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Saturday October 25, 2014

Finances

Finances
 

Netflix Continues Meteoric Rise

Netflix, Inc. (NFLX), a video streaming company, reported its quarterly earnings on Monday, October 21. Netflix stock has more than tripled in value during 2013. On October 22, the price of Netflix stock rose to an all-time high of $389.16 before dropping back down to close at $322.52.

Netflix reported quarterly revenue of $1.11 billion. This is an increase of 22.2% from the same period last year when the company reported revenue of $905.1 million. The company's revenue for the period was in line with analysts' estimates of $1.1 billion.

Netflix reported net income of $31.82 million. This is an increase of 315% from the same period last year when the company reported net income of $7.68 million. The company reported earnings per share of $0.52, beating analysts' estimates of $0.49.

Netflix CEO, Reed Hastings, and CFO, David Wells, released a shareholder letter along with third quarter earnings. The letting included this statement: "We are very pleased to have over 40 million members, up from less than 30 million just one year ago. The Netflix original series Orange is the New Black is a critical and popular success, and our earlier series House of Cards is the first Internet TV series to win a Primetime Emmy Award. We launched [in] our 41st country and the Dutch seem to like Netflix."

Netflix stock did fall earlier this week when billionaire investor, Carl Ichan, decided to reduce his 9% stake in the company to 4.5%. He sold a total of 2.99 million shares and by some reports pocketed over $800 million in gain. Mr. Ichan still owns about 2.7 million shares in the company. When asked to comment on the sale, he said, "As a hardened veteran of seven bear markets I have learned that when you are lucky or smart enough to have made a total return of 457% in only 14 months it is time to take some of the chips off the table. I want to thank Reed Hastings, Ted Sarandos and the rest of the Netflix team for a job well done. And last but not least, I wish to thank Kevin Spacey."

Netflix, Inc. (NFLX) shares ended the week at $328.03, down 4.3% for the week.

Boeing is Flying High


The Boeing Company (BA), an aerospace company that builds commercial jetliners, reported its quarterly earnings on October 23. The company's commercial airplane segment is benefiting from strong demand for Boeing's new long-range and fuel efficient 787 commercial airliners.

Boeing reported quarterly revenue of $22.13 billion. This represents an increase of 11% from the same period last year when the company reported revenue of $20.01 billion.

The company reported net income of $1.16 billion, representing an increase of 12% from the same period last year when the company reported net income of $1.03 billion. Earnings per share increased from $1.35 during the same quarter a year ago to $1.51 in the most recent quarter.

"Consistently strong operating performance is driving higher earnings, revenue and cash flow as we deliver on our record backlog and return increased value to shareholders," said Boeing CEO Jim McNerney. Boeing received $27 billion in orders during the latest quarter and has a record backlog of orders worth $415 billion.

Boeing launched its 787 Dreamliner line of planes in 2004. The new 787-10 Dreamliner, released in June 2013, carries 300-330 passengers and can travel up to 7,000 nautical miles before stopping for fuel. The price tag for a 787-10 Dreamliner is about $289 million according to Boeing's website. Boeing has sold 131 of these planes this year and has a total of 890 orders it has yet to fill.

The Boeing Company (BA) shares ended the week at $131.20, up 6.9% for the week.

Microsoft's Earnings Beat Expectations


Microsoft Corporation (MSFT), a well-known technology company, reported its quarterly earnings on October 24. The company reported strong earnings and net income upon increased sales of its Surface tablet.

Microsoft reported gross revenue of $18.53 billion for the quarter, beating predictions that revenue would be $17.79 billion. This quarter's revenue represents an increase from the same period last year when the company reported revenue of $16.01 billion.

The company reported quarterly net income of $5.24 billion, representing an increase of 17.4% from the same period last year when the company reported net income of $4.47 billion. Earnings per share increase from $0.53 per share to $0.62 per share, beating analysts' expectations of $0.54 per share.

