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Tuesday July 29, 2014

Finances

Finances
 

Another Great Quarter for Netflix

Netflix, Inc. (NFLX), a leading provider of on-demand video streaming, announced its first quarter results on Monday, April 21. The company’s results beat expectations as the company announced a future price increase for its service.

Netflix reported first quarter revenue of $1.27 billion versus expectations of $1.266 billion. The company earned $0.46 per share compared to analyst estimates of $0.41 per share. Investors were particularly pleased that Netflix’s first quarter earnings beat estimates.

In a letter to shareholders, Netflix CEO Reed Hastings and CFO David Wells had this to say, “We ended Q1 with over 48 million global members, and topped $1 billion in quarterly streaming revenue. We had higher domestic net additions than in Q1 2013, growing international success, and a big hit with Season 2 of House of Cards.”

The company’s streaming service added 4 million members during the quarter, close to 1 million more than the 3.05 million members added during the comparable period last year. With the addition, Netflix’s total streaming members exceeded 48 million, 12 million higher than at this same point a year ago.

Netflix had an impressive quarter, adding 4 million members for the second quarter in a row. The company is now approaching 50 million total members with hopes of someday catching up to HBO’s 130 million members. The company also announced that it has plans in the future to raise its current $7.99 per month streaming plan by $1 to $2 with a generous grandfathering timeline for current subscribers. Netflix said the price increase is necessary as the company looks to invest more into original programming like current hits House of Cards and Orange is the New Black. Unlike previous price increase attempts, investors were pleased with Netflix’s approach to this newest price increase. The stock closed up at $372.90, up 7% the day following the earnings announcement.

Netflix, Inc. (NFLX) shares ended the week at $322.08.

Apple Surges on Earnings Report


Apple Inc. (AAPL) announced its second quarter results on Wednesday, April 23. The results beat expectations, especially with regard to the company’s iPhone sales, even as iPad sales disappointed.

Apple reported quarterly revenue of $45.6 billion for the quarter. This was a 4.6% increase over the $43.6 billion reported during the same period last year and higher than analysts’ estimates of $43.5 billion.

Apple CEO Tim Cook had this to say about the company’s results, “We’re very proud of our quarterly results, especially our strong iPhone sales and record revenue from services. We’re eagerly looking forward to introducing more new products and services that only Apple could bring to market.”

Net profit for the quarter was $10.2 billion or $11.62 per share. This was an increase of nearly 7.4% from the $9.5 billion or $10.09 per share reported during the comparable period last year. In addition, Apple’s quarterly net profit exceeded analysts’ estimates by nearly 12%.

Apple’s strong quarter surprised many and gave investors renewed faith in the company. That renewed faith was encouraged by six million more iPhone sales than expected. On the flip side, iPad sales sagged compared to the same quarter last year as competition from cheaper rivals led by Samsung took a bite out of Apple’s market share.

Concerns about iPad sales were dampened by Cook’s announcement that Apple plans to debut new products and services in the near future. This once again led to speculation regarding bigger screen iPhones, wearable devices and an integrated Apple TV. With Apple’s annual developer conference coming up in June, investors and consumers may soon get their first look at what Apple has in store for the future. Following the earnings release, Apple saw its stock price rise 8.4%.

Apple Inc. (AAPL) shares ended the week at $571.94.

Facebook’s Earnings Shatter Expectations


Facebook, Inc. (FB), provider of the Internet’s most popular social media site, announced its first quarter results on Wednesday, April 23. Facebook reported revenue and profits that shattered analysts’ expectations.

Facebook reported first quarter revenue of $2.502 billion, a 72% increase over the $1.46 billion reported during the same period last year. Quarterly revenue was $140 million higher than pre-release estimates.

Mark Zuckerberg, Facebook founder and CEO, commented on the company’s huge quarter: “Facebook’s business is strong and growing, and this quarter was a great start to 2014. We’ve made some long term bets on the future while staying focused on executing and improving our core products and business. We’re in great position to continue making progress towards our mission.”

