Weekly StockWatch: Airlines Recovery, Netflix Ad-Supported Tier, JP Morgan Earnings & More

  • AIRLINES
    (${instrument.percentChange}%)
  • DAL.us
    (${instrument.percentChange}%)
  • JPM.us
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  • META.us
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  • NFLX.us
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  • QAN.au
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Delta Record Revenue

The US carrier announced on Thursday, record Adjusted Revenues of $12.8 billion, 3% higher than the 2019 figures for the same period. Its bottom line also got a boost, with adjusted Operating Income of $1.5 billion and 11.6% profit margin –staying in double-digit territory. [1]

The airline industry has made an impressive turnaround from the pandemic shock, with the International Air Transport Association (IATA), saying that the peak travel season ended on a high note. Total passenger traffic in August was up 67.7% year-over-year, now standing at 73.7% of pre-crisis levels. [2]

Delta Air Lines is clearly riding the wave and expects further improvement during the last quarter of the year, projecting Revenue growth of 5-9% over 2019 and 91-92% passenger seat capacity restoration.
A few days earlier, the firm had announced a partnership with Joby Aviation and an upfront equity investment of $60 million. Joby will operate electric vertical takeoff and landing aircrafts (eVTOL), for city-to-airport transportation of Delta's customers. [3]

This follows efforts of rival United Airlines Holdings Inc, which had announced last week a conditional purchase of 200 eVTOLs from Eve Air Mobility, for use as air-taxis.

DAL.us gained around 4% on Thursday after the strong results, pushing for a profitable week. FXCM's AIRLINES Basket is also on the front foot, also helped by the upgraded Q3 guidance by American Airlines.

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Qantas

The Australian airliner is not expected to announce its financial results for the first half of fiscal 2023 until February, but provided upbeat forward guidance this week. It expects a return to profitability after five straight halves of losses, with Underlying EBIT of A$1.2-$1.3 billion. [4]

More to it, the Qantas Group projects Net Debt to fall to A$3.2-3.4 billion, - a vast improvement over the A$5.5 billion reported a year ago – and 61% capacity restoration of pre-COVID levels.

Qantas Airways Ltd is another carrier reaping the benefits of the post-pandemic surge, as passenger traffic in the Asia-Pacific region increased nearly 150% year-over-year in August, according to the aforementioned IATA report. [2]

CEO Alan Joyce highlighted recent progress, saying that "Since August, we've seen a big improvement in our operational performance and an acceleration in our financial performance".

The environment remains complex however, as the industry tries to cope with increased demand, remaining COVID-19 challenges and energy costs. Qantas noted that fuel prices "are now around 75 per cent higher than pre-COVID", but manages to pass that onto fare prices.

QAN.au jumped after the update to the highest levels since May, posting its best week in nearly three months.

Netflix Ad-Supported Subscription

The streaming giant is having a very bad year amidst increasing completion, having lost more than a million users during the first half the year, conceding the top spot to Disney. Combined paid subscribers of the latter's Hulu, ESPN+ and Disney+ streaming platforms, rose to 221.1 million as of July 2. [5]

Netflix has been taking action to mitigate the problems, such as its plan to restrict password sharing and monetize on it. Most importantly though, it decide to move towards a new lower-priced subscription tier with advertisements, something I have long argued could be the way forward for streamers.

This week, the US-based firm announced the launch of such a subscription plan, "Basic with Ads", that will launch early next month in twelve countries, at a cost of $6.99/month in the US [6]. This undercuts rival Disney in both pricing and timing, since its ad-supported tier is expected to launch in December 8, starting at $7.99 per month. [7]

Netflix is also trying to diversify its offering with last year's entry into gaming and the initial five mobile games available at no extra cost to its users. It has bought three gaming studios since, in older to bolster is development capabilities and went a step further last month, with the opening of its own gaming studio. [8]

NFLX.us benefited from the announcement, closing Thursday with gain in excess of 5%.

Meta's VR Bet

The social media behemoth changed its name to Meta Platforms a year ago, to highlight the shift towards the Metaverse, a 3D virtual world where users can interact in simulated environments.

