19 April 2016 at 7:53 GMT
- Netflix, IBM plunge in after-hours session post earnings
- IBM struggling with cloud computing segment
- Netflix spending out of tune with growth
By Peter Garnry
The US earnings season continues apace with Netflix and IBM among the latest companies to report. Unfortunately, the news was negative in both cases. Here’s why:
IBM struggling with the cloud
IBM’s earnings showed the 16th straight quarter of negative revenue growth (year-over-year), and the firm’s Cognitive Solutions division – the division containing IBM's “Watson” artificial intelligence programme – saw a 2% fall in its y/y revenues.
IBM shares remain expensive, trading at an 11.3x 12-month earnings-per-share multiple – a definite value trap.
This business, it would appear, is being disrupted by cloud computing and it is difficult to ascertain whether IBM will prove a future leader in this segment.
The Saxo view on IBM is structurally negative against other IT firms; the company’s shares fell 5% in the after-hours session post the earnings release.
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Source: Saxo Bank
Netflix routed by earnings
Netflix’s earnings were also hugely disappointing as the report showed international subscriber growth at 2 million versus 3.5m expected. This comes down to high prices, a poor product mix, and a slow rollout of new content.
Netflix shares fell by 10% in the after-hours session and the Saxo view is negative.
One potential way to play this circumstance is via the Dec 16 at-the-money put at $13 (assuming the underlying opens at $100).
— Edited by Michael McKenna
Peter Garnry is head of equity strategy at Saxo Bank