"Our devices and services transformation is progressing and we are launching a wide range of compelling products and experiences this fall for both business and consumers," said Steve Ballmer, CEO at Microsoft. "Our new commercial services will help us continue to outgrow the enterprise market, and we are seeing lots of consumer excitement for Xbox One, Surface 2 and Surface Pro 2, and the full spectrum of Windows 8.1 and Windows Phone devices."

Many analysts and investors have been disappointed in Microsoft's ability to keep up with rivals such as Apple and Google in the mobile phone and tablet markets. They still generate a large portion of their revenue by selling PCs and software to businesses. As a result, they have received sharp criticism. However, their latest earnings report shows sale's revenue of Microsoft's Surface tablet grew to $400 million. This represents healthy growth in revenue and the number of tablets sold over the prior quarter. There may be hope for Microsoft yet.

Microsoft Corporation (MSFT) shares ended the week at $35.73, up 2.1% for the week.

The Dow started the week at 15,401 and closed at 15,570. The S&P 500 started the week at 1,745 and closed at 1,760. The NASDAQ started the week at 3,923 and closed at 3,943.
 

Bond Prices Rise on Weak Employment Data

The U.S. Labor Department released the September employment statistics on October 22. The statistics are usually reported earlier in the month, but the government shutdown delayed their release.

The data was largely unchanged from August and depicts an economy that continues to struggle to gain momentum. The unemployment rate fell slightly from 7.3% in August to 7.2% in September. The participation rate was unchanged in September at 63.2%. This shows that the slight drop in the unemployment rate was not due to discouraged jobseekers leaving the job market.

Total employment increased by 148,000 jobs in September. This figure was substantially less than the 180,000 jobs expected by many economists and the 185,000 jobs added on average each month over the past year.

In addition to the employment data, consumer confidence has dropped to the lowest level since January 2013. "We've seen an overall slowdown, a little bit of softness in our traffic," said David Lenhardt, CEO of PetSmart, Inc. "We do think it's an uncertain consumer environment. I think whether it be the shutdown, whether it be payroll tax, whether it be sequester, the customer is more uncertain these days."

In light of the employment and consumer confidence data, many analysts believe that the Federal Reserve will continue its bond purchasing program at least through March of 2014. "I don't see any real strength in the economy," said Ray Remy, head of fixed income at Daiwa Capital Markets America, Inc. "The earliest we'll see tapering is in March. It wouldn't surprise me if that's pushed out further because the economy is going to go through a rough patch here."

Speculation that the Federal Reserve will continue its current monetary policy caused Treasury prices to rise last week. The price of the 2.5% 10-Year Treasury note due August 2023 rose $1.25 per $1,000 face amount. The 10-year Treasury note yield fell three basis points to 2.5% in early Friday morning trading. Yields move inversely to prices. In total, the yield on the 10-year Treasury fell seven basis points last week.

The 10-year Treasury note yield finished the week at 2.5% while the 30-year Treasury note yield finished the week at 3.59%.
 

Interest Rates Fall to Four Month Low

Freddie Mac released the results of its Primary Mortgage Market Survey on October 24. The results show average fixed mortgage rates dropping to a four month low.

The 30-year fixed rate mortgage averaged 4.13% this week. This is a decrease from last week when it averaged 4.28%. One year ago, the 30-year fixed rate mortgage averaged 3.41%.

The 15-year fixed rate mortgage averaged 3.24%, representing a decrease from last week when it averaged 3.33%. Last year at this time, the 15-year fixed rate mortgage averaged 2.72%.

"Mortgage rates slid this week as the partial government shutdown led to market speculation that the Federal Reserve will not alter its bond purchases this year," said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. "The weak employment report for September added to this expectation. The economy added just 148,000 jobs, which was below the market consensus forecast and less than the 193,000 jobs increase in August."

The money market fund finished this week at 0.4%. The 1-year CD finished at 0.7%.

Published October 25, 2013


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