Biggest Stock Earnings Reports This Week

Welcome back everyone. Today on the Joseph Carlson Show, we're finally getting back to earnings season. After a long weekend, we have an important earnings coming up today. That is Netflix. Now, Netflix is important for a couple of reasons. One of them is, for me personally, I own $90,000 of the stock. It's one of my most significant bets, so obviously I care about the company and its report. But Netflix is also one of the major tech companies kicking off this earnings season. They're going to set the tone, so to speak. Now, Netflix is not the only one reporting earnings. We have Netflix aftermarket closed today, but then looking further along this week on the calendar, we have Ally Financial. Going to go over that earnings report and share a few thoughts on it, as well as Intel and American Express. American Express lets us know how Visa and MasterCard are going to do. Now again, the major focus is going to be on Netflix, and I'll be giving you predictions on how many subscribers I think they're going to gain today and what the outlook looks like for 2025. Now, of course, we also have some big news to get into. Trump has taken office, officially, yesterday was the inauguration, and there's a lot of talk about Trump and tariffs. He's been going on about how he's going to stick it to these different countries, he's going to make them pay, he's going to make things even, and the tool of his choice to do that is tariffs. Taxing the imports on other countries' products does have an impact on pricing. And today we're going to be looking at the different countries and products that are likely going to be impacted the most from the tariffs. And there's a lot of investors concerned of whether or not tariffs cause inflation. We're going to be discussing if they do in fact cause inflation, and if so, how do we protect our portfolios against inflation. And then finally, over the past couple of years, as we've all been living our own lives, busy with the endeavors that we're involved in, Walgreens has had a secret battle being waged, a secret war, so to speak, with Walgreens and a digital refrigerator cover company. We'll be going over all the details of this bitter battle between Walgreens and this fridge company. Now we start off today looking at the upcoming earnings of the week. In order to do that, the best view is with the calendar that I have on Qualtrim. If we go to Qualtrim.com, this is the website that I develop, it's part of the Patreon membership. We have this new feature here, you can look at a five-day week calendar. It shows the current day highlighted there in blue, just like Google Calendar. And then you have the company's reporting earnings, organized by market cap underneath, with before market open and after market close. Now looking at Netflix specifically today and what I think they're going to do, we can take a look at some of the expectations. If we click on Netflix here, it opens up this drawer and we have this feature here called what to watch for. It is AI generated. This is where Qualtrim feeds the AI a bunch of data specific to their financials, their last earnings report. And then it summarizes what are the most important things based on the commentary of the CEO that investors should be watching for. And it highlights some of the biggest key performance indicators to look at. For example, one of the things we know about 2024 that management has said is that the content slate was a little bit uneven. There's some months where they came out with a lot and some months not a lot. And that was mostly because of the writer strike. Now they say the strategy includes a consistent drumbeat of big title releases across various regions. That drumbeat means that every single week, every single month, there are going to be consistent big releases from Netflix in 2025. They're expanding into new entertainment formats. The company is actively investing in new initiatives, including gaming and live events such as a Tyson Paul fight, WWE broadcasts. The expansion represents incremental growth opportunities. On the earnings call today, you're going to hear Netflix CEOs talk about this diverse content slate and going into the live events. You're going to hear a lot of analysts ask about this in the Q&A. They're going to want to know, how did things go with the Tyson Paul event? How did they go with WWE? How many new subscribers did these big live events gain? Were they really profitable and bringing in a lot of subscribers? What's the churn rate after the event ends? That's a lot of the questions they're going to get on this call. The next thing of focus is the advertising tier. Advertising growth trajectory. The ad plans membership base is growing and the company expects substantial year over year increase in ad revenue, suggesting a strong growth opportunity that could become more integral part of their revenue stream in the upcoming years. Right now, the ad revenue is not the most meaningful part of Netflix's revenue. But with the way that it's growing, how fast it's growing, it should really become meaningful over time. Now, with Netflix's earnings report today, the biggest single metric that investors are going to be paying attention to is that subscriber number. The thing they always pay attention to. But today, it's more important than usual because it's the last time they're reporting that on their regular quarterly reports. Now, they're going to give updates down the road when they hit certain landmarks, right? If they hit like a 50 million subscriber