Net income for the quarter was $885 million. This was a 184% increase over the $312 million reported during the comparable period last year.

Facebook’s blockbuster quarter was aided by an 82% increase in the company’s advertising revenue, 59% of which came from mobile advertising. In the past, analysts have questioned whether Facebook could monetize the mobile market in the same way it had with the traditional computer market.

The company’s first quarter results squarely answered that question. The company also announced that its monthly active users reached 1.28 billion, close to half the world’s Internet population and a 15% increase from the same period last year. However, Facebook also revealed that advertising revenue from Instagram and video advertising won’t significantly contribute to overall revenue just yet. Facebook’s stock price fell close to 1% following the earnings announcement.

Facebook, Inc. (FB) shares ended the week at $57.71.

The Dow started the week of 4/21 at 16,409 and closed at 16,361 on 4/25. The S&P 500 started the week at 1,866 and closed at 1,863. The NASDAQ started the week at 4,105 and closed at 4,076.
 

30-Year Yield Reaches Nine Month Low

Treasury prices rose on Friday, April 25, pushing the 30-year bond yield to its lowest level in nine months. The catalyst for the move in Treasury prices was the ongoing tensions between Ukraine and Russia.

Financial markets reacted Friday to President Barack Obama’s consultation with European leaders regarding further sanctions against Russia. Earlier, U.S. Secretary of State John Kerry accused Russian President Vladimir Putin of sidestepping his country’s commitment to reducing tensions in eastern Ukraine.

“If Russia continues in this direction, it will not just be a grave mistake, it will be an expensive one,” said Kerry, citing the effects of current sanctions on Russia. “It’s a preview of how the free world will respond.”

The brewing conflict in Ukraine drove the 10-year note yield down for a fifth straight day, pushing prices higher. As of early Friday morning, the 10-year note yield had fallen two basis points to 2.66%.

The 30-year bond yield fell one basis point to 3.44%, further exacerbating the gradual drop the yield has seen this year since it reached a 2014 high of 3.97% in January. The 3.44% yield on Friday was close to the lowest level it has seen since July 3 of last year. It is clear the Ukrainian crisis is driving global investors to the safety of U.S. government bonds, pushing yields down.

“The Ukraine issue continues to stoke the safety bid as it’s apparent that Putin is not backing off in any way, and as U.S. rhetoric gets stronger,” said Thomas di Galoma, Head of Fixed Income Rates at ED&F Man Capital Markets. “The market has been on high alert, and no one wants to be without safe assets headed into the weekend.”

Although investors continue to react to the simmering tensions in Ukraine, they will also be reacting to next week’s Federal Reserve meeting. Fed policy makers will meet April 29-30. Experts expect the Federal Open Market Committee to stay committed to their planned reduction in bond purchases as they continue to phase-out the program known as quantitative easing.

The 10-year Treasury note yield finished the week of 4/21 at 2.67% while the 30-year Treasury note yield finished the week at 3.44%.
 

Interest Rates Trend Upward

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, April 24. The results show mortgage rates rising this week following an upward trend in the 10-year Treasury note and reports of weak housing data.

The 30-year fixed rate mortgage averaged 4.33% this week. This represents an increase from last week when the 30-year fixed rate mortgage averaged 4.27%.

This week, the 15-year fixed rate mortgage averaged 3.39%. This was an increase from last week when the 15-year fixed rate mortgage averaged 3.33%.

“Mortgage rates edged up following the uptick in the 10-year Treasury note late last week,” said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. “Existing home sales were essentially flat with a 0.2% decline in March to a seasonally adjusted annual rate of 4.59 million. However, new home sales fell nearly 15% in March to an annual rate of 384,000, well below consensus.”

The money market fund finished the week of 4/21 at 0.4%. The 1-year CD finished at 0.7%.

Published April 25, 2014


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