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Sunday January 25, 2015



Netflix Posts Huge Gains

Netflix, Inc. (NFLX) reported its fourth quarter results on Tuesday, January 20. The company’s share price surged 17% on membership gains and increased revenues.

Netflix reported quarterly revenue of $1.305 billion, which was an increase from $962 million during the same period last year. Net member additions of 4.33 million contributed to the quarterly revenue increase.

In a letter to shareholders, Netflix CEO Reed Hastings said, “Internet TV is growing globally and Netflix is leading the charge.”

Net income during the quarter was $83 million or $1.35 per share. During the comparable period last year, net income was $48 million or $0.79 per share.

Netflix has been a Wall Street darling for several years now. Investors are excited about the company’s success with Internet TV and believe consumers will continue to flock to its appeal. Interestingly, investors’ confidence in Netflix was unshaken even after Amazon announced plans this week to make original movies. An area of concern for Netflix has been the costs to produce original content of its own. In his letter to shareholders, Netflix CEO Reed Hastings revealed that last year the company’s original content cost less money than its licensed content. Such a trend bodes well for Netlifx’s future profitability.

Netflix, Inc. (NFLX) shares ended the week at $437.46.

Starbucks Reports Quarterly Results

Starbucks Corporation (SBUX) announced its first quarter results on Thursday, January 22. Revenue, comparable-store sales and earnings per share all soared during the Christmas holiday quarter.

Revenue during the quarter increased 13% to $4.8 billion. Starbucks said the revenue increase was driven by a 5% increase in comparable-store sales and the addition of 1,612 new stores over the past twelve months.

“Starbucks record Q1 fiscal 2015 financial and operating performance was exceptional by every metric and standard,” said Starbucks Chairman, President and CEO Howard Schultz. “Our reimagined in-store holiday experience that included a vastly expanded assortment of Starbucks Cards, new holiday food, beverage and merchandise offerings and the opportunity to win ‘Starbucks for Life’ resonated powerfully with our customers and drove both increased traffic and tremendous excitement in our stores and around the Starbucks brand.”

Earnings per share during the quarter increased 83% to $1.30. This was in line with analysts’ expectations.

Starbucks continues to be a juggernaut in the beverage and food industry as evidenced in its first quarter gains. The company revealed that one in seven Americans received a Starbucks gift card during the quarter. This was higher than the one in eight figure from the prior year. On its conference call, Starbucks announced plans to introduce two distinct delivery methods for its products, which could boost company revenue. Starbucks’ share price surged 4% in after-hours trading to $86.01 following the earnings release.

Starbucks Corporation (SBUX) shares ended the week at $88.22.

Alaska Airlines’ Earnings Soar

Alaska Air Group, Inc. (ALK) reported its fourth quarter results on Thursday, January 22. The results surpassed expectations and drove the company’s stock price higher.

Revenue during the quarter was $1.306 billion. This was an increase of 8% from $1.21 billion during the same quarter last year.

“Record earnings and the number one airline ranking in The Wall Street Journal for the second year in a row are proof that our 13,000 employees continue to do a great job serving our customers and running a reliable operation,” said Alaska Air Group CEO Brad Tilden. “The substantial increase in the dividend underscores our commitment to shareholders and our confidence in the future.”

The company reported net income during the quarter of $125 million or $0.94 per share. This beat estimates calling for earnings per share of $0.91.

Alaska Airlines’ reputation in the industry has grown over the past several years. The airline has received numerous accolades for customer satisfaction and has been ranked the best airline two years in a row by The Wall Street Journal. Alaska Airlines continues to expand, entering 16 new markets in 2014. Investors have been happy to tag along for the ride, pushing the share price to $68. The airline’s stock price had been as low as $36.31 during the past twelve months.

Alaska Air Group, Inc. (ALK) shares ended the week at $68.65.

The Dow started the week of 1/19 at 17,517 and closed at 17,673 on 1/23. The S&P 500 started the week at 2,021 and closed at 2,052. The NASDAQ started the week at 4,656 and closed at 4,758.

Treasuries Rise on Eurozone Buying

Treasury prices rose this week, pushing yields down, as the European Central Bank (ECB) announced plans for its own form of quantitative easing. Additionally, declining Treasury yields are causing investors to contemplate putting their money elsewhere.

On Thursday, January 22, the ECB announced plans to purchase €1.1 billion ($1.24 billion) in government bonds. This will equate to €60 million a month. The ECB hopes its form of quantitative easing will boost European economies and stave off recession.

The ECB’s announcement coincided with the fall of bond yields around the world. Germany and Italy’s 10-year note yields reached new lows on Friday, January 23. As of early Friday morning, the 10-year Treasury yield had fallen 5 basis points to 1.82%.

“The yield declines are all the more gasp-inducing,” said Jim Vogel, Head of Agency-Debt Research at FTN Financial. “Treasuries still lag the global rally. You’ll see people re-evaluating their portfolio objectives the longer yields continue to shrink.”

Investors continue to buy Treasury bonds even as yields fall, though that trend may slow if the Fed plans to raise interest rates in the near future. The Fed has stated no plans to raise interest rates before the end of April, but there is an even chance it does so by the time of its October meeting.

The 10-year Treasury note yield finished the week of 1/19 at 1.82% while the 30-year Treasury note yield finished the week at 2.39%.

Interest Rates Decline Again

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, January 22. The results show mortgage rates falling again this week amid declining oil prices and bond yields.

The 30-year fixed rate mortgage averaged 3.63% this week. This was down from last week when it averaged 3.66%.

This week, the 15-year fixed rate mortgage averaged 2.93%. This number was a decrease from last week when it averaged 2.98%.

“Mortgage rates continued to fall, albeit at a slower pace, with the 30-year fixed rate mortgage averaging 3.63% this week,” said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. “Housing starts picked up in December coming in at a seasonally adjusted 1.089 million unit pace and beating market expectations. Meanwhile, the drop in energy prices pushed the Producer Price Index down 0.3% for December and the Consumer Price Index fell 0.4%.”

The money market fund finished the week of 1/19 at 0.4%. The 1-year CD finished at 0.7%.

Published January 23, 2015
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