landmark. But they're no longer going to be reporting every single quarter how many subscribers they gained and lost and against the expectations. It's going to be a blackout. So the way that I look at this is this is the final hoorah of Netflix's subscriber number before going into the abyss, before going into the dark. And this sets the tone for all of 2025. If they miss on this subscriber number or it comes in low, that means that they go into this abyss after having missed their subscriber number. And then investors will be concerned about their subscriber gain the entire rest of the year. So it's especially important that they do well this quarter today. Now, I have a couple of thoughts on what may happen in terms of predictions. We have the different ranges here. If Netflix has less than zero, if they somehow lost subscribers, that would be a doomsday event. The stock would be down 25 percent at least. That would be, I think, a reasonable down day. It'd be down 25 percent, maybe 30 percent. If they really lost subscriber last quarter after what they put out in content, that would be a significant problem. Investors would be incredibly concerned. Management would have to deal with that issue. I don't think that's going to happen. I think the chances of that happening are incredibly, incredibly slim. If they only gain one to four million subscribers, that's going to be a really weak quarter. It'll be great that they didn't lose. They're not shrinking. But I still think that's a minus 10 percent day. Really sad. If that happens, I'm going to be very bummed out about this earnings and the performance of the company. If they gain between five to seven, that's just kind of a meh day. Not the worst. It's not a doomsday event. They still grew. But that's not the fastest growth either. That's as fast as they grew last quarter. Nothing special. The stock might flounder around. I can't see it trading too much on that. It may go down a little bit if that's the case. I think where we get to the happy medium is somewhere around eight to 10 million subscribers. If that happens, I'm happy as an investor. I'm satisfied. The company's growing. They're on track. That's more than they gained last quarter. Not as much as they gained last year in Q4. But I think that would be a solid quarter. So I'd be happy with anything above eight million subscriber gains. Where I'd be really thrilled with the company's performance, if they're able to do this, is 11 million plus. If they get over that 11 million mark, that double digit subscriber gain, that would be significant growth. They're headed towards 300 million subscribers. I would be super happy if that's the case. So this is basically how I break it down and my reaction to these different subscriber number options. Now, my guess is, if I have to guess, I think it's going to be over eight million up to 11 plus million. I think it's going to be somewhere in this range. I'm leaning more towards 11 million for a couple reasons. First of all, they had the Jake Paul, Mike Tyson event. Nobody likes Jake Paul. Everyone knows that, but everyone watched that event. And a lot of people signed up for the Netflix service to watch that fight. Some of them, of course, canceled, but many of them will keep it because they see all the other great content. Then, of course, you have the NFL live events. That was a huge event on Sunday, broadcasting two NFL games. I think that caused a lot of signups as well. Then you had Squid Game season two, released the day after Christmas, which went viral all across the world. So we have some major, major content releases that just makes me believe they can get into that double digit, that 10 million plus. So again, we'll see what happens in terms of my Netflix investment. I haven't sold a single share. I'm going into this with my full stake in the company, and I'm willing to hold it through a downturn. I've proven that once before. I can prove it again if we have a bit of a bump. Next up, we have Wednesday before market open. We have Ally Financial as one of the companies reporting earnings. This one's more interesting because there's a lot of different financial companies that have already reported earnings, and I think it's going to be good. I think Ally Financial will be on the top and bottom line. They'll put out a strong report simply because of the reports from all the major banks. The indication right now is that the customer is strong, the economy is strong. Things look very bullish overall. So when you're looking at other financial companies like Ally Financial or SoFi, I think investors right now are expecting a good quarter, and I think they're going to get it. A huge amount of Ally Financial's balance sheet is based on paying off car loans, used car loans. And it looks like consumers are doing that. They're able to afford their cars. They're able to pay for them. So I think the trends with credit performance and charge off is going to be good. Number two is a net interest margin. This quarter, the management has indicated that while near-term fluctuations are expected due to changes in deposit pricing and interest rates, favorable margin dynamics from the shift towards high-yielding auto loans and reduction in low-yielding assets may support net interest margin expansion over time. So we can look to see the trajectory of the net interest margin, super important metric for banks. Another thing specific to Ally Financial is their accounting changes. They say a shift from the flow-through method to a deferral method would allow for a