SUPERNEWS

Macro

Goldman Sachs Shines, Netflix Stumbles in Earnings Insights

Mixed earnings season sees 73.6% of S&P 500 companies beat expectations, with Goldman Sachs strong and Netflix's outlook raising concerns.

By Alex P. Chase

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4/19, 13:00 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Bank of America Corporation
Goldman Sachs Group, Inc.
Morgan Stanley
Netflix, Inc.
UnitedHealth Group Incorporated
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Key Takeaway

  • Goldman Sachs and Morgan Stanley beat earnings expectations, with shares up 3.7% and 6% respectively, highlighting strength in investment banking.
  • Netflix's weaker-than-expected full-year revenue outlook and decision to stop reporting key metrics led to an over 8% drop in shares.
  • Despite 73.6% of S&P 500 companies beating earnings so far, the overall profit growth is disappointing at just 0.16%, indicating a mixed earnings picture.

Earnings Season Insights

The latest earnings season has provided a mixed bag of results, with a significant focus on some of the largest U.S. banks and a major entertainment company. So far, 73.6% of the S&P 500 companies that have reported have beaten earnings expectations, according to FactSet data. However, the reaction in stock prices has varied, with some notable declines despite positive earnings surprises. For instance, Bank of America saw its shares fall by more than 3% even after beating top and bottom line expectations, attributed to a year-over-year decline in net interest income and projections of a further drop in the second quarter.

Conversely, Goldman Sachs and Morgan Stanley enjoyed share price increases of around 3% and 2.5%, respectively, following their earnings announcements. This positive reaction was bolstered by analysts from JPMorgan, Bank of America, and Wells Fargo raising their price targets on Goldman Sachs, citing its pivot towards asset and wealth management as a positive move.

UnitedHealth and Netflix Stir the Pot

UnitedHealth's earnings significantly exceeded analyst expectations, propelling its shares to potentially their biggest weekly gain since April 2020. Despite this, the company noted that a cyberattack on its subsidiary Change Healthcare could impact full-year earnings. Netflix, on the other hand, reported strong start to 2024 but provided a weaker-than-expected full-year revenue outlook and announced it would stop reporting quarterly subscriber numbers and average revenue per membership starting next year, causing shares to fall more than 8%.

Mixed Earnings Picture

Despite the high percentage of companies beating earnings expectations, the broader earnings picture remains muddled. FactSet data indicates that profit growth is on track to disappoint, with the blended earnings growth rate sitting at just 0.16%, significantly below the more than 3% expansion anticipated by analysts. Revenue beats have also lagged behind earnings, with only 61% of companies exceeding top-line expectations.

Goldman Sachs Capital Raise and AI Financing

Goldman Sachs is raising capital by selling fixed-to-floating rate notes, aiming for a total of $4 billion. This move is part of a broader resurgence in debt issuance within the investment banking sector, driven by a near-record level of investment-grade debt issuance. Additionally, Goldman Sachs CEO David Solomon highlighted AI financing as a key growth area, with the bank focusing on investments in AI infrastructure as a significant opportunity.

Street Views

  • Mike Mayo, Wells Fargo (Bullish on Bank of America):

    "Overall, BAC is a Goliath at a time when Goliath is winning."

  • JPMorgan, Bank of America and Wells Fargo Analysts for Goldman Sachs (Bullish on Goldman Sachs):

    "Goldman is 'likely best-of-breed' among its peers."

  • Ebrahim Poonawala, Bank of America (Bullish on Goldman Sachs):

    "The bank’s pivot away from commercial banking into a renewed emphasis on its asset and wealth management segments is a positive for Goldman... one of the best names to own thanks to its exposure to a broader uptick in investment banking activity, as well as secular trends including more financing opportunities for AI projects and growth in private credit."

  • George Hill, Deutsche (Bullish on UnitedHealth):

    "So while core MLR [medical loss ratio] in Q1 was slightly higher than expected, the outlook for the year seems largely inline with expectations, alleviating investor concerns around runaway medical cost trends and the risk from that to EPS."

  • Doug Anmuth, JPMorgan (Bullish on Netflix):

    "Overall, NFLX’s 1Q was very clean... we’d expect pushback from the 2024 revenue growth outlook..."

  • Jessica Reif Ehrlich, Bank of America (Bullish on Netflix):

    "[Netflix's] increased visibility in growth drivers and strength in innovation supports our buy rating."

Management Quotes

  • Alastair Borthwick, CFO of Bank of America:> "Net interest income will likely decline in the second quarter due to drops in wealth management before potentially rebounding later in 2024."