In this section we look to provide an update on newsworthy events that have occurred with investments that don’t necessarily meet our requirements today, but which we believe should be of interest to investors and readers.
Reporting season predictions: The reporting season begins in August with the majority of companies reporting full year earnings. As usual, the predictions are coming in thick and fast, so we have summarised some of the initial views:
- Marcus Padley expects any businesses associated with the iron ore, oil and gold sectors will be standouts. Followed by businesses with substantial offshore operations, particularly those exposed to the USD. Whilst highly leveraged infrastructure plays will have benefitted from every lower interest rates. On the negative side he suggests investors avoid anything exposed to the struggling Australian consumer, but particularly discretionary spending, housing, car sales and coal.
- Macquarie’s research team share similar views with positive outlooks for Fortescue, on the back of Vale continued troubles in Brazil, and Charter Hall property group. They see value in mining services business Worley Parson and dairy producer A2M but believe the CBA, South 32 and Cochlear are set to disappoint.
- Morgan’s broking shares the view that A2M will continue its stellar run, with Medibank Private, mortgage broker Australian Financial Group, AP Eagers and Megaport all to outperform. There is a decidedly smaller company focus. They believe Bellamy’s, Next DC, Flight Centre, Coca Cola, Realestate.com.au, AGL Energy and Woodside are poised to disappoint.
Speedcast International (SDA): The company that specialises in offering satellite communications to various industries around the world delivered another shock downgrade, with earnings likely to fall between $140-150m from previous expectations of $160-$170m. The reaction was substantial, as can be expected from a high growth, smaller company play trading on an inflated multiple.
Facebook: Facebook shrugged off its record setting privacy fine to deliver revenue growth of 28% to $16.9bn for the quarter and a profit of $2.6bn. This included a $2bn impairment for the $5bn fine but importantly the company is growing at twice the rate of the internet advertising market. The company reported that 1.59bn accounts used Facebook daily, up 8% on last quarter, suggesting the platform isn’t dead yet.
Hub 24 (HUB): Hub 24 suffered after a research report released by a Macquarie Bank analyst suggesting the company was paying negative returns on it’s cash accounts. Further, they believe that falling interest rates and competition are cutting the margin that these platforms make on their bank accounts. The company responded with a public announcement to the contrary, noting that applying platform fees solely to a cash balance is not intuitive nor an appropriate assessment and confirming that most investors keep the balance of their cash accounts low preferring to use one of the many term deposits or fixed income funds available on their platform.
Netflix (NFLX): The disruption darling delivered one of the weaker announcements of the US reporting season with global user growth of 2.7m well below the 5.0m previously forecast. The last time Netflix added this few subscribers in a quarter was back in 2016. The company lost some 130k subscribers in the US and as has always been the case there is no cost to change, so this worrying trend resulted in a double figure drop in the share price. Revenue was still up 26% year over year to $4.92bn but the company remains cash flow negative as it seeks to monetise its huge subscriber base and invests in expensive content.
Microsoft (MSFT): Microsoft was the highlight of what has been an otherwise downbeat earnings season announcing better than forecast revenue and profit results for the quarter. The highlight was the Azure cloud business, sales for which rose 39% from a year earlier to $11bn at the same time the profit margin increased to 65%. The online version of Office, titled Office 365, saw sales increase 31%. All this was enough to see the stock move past it’s all-time high.