smoother earnings path by spreading the recognition of EV tax credits throughout the life of the leases. So it's no longer going to be the lumpy tax credits all in one quarter. They're kind of doing this amortized schedule type of thing where they flow it through quarter after quarter. And the predictability of the loss rates and delinquencies. Management has noted even though the long trend remains strong, there's going to be some volatility in this, so expect this to be a little bit volatile this quarter. Again, most of the companies we're looking at in the fintech space, I expect their earnings to be strong. Ally Financial is no different. Even though they're working with auto loans of used cars, I still think that consumer group is stronger than usual. When we look at the other notable earnings this week, on Thursday we have FICO. This is one of the most incredible stories of a company over the past five years. It's been a true compounding machine with unmitigated pricing power. And we have a couple different factors to look for. I want to highlight two of them. As they grow, they keep their margins very high and they try to raise their margins. This leads them into extensive share repurchasing. This is the story behind FICO. They grow the revenue, they grow the margins, and they funnel that money back into share repurchases. The company reported a significant 31% year-over-year increase in free cash flow to $607 million. FICO has been actively returning capital to shareholders, but it highlights an issue here. It's repurchasing shares at higher average prices. Investors should observe FICO's free cash flow generation in the current quarter and any potential further share repurchase activity, as these factors contribute to shareholder value. One of the big issues I have for FICO is that the share repurchase strategy works particularly well for companies that are undervalued. If a company is trading at a low P-E ratio, the share repurchases really bump up their earnings and grow their earnings per share over time at a rapid pace. But the P-E ratio that FICO is trading at means that the share repurchases are less impactful. Now again, my guess is that FICO's earnings are going to be strong. They're still the de facto default that everyone uses for home origination. And the home sales, even though they slowed, they've kind of bottomed out, and in some places they're starting to speed back up. Now, at the same time, Thursday before market open, we have Intel giving us a look at their earnings, showing us what's been going on for the past three months. Intel has a lot of problems to solve. They're focusing on cost reduction and improving efficiency, maximizing the x86 franchise value, deployment of the advanced nodes, restructuring impact for financial outlook, and advancements in AI and foundry businesses. It again leads me to the same conclusion. Intel right now is a mess. The company is so complex. They have their hands in so many different things, and they're not executing that well on any individual thing. For this company, they're being beaten out by Nvidia and AMD. I think that AMD right now is stealing their lunch. They are losing contracts with different big companies all the time, and it's a turnaround play. Turnaround plays are very difficult. If you're invested in Intel, I think you need to be careful. The last company we'll look at reporting this week is American Express reporting Friday before market open, and I am very bullish going into this earnings. I think it's an easy call. They're focusing on expanding and refreshing their product line. It notes here that from the CEO, American Express has refreshed 40 products globally within the year, aiming to enhance value for existing members and attract new ones. The card fee revenues grew by 18% last quarter. The company's ability to acquire 3.3 million new cards with a particular focus on millennials and Gen Z is a testament to the success of their strategy. American Express is growing in market share with the younger crowd. And then finally, an area that they're expanding into is dining technology. The focus on expanding dining capabilities shown by acquisitions of Resi and Toc presented significant growth opportunities. Since dining is one of the fastest growing T&E categories and strategic investment area for differentiation, investors should assess how these developments might influence customer spend and engagement, especially amongst younger card members. So American Express has identified this somewhat niche area of growth in dining technology. They're putting significant investments behind that. I think their earnings are going to be great, but we'll have to wait and see. Now, next, we get to the news that Trump has finally taken office once again. You may have heard the news. Now, the big question for investors is what does this mean for various stocks? And one of the biggest points of contention have been the impacts of tariffs. And based on what Trump has talked about for the past couple of years, he is implementing tariffs at least to some degree. China is the largest furniture exporter in the globe. In 2023, $32.4 billion in furniture was imported into the U.S. 29% of that came from China alone. So in terms of furniture exports, China is the biggest country, but Vietnam is also not small. They're actually just behind China, which is kind of surprising. I wouldn't have guessed that, but a lot of furniture comes from Vietnam. So they may gain some business if we have some severe tariffs on China that we don't have on Vietnam. Another