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February 8th, 2019

Earnings Season Continues

By PRATTE
Blogue 10 fev EN

Earnings Season Continues

Another week marked by the unveiling of quarterly results, including earnings from highly anticipated companies such as Twitter and Alphabet. Bill Gross announced his retirement this week after a difficult year. Here is what happened in the markets this week.

Market Brief
Wall Street started the week up on Monday, thanks to gains in the technology sector. Apple gained 2.8%, Microsoft advanced 2.9% and Facebook was up 2.1%. On Tuesday, the uptrend of the previous day continued for the three major US indexes for a second consecutive session. The announcement of several positive quarterly results is also responsible for this resurgence. Estee Lauder gained 10%, while Alphabet lost 0.1% and Seagate fell by 1.5%.
Wall Street opened in scattered order Wednesday after unveiling contrasting quarterly results. The Dow lost 41 points, the Nasdaq advanced 0.1% and the S&P 500 fell 0.1%. After strong quarterly results, GM gained 2%, Disney advanced 1% while Snap jumped 23%. Wall Street opened lower on Thursday, with investors worried about a drop in global growth after a disappointing series of statistics in Germany and a downward revision of growth in the UK by the Bank of England. Twitter stock was down 9.15% early in the session while Tapestry, the parent company of the brands Coach and Kate Spade, fell 16.97%. The Dow lost 174 points at the open, the S&P 500 retreated 0.6% and the Nasdaq dropped 1%.

On Friday, the Dow opened down 123 points, led lower by Boeing (-0.83%) and Caterpillar (-0.96%). The S&P 500 was down 0.4% dragged down by the technology and consumer discretionary sectors while the Nasdaq slid 0.65%.

In Canada, the Toronto index posted its best performance in four months on Monday, closing up 96.01 points thanks to several gains of shares from cannabis producers. The TSX continued its momentum on Tuesday, closing the day with gains of 100.37 points. The TSX ended Wednesday’s session with no direction as cannabis producers’ stocks pulled the health sector down. Cronos Group Inc. lost 9.7%, Aphria declined by 9% and Canopy Growth dropped 3.7%. The TSX opened lower Thursday pulled down by lower oil prices. Same scenario on Friday, it lost 56.44 points at the opening, as investors are still concerned regarding global economic growth down.

Alphabet
Google’s parent company released good earnings on Monday, announcing net profits of $8.95 billion in the last quarter. However, the announcement of a 29% drop in its cost per click seemed to displease investors making the stock go down 3% around 6:30 PM. Alphabet is Facebook’s biggest rival in the digital advertising sector and holds almost a third of the market for the moment. However, it faces the pressure of the arrival of new players in this sector, including the giant Amazon.
In order to diversify, Alphabet increased its spending in 2018. It hired new employees and invested a large amount of money in the cloud environment and in its data centres. The company has also spent a lot of capital limiting the sharing of fake news on its platforms. An increase in spending of $31.07 billion in the last quarter, compared to $24.66 billion in 2017.

Bill Gross

On Monday, the “Bond King” announced his retirement from Janus following the disappointing performance of his fund in 2018. Co-founder of Pimco in 1971, he managed to become the largest bond manager while helping to change the industry. The latter wrote monthly letters, eagerly awaited by investors and the public, revealing strategies, ideas, financial advice and observations on the economy. He surprised many when he left the Pimco ship in 2014 to join the asset management company Janus Henderson.

He announced he wanted to focus on his foundation and on managing his personal assets. “I have had a fantastic career spanning more than 40 years, always trying to make customers interests a priority while reinventing the asset management business,” he said in a statement on Monday. A wise decision after a rather difficult year while the fund he administered at Janus lost more than 3.9% in 2018. He also had more and more difficulties in retaining customers after making bad bets.

General Motors
The restructuring plan of the company seems to be profitable for GM as it posted better than expected earnings this week. The carmaker said it had accumulated US $8.1 billion in profits in 2018, while in 2017, GM had lost US $3.9 billion. Net income was $2.1 billion, or $1.40 per share, compared with a loss of $5.1 billion, or $3.46 per share a year ago.
The company has benefited from higher prices and increased truck sales. General Motors is also preparing to cut more than 14,000 jobs, which will save more than $6 billion by 2020. The company’s stock gained 4.8% after the markets closed on Tuesday and was up more than 2% at the opening of the session on Wednesday.

Twitter

The American company posted on Thursday better than expected earnings, with net profit up 28% as its revenue increased 24%. 2018 has become the first profitable year for Twitter, who earned a net profit of $1,206 billion while last year, the social network had announced losses of $108 million. The social network revealed a 20% increase in its spending in 2019.

Twitter has removed several fake accounts lately in the process of a user cleanup from its platform in order to eliminate hateful or violent content as well as fake news. With this in mind, the network has unveiled in its results a new measure for the audience called mDAU, which is the daily users monetizable, namely who use the applications where they can be exposed to advertising. In the fourth quarter, these mDAUs increased by 9%, however, its number of monthly active users (MAU) is down 9 million compared to last year. Twitter, however, said it would let go of this measure (MAU) after the first quarter to focus on its new metric (mDAU). The company’s stock lost more than 10% before the opening of the markets on Thursday.

Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
Intended to provide general information about markets and securities and not to meet your specific needs, this report is the result of the author’s only work. The opinions (including any recommendations, if any) expressed in this report are those of the author only and do not necessarily represent those of Pratte Portfolio Management and do not constitute securities investment advisory activities designed to meet your specific needs.
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