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Tuesday October 22, 2019



Netflix Shares Rise on Strong Earnings

Netflix, Inc. (NFLX) released its latest quarterly earnings on Tuesday, October 16. The streaming content provider posted strong results for the third quarter.

The company reported quarterly revenue of $4.0 billion, meeting analysts' expectations. At this time last year, Netflix reported $2.99 billion in revenue.

"Our broad slate of original programming helped drive a solid quarter of growth with streaming revenue increasing 36% year over year and global membership surpassing 130 million paid and 137 million total," said Netflix executives in a letter to shareholders. "We're thrilled to be growing internet entertainment across the globe."

Netflix posted quarterly net income of $403 million, up from $130 million during the same quarter last year. On an earnings per share basis, the company reported income of $0.89 per share, beating analysts' expected earnings of $0.68 per share.

Shares of Netflix stock jumped 15% following the company's earnings release. The company reported a 36% increase in streaming revenue year-over-year. Netflix now boasts 137 million subscribers worldwide, after adding nearly 7 million users in the third quarter.

Netflix, Inc. (NFLX) shares ended the week at $332.67, down 1.5% for the week.

Domino's Sales Slump

Domino's Pizza, Inc. (DPZ) posted third quarter earnings on Tuesday, October 16. The pizza chain reported lower-than-expected sales.

Revenue for the quarter was $786.0 million, up from $643.6 million during the same quarter last year. This was a 22% increase year-over-year, but missed Wall Street's revenue expectations of $791 million.

"I continue to be proud of our great franchisees and operators around the world," said Domino's CEO Ritch Allison. "In particular, our U.S. business once again executed at extremely high levels in the third quarter. Our global business, driven by strong retail sales growth and franchisee economics that outperformed the industry, continued its strong momentum."

Domino's reported net income of $84.1 million during the quarter, up from $56.4 million during the prior year's quarter. On an earnings per share basis, the company reported $1.95 per share, up from $1.27 per share at this time last year.

The international pizza business reported lower-than-expected growth in same-store sales for the quarter. The company's domestic same-store sales grew 6.3% in the third quarter, falling short of analysts' expected 6.4% growth. International same-store sales grew 3.3%, missing experts' predictions of 3.4% growth. Domino's shares fell nearly 5% following the company's earnings release.

Domino's Pizza, Inc. (DPZ) shares ended the week at $267.79, down 3.6% for the week.

Cree's Revenues Shine

Cree, Inc. (CREE) announced its latest quarterly earnings on Tuesday, October 16. The LED lighting manufacturer reported increased quarterly profits.

The company reported revenue of $408.3 million. This is up from $360.4 million during the same quarter last year.

"Fiscal year 2019 is off to a strong start, with first quarter non-GAAP earnings per share that exceeded the top end of our target range driven by another quarter of robust growth in Wolfspeed combined with strong gross margin improvement in LED Products and Lighting," said Cree CEO Gregg Lowe. "This is an excellent result given the headwinds facing the businesses related to tariffs and global trade tensions."

Cree posted a net loss of $11.13 million for the quarter. This is an improvement over the prior year's quarterly net loss of $19.86 million.

The Durham, North Carolina-based firm specializes in LED lighting solutions. Cree also operates Wolfspeed, which specializes in power and radio frequency products. Revenue for the company's Wolfspeed segment grew 93% from the same quarter last year. Wolfspeed's growth more than offset Cree's 10% loss in quarterly revenue in its Lighting Products segment, leading to a 13% overall increase in sales.

Cree, Inc. (CREE) shares ended the week at $35.68, up 3.4% for the week.

The Dow started the week of 10/15 at 25,332 and closed at 25,444 on 10/19. The S&P 500 started the week at 2,764 and closed at 2,768. The NASDAQ started the week at 7,473 and closed at 7,449.

Treasury Yields Rise as Stocks Skid

Yields on U.S. Treasury bonds rose during a topsy-turvy week for stock markets. Stock markets have lost ground this month as the Federal Reserve continues on its long path of incremental rate hikes.

On Wednesday, the Federal Open Market Committee (FOMC) released the minutes from its September 25-26 meeting. The minutes indicated that the Fed remains firm in its resolve to steadily raise interest rates.

"With regard to the outlook for monetary policy beyond this meeting, participants generally anticipated that further gradual increases in the target range for the federal funds rate would most likely be consistent with a sustained economic expansion, strong labor market conditions and inflation near 2% over the medium term," the minutes stated.

During early trading on Friday, the benchmark 10-year Treasury note yield was trading at 3.20%. The yield on the 30-year Treasury bond was at 3.39%.

Stocks tumbled on Thursday, with the Dow Jones Industrial Average falling 1.3%, a loss of nearly 330 points. The S&P 500 and NASDAQ declined as well, losing 1.4% and 2.1% respectively.

"Everyone accepts that earnings growth will slow next year and that interest rates are going to rise," said Alec Young, Managing Director of Global Markets Research at FTSE Russell. "Historically, that's not a great cocktail for stocks."

The 10-year Treasury note yield closed at 3.20% on 10/19 while the 30-year Treasury bond yield was 3.38%.

Mortgage Rates Dip

Freddie Mac released its latest Primary Mortgage Market Survey on Thursday, October 18. The report showed mortgage rates decreasing after several weeks of rising rates.

The 30-year fixed rate mortgage averaged 4.85% this week, down from 4.90% at this time last week. During the same period last year, the 30-year fixed rate mortgage averaged 3.88%.

This week the 15-year fixed rate mortgage averaged 4.26%, down from 4.29%. At this time last year, the 15-year fixed rate mortgage averaged 3.19%.

"The modest decline in mortgage rates is a welcome respite from the rapid increase in rates the last few weeks," said Sam Khater, Chief Economist at Freddie Mac. "While the housing market has clearly softened in reaction to the rise in mortgage rates, the economy and consumer sentiment remain very robust and that will sustain purchase demand, particularly in affordable markets and neighborhoods."

Based on published national averages, the money market account closed at 1.22% on 10/19. The 1-year CD finished at 2.57%.

Published October 19, 2018
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