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Tuesday January 23, 2018



Netflix's International Subscriptions Surge

Netflix, Inc. (NFLX) announced its fourth quarter and full-year earnings on Wednesday, January 19. The video-streaming company added nearly a third more subscribers during the quarter than expected.

The company reported that revenue rose 36% during the quarter to $2.48 billion, topping an estimated $2.47 billion. For the full-year, revenue increased 35% to $8.3 billion.

"It's amazing to think that we launched original programming on Netflix in 2013 and in just four years, our original series accounted for five of the top 10 most searched TV shows of 2016 globally, including Stranger Things at #1, according to Google trends," said the company in a letter to shareholders. "We are incredibly excited about all the projects we have underway for our global members, no matter their age, taste or cultural background."

Netflix earned $67 million or $0.15 per share during the quarter. This beat net income of $43 million or $0.10 per share reported during the same period last year.

Most analysts and investors focused their attention on Netflix's addition of 7.1 million subscribers during the fourth quarter, which easily surpassed the 5.2 million estimate. Much of that growth was outside of the U.S., where 5.1 million members were added versus the expected 3.73 million. Netflix continues to believe in the strength of its original programming with new 2016 shows such as Luke Cage and The Crown proving popular with audiences. The company plans to release over 1,000 hours of original programming this year compared to 600 hours in 2016.

Netflix, Inc. (NFLX) shares ended the week at $138.60, up 2.6% for the week.

American Express's Earnings a Mixed Bag

American Express Company (AXP) announced its fourth quarter earnings on Thursday, January 19. The financial services company reported mixed results with net income missing analysts' estimates.

The company reported that revenue fell 4% during the quarter to $8.02 billion. While revenue was lower than the same period last year, it exceeded the pre-release estimate of $7.95 billion.

"At the start of 2016 we said we would move with a strong sense of urgency to change the trajectory of our business," said American Express Chairman and CEO Kenneth I. Chenault. "The results we're reporting today reflect substantial progress on that commitment. Revenue performance strengthened sequentially and showed year-over-year growth on an adjusted basis."

American Express's revenue fell 8% to $825 million in the quarter. On an adjusted earnings per share basis, this was $0.91, lower than the expected $0.98 per share.

The financial services company has been struggling recently ever since it lost Costco's credit card business in June of last year. Costco represented a significant portion of the company's credit card loans and billed business. Despite the loss, American Express shares have risen close to 22% over the past 12 months.

American Express Company (AXP) shares ended the week at $76.20, down 1.5% for the week.

Charles Schwab Reports Record Profit

Charles Schwab Corporation (SCHW) announced its fourth quarter and full-year results on Wednesday, January 18. The discount brokerage company reported numbers that were mostly in line with Wall Street estimates.

The company reported that revenue rose 17% during the quarter to $1.97 billion. This was just shy of an estimated $1.99 billion. For the full year, revenue rose 17% to $7.48 billion.

"Schwab achieved truly noteworthy results in 2016 by sustaining our 'Through Clients' Eyes' strategy and working to earn our clients' trust every day," said Charles Schwab CEO Walt Bettinger. "During the year, from disappointing economic news early on, to the disruption of the Brexit vote, and then through the tumult of the presidential election, clients could trust that Schwab stood ready to help them navigate market volatility, and they made active use of our full-service capabilities."

Schwab earned record net income of $522 million during the quarter, up 25% from the same period last year. On a per share basis, the company earned $0.36 per share, matching estimates.

The company reported that new retail brokerage accounts rose 21% to 182,000 during the fourth quarter. In addition, 32,000 clients engaged in financial planning conversations, a 10% increase over the same period last year. So far on the year, the company's shares are up 3.5%.

Charles Schwab Corporation (SCHW) shares ended the week at $41.30, relatively unchanged for the week.

The Dow started the week of 1/16 at 19,849 and closed at 19,827 on 1/20. The S&P 500 started the week at 2,269 and closed at 2,271. The NASDAQ started the week at 5,555 and closed unchanged for the week.

Treasury Yields End Week Higher

Treasury yields rose during the week of January 16 leading up to the inauguration of President Donald Trump on January 20. Investors are expecting a Trump presidency to result in faster growth and higher inflation, decreasing the attractiveness of U.S. government debt.

While the U.S. economy has been growing at a steady pace for the past few years, it has failed to match post-WWII norms. The new Trump administration is expected to promote new government spending and regulatory and tax reform, which could pull bond prices down and push yields higher.

"Clients believe that what you are going to see down the road is more supply by this administration," said Tom di Galoma, managing director of Seaport Global, "whether it's a 50-year bond or just more supply to finance what they want to do in infrastructure and how they want to move the economy along."

On Tuesday, January 17, the benchmark 10-year note yield fell to 2.31%. By Thursday the yield had recovered to 2.46% and was 2.50% during early Friday trading. Bond yields have been rising ever since President Trump's election last year, though there has been a slight pullback since mid-December.

Late on Thursday investors were taken aback by comments from Federal Reserve Chair Janet Yellen regarding future interest rate hikes where she took a more dovish line than she previously had. Yellen indicated that in her view the central bank will look to raise rates slowly so as not to disrupt the growing jobs market and keep inflation in check.

The 10-year Treasury note yield finished the week of 1/16 at 2.47%, while the 30-year Treasury note yield was 3.05%.

Mortgage Rates Continue to Fall in 2017

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, January 19. The report showed mortgage rates continuing their downward trend in 2017.

The 30-year fixed rate mortgage averaged 4.09% this week. This is down from 4.12% last week. During the same time last year, the 30-year fixed rate mortgage averaged 3.81%

This week the 15-year fixed rate mortgage averaged 3.34%, down from 3.37% last week. At this time last year, the 15-year fixed rate mortgage averaged 3.10%.

"After trending down for most of the week, the 10-year Treasury yield rose following the release of the CPI report," said Sean Becketti, Chief Economist at Freddie Mac. "In contrast, the 30-year mortgage rate fell three basis points to 4.09%, the third straight week of declines."

Based on published national averages, the money market account finished the week of 1/16 at 0.58%. The 1-year CD finished at 1.20%.

Published January 20, 2017
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