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Saturday August 1, 2015



Netflix Reaches 50 Million Members

Netflix, Inc. (NFLX) announced its second quarter results on Monday, July 21. The online streaming giant once again made impressive gains in both new members and earnings.

Netflix reported second quarter revenue of $1.146 billion. This was significantly better than the $837 million reported during the same period last year.

“Fifteen years after launching our subscription service, we have over fifty million members enjoying Netflix in over 40 countries,” said Netflix CEO Reed Hastings in a letter to shareholders. “As we gain new members, we are investing to further improve our content and member experience, and to expand the global availability of our service.”

Net income during the quarter was $71 million or $1.15 per share. During the same period last year net income was $29 million or $0.49 per share.

The second quarter resulted in a significant milestone for Netflix as it reached 50 million members for the first time. One year ago the company had roughly 37 million members. Netflix attributes some of its gains to new original programming such as House of Cards and Orange is the New Black. The company is counting on its original programming to draw subscribers in the same way that original programming like Game of Thrones is for HBO. Earlier this month Netflix’s original programming garnered 31 Emmy nominations, which was more than double the 14 they received last year.

Netflix, Inc. (NFLX) shares ended the week at $421.86.

Facebook Posts Huge Quarterly Gains

Facebook, Inc. (FB) announced its second quarter results on Wednesday, July 23. The company’s results blew past pre-release estimates, helping to drive the stock to new highs.

Facebook reported that second quarter revenue was $2.91 billion. This was a 61% increase over the $1.81 billion reported during the same period last year. Revenue was driven by a 67% increase in advertising revenue.

Mark Zuckerberg, Facebook founder and CEO, had this to say about the quarter, “We had a good second quarter. Our community has continued to grow, and we see a lot of opportunity ahead as we connect the rest of the world.”

Net income for the quarter was $791 million or $0.30 per share. Surpassing estimates, second quarter net income was 138% higher than the $333 million or $0.13 per share reported during the comparable period last year.

After this most recent quarter, both Facebook and investors have a lot to be happy about. The company is making significant gains in generating revenue, especially from mobile devices, which accounted for 62% of the total. In addition, the company’s number of daily active users increased 19% to 829 million. According to eMarketer, Facebook is poised to occupy 8% of the worldwide digital ads market later this year, making it second only to Google. Following the earnings release, Facebook’s share price jumped 5% in after-hours trading.

Facebook, Inc. (FB) shares ended the week at $75.19.

Amazon Reports $126 Million Loss, Inc. (AMZN) announced its second quarter results on Thursday, July 24. In a surprise to investors, the company reported that it had a $126 million loss during the quarter.

Net sales during the quarter increased 23% to $19.34 billion. During the comparable period last year net sales were $15.7 billion.

“We continue working hard on making the Amazon customer experience better and better,” said founder and CEO, Jeff Bezos. “We’ve recently introduced Sunday delivery coverage to 25% of the U.S. population, launched European cross-border Two-Day Delivery for Prime, launched Prime Music with over one million songs, created three original kids TV series, added world-class parental controls to Fire TV with FreeTime, and launched Kindle Unlimited, an eBook subscription service.”

Investors were understandably taken aback by Amazon’s $126 million net loss. It was a huge jump over the net loss of $7 million reported during the comparable period in 2013.

Amazon is currently expending significant capital to grow its business, starting with its newly released smartphone, the Fire phone. Analysts point to Amazon’s $99 per year Prime service as a big factor in driving the quarterly losses as it offers subscribers free two-day shipping as well as access to the company’s entertainment streaming services. The company estimates that it will lose up to $810 million in the upcoming quarter. On this news Amazon’s share price fell 10% to $322.50., Inc. (AMZN) shares ended the week at $324.01.

The Dow started the week of 7/21 at 17,095 and closed at 16,961 on 7/25. The S&P 500 started the week at 1,977 and closed at 1,978. The NASDAQ started the week at 4,421 and closed at 4,450.

Treasuries Rise on Durable Goods Report

Treasury prices rose on Friday, July 25 on a newly released durable goods report that was weaker than investors hoped. Weekly jobless claims also fell this week, providing an additional window into the health of the U.S. economy.

The Commerce Department released a durable goods report this week that showed purchases of non-military capital goods, excluding aircraft, increased 1.4% in June. The 1.4% increase followed a 1.2% decline in May that was later revised to a 0.7% gain.

Despite the 1.4% increase, the durable goods report was not enthusiastically received by investors. “Even though the headline was fairly decent, the market is taking it as a negative report,” said Guy LeBas, Chief Fixed-Income strategist at Janney Montgomery Scott LLC.

Other economic news this week reinforced the mixed view of the U.S. economy. Business equipment orders rose in June following a drop in May. On the positive front, weekly jobless claims fell to 284,000 during the week ended July 19. That number was the lowest since February 2006 and much lower than economic forecasts.

Jim Vogel, interest rate strategist at FTN Financial, indicated that the durable goods report was just another disappointment in the second quarter. “Recent business surveys suggest that business is turning up but we are not getting confirmation of that in the numbers this morning,” he said.

International news this week did little to stop Treasury prices from rising. Skirmishes between Israel and Hamas in the Gaza Strip intensified this week as the U.S. is attempting to broker a temporary ceasefire. Furthermore, Russia’s central bank increased borrowing costs for the third time this year in attempts to counteract the effect of wider sanctions imposed on the country as the conflict in Ukraine intensifies.

The 10-year Treasury note yield finished the week of 7/21 at 2.47% while the 30-year Treasury note yield finished the week at 3.24%.

Interest Rates Show Little Movement

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, July 24. The results show mortgage rates remaining relatively unchanged from the prior week.

The 30-year fixed rate mortgage averaged 4.13% this week. This was unchanged from last week.

This week, the 15-year fixed rate mortgage averaged 3.26%. This was an increase from last week when the 15-year fixed rate mortgage averaged 3.23%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, had this to say about this week’s rates: “Mortgage rates were little changed for the week with the 30-year fixed-rate mortgage remaining unchanged. Meanwhile, we received some good news on housing with existing home sales climbing 2.6% to a seasonally adjusted annual rate of 5.04 million in June, the highest pace since October 2013.”

The money market fund finished the week of 7/21 at 0.4%. The 1-year CD finished at 0.7%.

Published July 25, 2014

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