The earnings calendar was front and center on Wednesday as a mixed session for the broader indices was easily overshadowed by a drop in Wall Street’s most notable mega-caps.
netflix (NFLX) suffered its worst single-day decline in 18 years — a 35.1% plunge eroding an estimated $55 billion in market value — triggered by the company’s first quarterly loss of subscribers since 2011.
The streaming giant, which planned to add 2.5 million net subscribers in the first quarter, said it had lost 200,000, sparking a wave of analyst downgrades despite an easy drop in profits. The shortfall was partly caused by Netflix’s decision to pull out of Russia, costing it 700,000 subscribers, but inflation is also forcing customers around the world to make tougher spending choices.
CEO Reed Hastings also said that NFLX plans to launch an ad-supported version.
“Netflix’s initial appeal was that it had no ads; it’s unclear whether Netflix fans will be receptive to ads,” says David Trainer, CEO of investment research firm New Constructs. “Rivals like Disney can monetize content through a variety of other channels, like merchandise and theme park revenue. Netflix doesn’t have the infrastructure for that kind of revenue stream.”
Ripples were felt throughout the streaming industry. Rivals including disney (DIS, -5.6%), Amazon.co.uk (AMZN, -2.6%), Warner Bros. Discovery (WBD, -6.0%), World Paramount (PARA, -8.6%), Roku (ROKU, -6.2%) and even Chinese streamer iQiyi (IQ, -6.7%) all ended well in the red.
These losses weighed the most on the Nasdaq Compoundwhich fell 1.2% to 13,453. S&P500 (down marginally to 4,459) and Dow Jones Industrial Average (+0.7% to 35,160), which was supported by more positive earnings news.
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International Business Machines (IBM, +7.1%) was the main component of the Dow after reporting a 24% increase in profits and beating expectations for revenue and earnings.
“The string of consecutive quarters of outperformance shows there is a clearer path to accelerating growth in 2022,” said Morgan Stanley analyst Erik Woodring (Overweight, equivalent to Buy).
Meanwhile, price increases have helped Procter & Gamble (PG, +2.7%) offset margins under inflationary pressure and generated better-than-expected sales and earnings.
You’re here (TSLA), down 5.0% in Wednesday’s session, rose about the same percentage following a first-quarter report that beat Street. Earnings of $3.22 per share easily beat estimates of $2.26, while revenue of $18.76 billion topped the consensus mark of $17.80 billion.
Other news on the stock market today:
- Small cap Russell 2000 managed a 0.4% improvement to 2,038.
- U.S. Crude Futures edged up 0.1% to settle at $102.19 a barrel.
- Gold Futures Contracts slid 0.2% to end at $1,955.40 an ounce.
- Bitcoin was relatively calm, slipping 0.3% to $41,243.10. (Bitcoin trades 24 hours a day; prices shown here are as of 4 p.m.
- Ritual Aid (RAD) rose over 38% to its intraday peak before paring its gain to 10.8%. The outbreak of the wave was a report in the New York Post this suggested the drugstore chain had rejected a takeover offer in late March from Spear Point Capital Management. According to the article, the private equity firm has offered to buy Rite Aid for $815 million, or $14.60 per RAD share – a 56% premium to its March 30 close at 9.36. dollars.
- Omnicom Group (OMC) jumped 4.5% after the advertising company announced its profits. Despite suspending operations in Russia during the first quarter, OMC reported earnings of $1.39 per share and revenue of $3.41 billion, higher than the $1.30 per share and the $3.29 billion that analysts were expecting. CFRA Research analyst Janice Quek maintained a buy rating on OMC stock, citing the company’s “good cost control” and an upward revision to its organic growth forecast.
When to buy emerging markets?
Inflation is not just an American problem.
The International Monetary Fund yesterday declared inflation a “clear and present danger” as it lowered its forecast for global GDP in 2022 by 0.8 percentage points, to 3.6%. And emerging markets are expected to struggle even more than developed economies, as rising prices weigh heavily on commodity importers.
This has translated into even worse year-to-date returns for many emerging market (EM) stocks relative to their still-struggling US counterparts.
But this decline could prove to be an ideal buying opportunity for those willing to brave the high potential (and high volatility) of emerging markets, especially given expectations of a recovery in emerging market growth in 2023.
If you want to take the plunge, you can spread your risk across dozens or even hundreds of stocks from many countries through exchange-traded funds (ETFs). Or you can limit your bet to just one region – for example, these five stocks and funds allow you to tap into Africa’s growth.
If you’re looking for some of the strongest individual picks around the world, look no further than this group of 11 emerging market stocks. We explore the opportunity each presents, and what sets them apart from stock market research experts.