For Immediate Release
Chicago, IL – February 12, 2020 – Zacks Equity Research Shares of Alibaba (BABA - Free Report) as the Bull of the Day, NETGEAR, Inc. (NTGR - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Netflix, Inc. (NFLX - Free Report) , The Walt Disney Company (DIS - Free Report) and Sony Corporation (SNE - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Alibaba shares have surged 36% in the last six months to easily top the S&P 500’s 17% climb. The Chinese e-commerce giant looks ready to continue its expansion in the post-Jack Ma era as it grows its cloud computing reach and its retail leg expands to smaller cities as part of China’s middle-class explosion.
With Alibaba set to report its Q3 fiscal 2020 financial results before the market opens on Thursday, February 13, let’s see why BABA stock looks like it might be worth buying.
Alibaba reportedly controls roughly two-thirds of China’s e-commerce market, through Taobao and Tmall. This alone might be worth the price of admission since China is the world’s second-largest economy.
Plus, more and more of China’s 1.4 billion people enter the vital middle-class demographic every day. And McKinsey estimates China’s middle class could hit 550 million by 2022, which is far larger than the entire U.S. population of roughly 330 million.
Last quarter, BABA’s mobile monthly active users hit 785 million, up 30 million from the prior-year quarter. Alibaba is also dedicated to expanding its logistics business to help it grow outside of major markets like Beijing and Shanghai, which have become more saturated. With this in mind, BABA’s core commerce business, which jumped 40% last quarter, accounted for 85% of total sales.
In an effort to diversify, Alibaba has jumped into cloud computing in recent years. The segment surged 64% last period to account for 8% of second quarter revenue. Alibaba plans to expand its cloud business, as Amazon, Microsoft and others prove why cloud is worth the investment.
Meanwhile, the firm’s digital media and entertainment business, which consists primarily of Youku and UCWeb, jumped 23% last quarter. Alibaba executives pointed to the synergies between commerce and entertainment and noted that Youku’s average daily subscribers increased 47%.
The company is also investing in its portfolio with “original content that resonates with Chinese audiences.” And investors should note that China is one of the only places that Netflix doesn’t operate.
Clearly, investors still need to see how the coronavirus will impact Alibaba. But Wall Street has seemed to shake off the fears on the back of better-than-expected earnings results, which includes giants such as Apple. And stocks climbed again Tuesday, after a strong start to the week on Monday.
Therefore, most investors will likely want to wait to see what Alibaba executives have to say about the coronavirus and what new guidance they provide. But the nearby chart shows that BABA stock is resting near its highs, with the stock up over 5% in February.
Alibaba shares also climbed above their summer 2018 highs in December. And it has jumped 150% in the last five years, against JD.com's 54%.
Despite the run, Alibaba stock is trading at a discount against its industry’s 42.5X, at 30.5X forward 12-month Zacks earnings estimates. This also comes in below its own three-year median of 33.5X and 42X high during this stretch. Plus, its Internet – Commerce industry rests in the top 32% of our more than 250 Zacks industries.
Outlook & Earnings Trends
Before we look at what to expect, we need to know that Alibaba reports its metrics in Chinese RMB and then offers a comparable U.S. dollar equivalent for the “convenience of the reader.” Therefore, some of our percentages and estimates will be different.
With this in mind, our Zacks estimates call for Alibaba’s quarterly revenue to jump 33% to $22.68 billion. Then its full-year fiscal 2020 revenue is projected to climb 33.2%, with 2021’s sales expected to climb 31.2% higher than our current-year estimate.
Meanwhile, its adjusted quarterly earnings are expected to climb over 27% to $2.25 per share. And its fiscal 2020 EPS figure is expected to surge 29%, with 2021 projected to come in 21.2% stronger. On top of that, Alibaba’s earnings estimates have climb since it last reported.
Alibaba’s positive earnings revision activity helps it earn a Zacks Rank #1 (Strong Buy). And its pitch to investors remains straightforward: The company is diversifying into new growth areas and its e-commerce business is ready to climb alongside the Chinese economy.
However, it is likely prudent to wait until after Alibaba’s earnings release to think about buying BABA, as any hint of a coronavirus downturn could send the stock down in the near-term.
Bear of the Day:
NETGEAR, Inc. shares have tumbled 31% in the last six months, as its sales continue to decline. The networking and Internet connected products firm’s near-term outlook also appears rough.
What’s Going On?
NETGEAR offers a variety of networking and Internet connected products for broadband access and network connectivity for consumers and enterprises alike. The company did top our Q4 fiscal 2019 bottom line estimate on February 5.
However, its adjusted fourth-quarter earnings of $0.34 per share marked a substantial downturn from the year-ago period’s $0.68 per share. Meanwhile, Q4 revenue slipped of 12.4%, which marked the third straight period of declining sales.
Overall, the company’s fiscal year sales fell nearly 6% to continue a larger downward trend for NETGEAR. “Due to reduced service provider shipments as carriers are awaiting roll outs of 5G product offerings, and our continued efforts to rebalance the channel inventory mix towards WiFi 6 products, our first quarter net revenue is expected to be in the range of $205 million to $220 million,” CFO Bryan Murray said in prepared fourth quarter remarks.