big industry that could be impacted by the tariffs is the beauty industry. For example, Elf Beauty makes around 80% of its products from that region. So this is a huge percentage of exposure to China. Mexico creates a lot of cars, beer, and avocados. So we can see that impacting various companies. I don't invest in the auto industry anyway, so this isn't going to impact my portfolio too much. Canada is a huge exporter to the U.S. as well, so that would have a big impact. So we could see how this impacts different industries. The auto industry outside of the U.S. could become more expensive. We have different various food prices going up. We have beauty products, home furniture, and toys that are sold on Amazon and other places may go up in price. Now how does this affect your portfolio is a different question. Overall, this is going to be spread out across lots of different products, but most of them that I look at won't have a direct impact on my portfolio. Now the big question or concern that many investors have is what does this mean in terms of inflation? A lot of people believe that if something becomes more expensive, that's inflation. That just means that inflation happened. That's not really the full story. When we look at different comments like this, ones from so-called experts, we have one of them here saying, All of these actions are inflationary. You have to pay the piper somewhere. And this is the sentiment that a lot of people share that I completely disagree with. I don't believe that tariffs in and of themselves are inflationary. And I think that people that believe that tariffs in and of themselves are inflationary don't understand what creates inflation. When we look at what Scott Besson said on this subject, I think he's the most accurate. He says that tariffs can't be inflationary because the price of one thing goes up. Unless you give people more money, they have less money to spend on the other thing. So there is no inflation. The inflation comes through either increasing the money supply or increasing government spending. Over the past 20 years, the only times that we've had big inflation spikes is when we gave people trillions of dollars from the government. We loaded people with cash to spend immediately at a time where there wasn't much production of goods and services. So we increased demand dramatically while shutting down supply. Anytime you have that type of equation where you're increasing demand and closing off supply, you're going to spur a lot of inflation. And that's what we had in 2020, 2021. We saw the inflation ramp up as people got trillions of dollars of spending money. Student loans were halted. Everyone had excess capital. And there wasn't a lot of goods and services because supply chains were shut down. And I don't believe there's any reason to believe that some items being slightly more expensive because of tariffs are going to have anywhere the same impact as giving away trillions of dollars. Now, even though I don't believe that these tariffs are going to cause a huge spike in inflation, it is true that inflation happens all the time. Every single year, things get a little bit more expensive and the value of the dollar gets a little bit less buying power. And there are natural hedge against inflation with two different things. One of them is having a revenue that can pass along the cost to customers. And another one is having pricing power. And I'll show you examples of each of those. So first of all, we have the companies that pass along the cost to the customer. These are companies like MasterCard. If you look at MasterCard, Visa, American Express, these companies make their money by taking a percentage of all revenue, all the different digital transactions. Inflation means the prices of things go up. MasterCard makes more money because they're charging a percentage base. So this company is very much a natural hedge against inflation. Another company that is a natural hedge against inflation is Costco. Prices of goods and services go up. Costco passes those costs right along to the customer. They try to get the lowest price possible, but either way, they're going to pass along that cost. The other type of company that's a good inflation hedge is one that has pricing power. Simply put, they offer products and services so good that they can price things however they want because they have a value surplus. Amazon can do that with their Amazon Prime membership. They raised it and no one really noticed. And Netflix can do the same thing with their subscription service. They continually raise the prices over time above the rate of inflation because their product and service is so good that very few people cancel. So to me, whether or not tariffs cause inflation or the extent that they do doesn't really matter. My portfolio across the board is well prepared for inflation, whether it happens or not. Now, finally, we get to the news of this silent and bitter battle that's been fought for the past couple of years. For years, you've been living your own life involved in the news and politics of the day. While all that's going on, Walgreens has been at war fighting against a company that is a digital refrigerator display company. I'm not joking. This is not a joke. It's not satire. This is real news. This company that creates these fridge covers, I can give you an idea of what they look like. We have a picture of them here. So normally you go to the grocery store or you go to Walgreens and you just see clear glass and you get to see what's inside of the