Earnings-season volatility continued this week, with lots of companies reporting earnings. But three tech stocks that stood out were Netflix (NASDAQ: NFLX), Microsoft (NASDAQ: MSFT), and IBM (NYSE: IBM). Netflix stock fell as the company’s growth in members failed to impress, and shares of Microsoft and IBM both rose after the companies reported better-than-expected revenue and earnings per share.
Here’s what investors should know about each of these stories.
Continue Reading Below
Netflix misses on member growth
Netflix stock took a hit this week after the company missed the mark on member growth. The company’s streaming members during its second quarter increased a total of 5.15 million — lower than management’s guidance for 6.2 million net member additions and beneath a consensus analyst estimate for more than 6 million members.
Though the stock was slammed after the earnings report was released, initially falling about 12% and ending the week down about 9%, there’s a lot to like about the earnings report when looking beyond the company’s worse-than-expected member growth. For instance, streaming revenue increased an impressive 42.8% year over year, operating income soared 262%, and Netflix’s international contribution margin improved from negative 1.1% in the year-ago quarter to positive 15.5%.
Management brushed off its lower-than-expected member growth, reminding investors its guidance for the metric aims for accuracy and never attempts to undershoot. This means “in some quarters we will be high and other quarters low relative to our guidance,” management said in its second-quarter earnings release.
Microsoft sees broad-based growth
Advertisement
Shares of software and cloud giant Microsoft hit an all new high this week, rising about 2% on Friday, following the company’s fourth-quarter earnings release for fiscal 2018 after the bell on Thursday. Investors couldn’t have asked for much more from Microsoft during the period as the company delivered double-digit revenue growth in every business segment.
Revenue in productivity and business processes, intelligent cloud, and “more personal computing,” increased 13%, 23%, and 17% year over year, respectively. And the company’s commercial cloud revenue — a revenue categorization that stretches across business segments to lump together enterprise cloud offerings (primarily consisting of revenue from Azure, Office 365 commercial, and Dynamics 365) — saw revenue rise 53% year over year.
“The strength of our results reflects accelerating innovation and the trust customers are placing in us to power their digital transformation,” said Microsoft CEO Satya Nadella in the company’s earnings call for the quarter.
IBM beats expectations
IBM stock got a boost on Thursday, rising about 3% after the company reported its second-quarter results after the market closed on Wednesday. IBM reported revenue and non-GAAP EPS of $20 billion and $3.08, respectively — up 4% and 5% year over year. Constant currency revenue growth was 2%.
On average, analysts were expecting revenue and non-GAAP EPS of $19.85 billion and $3.04, respectively.
Notably, IBM’s constant currency revenue growth for the quarter of 2% was a meaningful acceleration from the flat year-over-year constant currency revenue growth in the company’s first quarter.
Highlighting IBM’s momentum lately, the company noted that its trailing-12-month cloud revenue has increased 23% year over year to $18.5 billion. The results captured “IBM’s progress and momentum in the emerging, high-value segments of the IT industry,” said IBM CEO Ginni Rometty about the results in the company’s second-quarter earnings release.
Two notable stocks in tech scheduled to report earnings next week? Facebook and Twitter.
10 stocks we like better than IBMWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now… and IBM wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of June 4, 2018
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook, Netflix, and Twitter. The Motley Fool has a disclosure policy.