“Given this decline in our topline, our GAAP operating margin for the first quarter is expected to be in the range of (1.8)% to (0.8)%, and non-GAAP operating margin is expected to be in the range of 2.0% to 3.0%.”
Outlook & Earnings Trends
Looking ahead, our Zacks estimates call for NTGR’s first quarter fiscal 2020 revenue to fall 17.3% from the prior-year quarter to $205.9 million, which comes in at the bottom end of the firm’s own guidance. At the bottom end of the income statement, NETGEAR’s adjusted quarterly earnings are projected to tumble over 68% to $0.19 a share.
Despite the expected first quarter downturn, the company is projected to see its full-year fiscal 2020 sales climb marginally, with its adjusted earnings expected to pop 1.6%. But both of these figures come against an easy-to-compare year.
NETGEAR’s strong negative earnings revision trends have the stock sitting at a Zacks Rank #5 (Strong Sell) right now. The stock also holds an “F” grade for Growth in our Style Scores system and NTGR is part of an industry that rests in the bottom 34% of our more than 250 Zacks industries.
Therefore, the stock might be worth staying away from for now, until it shows some signs of a comeback.
Oscar Success Drives These Mega Studio Stocks
Academy Awards, better known as Oscars, used be as popular a television event as the Super Bowl. But this year’s Academy Awards saw a drop in viewership of 3 million compared to last year. However, analysts argue that last year’s releases like Black Panther and A Star is Born drew considerable viewership. Meanwhile, this year, niche films were selected and the best motion picture “Parasite” has been viewed by a comparatively lesser number of people.
Nevertheless, studio companies saw their shares scale north on the back of their film’s stunning success at the Academy Awards in Los Angeles. After all, such award wins boost investor confidence in the parent companies, which are anyhow doing well on fundamental strength.
Studios That Won Oscars
The South Korean studio, Barunson Entertainment & Arts Corp, saw its shares climb 19% following 2020’s Best Picture winner. In fact, Parasite won four major awards at the Oscars, including the Best Picture, Best Director, Best Original Screenplay and Best Foreign Language Film. Similarly, provider of Internet entertainment service Netflix, Inc. entered this year’s Oscars with 24 nominations, and walked away with two wins. Laura Dern won the Best Supporting Actress for Marriage Story.
By the way, documentaries are something that Netflix has not gained expertise over. But this time, the story was quite different! American Factory, a documentary about an Ohio plant opened by a Chinese billionaire, won the Oscar for the Best Documentary.
Such wins will help Netflix lure and keep subscribers as the company continues to face challenges from rival services like Disney+ and Apple TV+. Netflix has always been known to win television awards. But now, the company has spent millions of dollars to win the prestigious Academy Awards, plus spent a further million on awards marketing campaigns. And it seems such initiatives have paid off well, as Netflix has two prizes to brag. Lest we forget, last year, Netflix won multiple Oscars out of 15 nominations.Roma clinched a win in the best foreign language category, while Alfonso Cuarón won for directing it.
Some skeptics may however say that Netflix’s debt overshadows the wins. Last year, the company announced plans to raise nearly $2 billion through bond sales in the United States and Europe. But the company’s shares continue to move north and it’s primarily because of massive growth witnessed overseas. Netflix’s strong content release, focus on originals across various genres and languages, and partnerships with telcos helped its stock scale north. So far this year, Netflix’s shares have gained 14.6%, more than the Broadcast Radio and Television industry’s rise of 4.3%.
Notably, Netflix posted impressive fourth-quarter revenue results, helping the streaming giant surpass $20 billion in revenues last year. Netflix reported fourth-quarter 2019 earnings of $1.30 per share that beat the Zacks Consensus Estimate by a whopping 150% and climbed 333.3% year over year. To top it, the Zacks Consensus Estimate for its current-year earnings moved up 10.2% over the past 60 days.
At the same time, the company’s expected earnings growth rate for the current year is 46.3% versus the industry’s projected decline of 2.2%. Netflix currently flaunts a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Coming back to the Oscars, Sony Pictures won four noteworthy awards, as did The Walt Disney Company. Meanwhile, Sony Corporation’s Once Upon a Time in Hollywood made Brad Pitt win the Best Supporting Actor award. The film also received one for best production design. The Best Costume Design award went to Little Women, while Hair Love scored a win for the Best Animated Short film.
While the phenomenal success at the Oscars will boost viewership for Sony’s subsidiaries like Columbia Pictures and Sony Pictures, the company has itself made concerted efforts to attain a leaner organizational structure and enhance long-term growth. Execution of measures to realign its business portfolio, like withdrawing from the PC business and vending the battery business, has aided the Japanese firm.
Sony has reported encouraging third-quarter fiscal 2019 results wherein adjusted earnings and revenues increased year over year. Currently, the stock has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has climbed 8.4% over the past 60 days.
The company’s expected earnings growth rate for the next year is 9.3%, higher than the Audio Video Production industry’s projected increase of 0.6%. In fact, the company has outperformed the broader industry on a year-to-date basis (+3.2% vs + 0.5%).
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