fridge. Well, Walgreens management said that works too well. It's too good of a system. It's too well proven. Customers like it too much. They like being able to just see what's in the fridge so they can open and grab what looks appetizing to them. So because it's not broken and it works so well, let's try to fix it. The goal here was to basically make it so that you can advertise on your fridge panels so that they could turn this into an ad revenue thing where they could sell ad space and different animated things and make money that way. They saw that Amazon is making a fortune through advertising revenue. Walgreens wanted in on that money. They instead wanted to advertise on the real estate of their fridges. And along came this company that offered that solution. This company came along offering these smart doors that obscured Shopper's View of the fridge's actual contents, replacing them with virtual rows of Gatorade, Bagel Bites, and other goods it promised were inside. When proximity sensors detected passerbys, the fridge doors would start playing short videos of hawking Doritos or urging customers to check out with Apple Pay. Problems started in December 2023 when all the screens went blank. At first, the outage didn't arouse suspicion. These internet-connected fridge panels, developed by a Chicago startup called Cooler Screens, frequently flickered, crashed, or showed the wrong product. Every so often, they caught fire. But store managers were stuck with them, as part of a 10-year contract with Walgreens for split revenue of the ads. So this business came in. They advertised this great product that would cover up all the fridges with these new digital displays. They had problems like flickering, going blank, or catching fire. And they got in with a 10-year agreement. So Walgreens has been stuck with these things, dealing with this horrendously terrible technology, making their stores worse for everyone. Cooler Screens had installed 10,000 smart doors at hundreds of US locations like this one. It planned to install 35,000 more. By this point, Walgreens had already tried to pull out of the deal and get rid of the doors, blaming what it said was glitchy hardware and software. But Cooler Screens had temporarily prevented their removal by prior June by suing Walgreens for breach of contract, seeking $200 million and demanding its screens stay in place. Unreported until now, over the ensuing months of legal battling, during which Walgreens had countersued for monetary damages, Cooler Screens' chief executive officer decided to try a different form of pushback. So the CEO of this digital screen company, in this bitter legal battle between these He decides a new tactic, and that's to simply make all the screens go blank. He intentionally inflicted damage on Walgreens' business. The team secretly cut the data feeds of more than 100 stores in Chicago. The dozen or so smart doors affected in each of these stores either glazed over with a white pixel or blacked out altogether. So they just shut off the screens on all these refrigerators. Customers could no longer see where the Coke and Red Bull and Hot Pockets and Heineken sat, and either assumed the fridges were out of order or found themselves rummaging through them one by one. Some staffers pasted pieces of paper on opaque screens that read, for example, a sort of drinks or coffee. Others filed service requests with the company, Cooler Screens, which had been marking all incoming complaints as resolved without fixing anything. These scumbags, these guys running this company. First of all, they sell Walgreens on this software. They say it's going to be great. They say that we're going to split the ad revenue. You're going to be able to be like Amazon. You're going to be able to advertise in your store. Customers are going to love it. It's going to trend online. Some of that kind of happened. There is some novelty to it. Some of it went viral online. But then it was met with faulty software, having items marked here that weren't really in the fridge, making customers upset. And then there was glitchiness with the screens going black. As they went back and forth suing each other with Walgreens trying to exit out of this This company went so far as to intentionally shut down the data feed and make hundreds of Walgreens locations have a blank door, or it just turned completely black. And then when Walgreens said, hey, we've got to fix this, we're filling out these service requests, they literally just marked them as complete without doing anything. Now, this story goes on from Bloomberg for like another 50 pages, detailing out one of the most extensive battles I've seen between two different companies, to the point where Walgreens literally just started ripping the door screens off, replacing them with standard glass, even though the judge told them not to. They're willing to just do what they want now and ask for forgiveness later, rather than deal with this company anymore. So as this company is dealing with the normal challenges of being destroyed by Amazon, having their entire business being taken over by Amazon and dealing with stuff like lawsuits against the Department of Justice for opioid prescriptions, all these various challenges they're already dealing with, they also made a massive unforced error by wrapping themselves into legal battles with a refrigerator screen company. I said for a long time, Walgreens is a terrible investment. I don't know why people are buying that stock when Amazon exists. That's all for this episode. See you in the next one.