressure from the persistent high prices and tight inventory."
Earnings Calendar
Monday: NAHB Housing Market Index, July (82 expected, 81 in June)
Tuesday: Housing starts, month-on-month, June (+1.2% expected, +3.6% in May); Building permits, month-on-month, June (+1.0% expected, -2.9% in May)
Wednesday: MBA Mortgage Applications, week ended July 16 (+16.0% during prior week)
Thursday: Chicago Federal Reserve National Activity index, June (0.30 expected, 0.29 in May); Initial jobless claims, week ended July 15 (350,000 expected, 360,000 during prior week); Continuing claims, week ended July 10 (3.241 million during prior week); Leading index, June (0.9% expected, 1.3% in May); Existing home sales, June (5.90 million expected, 5.80 million in May); Kansas City Federal Reserve Manufacturing Activity index, July (25 expected, 27 in June)
Friday: Markit U.S. Manufacturing PMI, July preliminary (62.0 expected, 62.1 in June); Markit U.S. Services PMI, July preliminary (64.5 expected, 64.6 in June); Markit U.S. Composite PMI, July preliminary (63.7 in June)
Economic Calendar
Monday: AutoNation (AN) before market open; IBM (IBM) after market close
Tuesday: Synchrony Financial (SYF), Philip Morris International (PM), Halliburton (HAL), Ally Financial (ALLY) before market open; Netflix (NFLX), Chipotle Mexican Grill (CMG), United Airlines (UAL) after market close
Wednesday: Anthem (ANTM), Johnson & Johnson (JNJ), Nasdaq (NDAQ), Coca-Cola (KO), Harley-Davidson (HOG), Verizon (VZ) before market open; Las Vegas Sands (LVS), Whirlpool (WHR), Texas Instruments (TXN), Equifax (EFX) after market close
Thursday: Danaher (DHR), DR Horton (DHI), AT&T (T), Newmont Corp (NEM), Dow Inc. (DOW), Abbott Laboratories (ABT), Alaska Air Group (ALK), Biogen (BIIB), American Airlines (AAL), Domino's Pizza (DPZ), The Blackstone Group (BX), Crocs (CROX), Southwest Airlines (LUV), Union Pacific (UNP), Capital One Financial (COF), Intel Corp (INTC), Boston Beer Co (SAM), Twitter (TWTR), Snap (SNAP)
Friday: American Express (AXP), Schlumberger (SLB), Honeywell (HON), Kimberly-Clark (KMB) before market open
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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