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January 18, After the Market Close
One non-financial that is likely to garner some attention next week is Netflix. The online entertainment company has been a notable earnings mover in the last few earnings seasons, exhibiting significant volatility after each of its last three earnings reports. The average absolute post-earnings return for the last three quarters has been 15.03%, compared to an expectation of 10.37%. (This followed a significant outlier in January 2016, when the stock moved just 0.1% after its earnings report versus an expectation of 13.2%.)
Last time around, in the earnings report it released in October, Netflix saw its shares jump 19% following the release of its quarterly report, versus an expectation for a 10.4% move. The company reported better-than-expected earnings and revenue, but the real fuel for its advance came from strong subscriber numbers.
Netflix announced quarterly subscriber additions of 3.57 million. Of these, 3.2 million came from overseas. U.S. subscriber adds were just 370,000 for the quarter, well below its estimates.
Signs of slowing subscriber growth in the U.S. had sparked sharp post-earnings declines in the two quarters headed into October's report. For instance, in July, Netflix reported 1.68 million total subscriber additions, consisting of just 160,000 in the U.S. and 1.52 million overseas. This report prompted a 13.1% drop in NFLX shares, compared to an expected move of 9.8%.
In the upcoming earnings report, Netflix is expected to earn $0.13 per share, compared to a figure of $0.10 per share in the same period last year. Revenue is expected to jump by more than 35%, rising to nearly $2.5 billion.
As has been the case lately, investors will likely focus on the subscriber numbers to determine where to send the stock price. They will be looking to see if overseas growth can overcome likely weakness in the nearly-saturated U.S. market.
Implied Volatility has been rising for NFLX since late November, climbing from a level of 29.6 to reach 61.3 on January 11, before moderating slightly in the following days. This was the highest level since mid-October, just before its previous earnings report. The October level was its highest mark since January.
The ATM Straddle premium for NFLX for the January 20 expiration is currently at $12.82, or 9.6%.
American Express ($AXP)
January 19, After the Market Close
Last week's main earnings focus was on the financial sector, with results from JP Morgan ($JPM), Bank of America ($BAC) and Wells Fargo ($WFC) garnering a lot of attention. The financials are once again the most consistent highlights of this week's quarterly reports. There will be results from BB&T ($BBT), KeyCorp ($KEY) and Morgan Stanley ($MS). But the most high profile report in the sector is likely to come from American Express.
The company is expected to see a drop in profit compared to last year. Earnings are projected to fall to $0.98 per share compared to $1.23 per share in the year-ago period. Revenues are seen down about 6%.
Amex has had a couple of extremely volatile post-earnings reactions in recent quarters. This includes the last report in October, which sparked a 9.0% rally in its shares versus an expectation of a 3.9% move. This came as the company topped expectations with its quarterly profit and raised its forecast for the full year.
This followed two relatively uninspired performances following the release of an earnings report. In July, the stock dipped 1.6% after its earnings release, versus an expectation of a 4.0% move. In April, the stock ticked up 0.9% when the implied straddle headed into the report was 4.3%.
Going further back though, AXP had another volatile reaction last January, when shares plunged 12.1% following its earnings release, compared to an expected move of 3.8%.
All told, the average absolute post-earnings return for the last four quarters has been 5.9%, compared to an expectation of 4%.
Implied Volatility for AXP rose from late November into early January, peaking at 29.1 on January 9. This was its highest level since its last earnings report in October. In the last several days, IV has come off its multi-month high to hit 27.9 last Friday.
The ATM Straddle premium for the January 20 expiration for AXP is $3.12, or 4.1%.