Integral to the merge of the physical world with digital ones, are virtual reality headsets and the firm unveiled a new such product, during this week's Meta Connect 2022. The Meta Quest Pro high-end VR headset will begin shipping later this month, with a steep $1,499.99 USD price-tag. [9]

The Metaverse is Mark Zuckerberg's big bet, expecting "around a billion people" in it, based on recent comments on CNBC [10], but this needs years of investing and development. Reality Labs - the segment responsible for delivering on this vision – is burning money, having lost nearly $6 billion in the first half of the year.

Meanwhile, Meta's core business is underperforming, amidst completion from "cooler" social media platforms such as TikTok and a hit from privacy changes in Apple's iOS, which also hurts its financials. The firm expects a decline in Revenues for the soon to be reported Q3, to the range of $26-28.5 billion, reflecting continuing weak advertising demand. [11]

JP Morgan Revenue Boost

The banking behemoth released earlier today, strong financial results, for the third quarter of the year. Revenue grew to more than $33 billion and its bottom line rose from Q2 to $9.737 billion, but it was 17% lower than the year ago quarter. [12]

CEO Jamie Dimon talked about a "solid performance", but cautioned of significant "headwinds immediately in front of us", just a few day after warning of US recession in six to nine months. [13]

Stock of JP Morgan Chasevwas trading higher in today's pre-market at the time of writing, after the earnings report.

Next Week (October 17-21)

The tech sector comes in the spotlight over the next week, with streaming giant Netflix kicking things of off for the FAANGs, as it reports on Tuesday. The number of subtribes will be one of the main focal points, after the massive losses of the first half, while the company expect to have relinquished one million users during the reported third quarter. [14]

A day later, on Wednesday, focus will shift to the electric vehicles industry and Tesla Motors Inc. It has already announced record deliveries of 343,830 vehicles for Q3 [15], although markets seemed unimpressed. The release comes as Tesla's CEO, Mr Musk, is once again in the spotlight as he is looking to complete the Twitter acquisition deal, following his latest u-turn.

Netflix and Tesla Motors Inc are some the companies that will be on our radar during the current earnings season and the final stretch of the year.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 14 Oct 2022 https://ir.delta.com/news/news-details/2022/Delta-Air-Lines-Announces-September-Quarter-2022-Profit/default.aspx

2

Retrieved 14 Oct 2022 https://www.iata.org/en/pressroom/2022-releases/2022-10-06-02/

3

Retrieved 14 Oct 2022 https://news.delta.com/delta-joby-aviation-partner-pioneer-home-airport-transportation-customers

4

Retrieved 14 Oct 2022 https://www.qantasnewsroom.com.au/media-releases/qantas-group-market-update-strong-demand-accelerates-recovery/

5

Retrieved 14 Oct 2022 https://thewaltdisneycompany.com/app/uploads/2022/08/q3-fy22-earnings.pdf

6

Retrieved 14 Oct 2022 https://about.netflix.com/en/news/announcing-basic-with-ads-us

7

Retrieved 14 Oct 2022 https://thewaltdisneycompany.com/ad-supported-disney-subscription-tier-to-launch-in-the-u-s-on-december-8/

8

Retrieved 14 Oct 2022 https://about.netflix.com/en/news/building-our-internal-games-studios

9

Retrieved 14 Oct 2022 https://about.fb.com/news/2022/10/meta-quest-pro-social-vr-connect-2022/

10

Retrieved 14 Oct 2022 https://www.cnbc.com/2022/06/22/mark-zuckerberg-envisions-1-billion-people-in-the-metaverse.html

11

Retrieved 14 Oct 2022 https://s21.q4cdn.com/399680738/files/doc_financials/2022/q2/Meta-06.30.2022-Exhibit-99.1-Final.pdf

12

Retrieved 14 Oct 2022 https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chase-and-co/investor-relations/documents/quarterly-earnings/2022/3rd-quarter/c363d5ac-0a3e-483e-88ec-89767a8e266e.pdf

13

Retrieved 14 Oct 2022 https://www.cnbc.com/video/2022/10/10/jpmorgans-jamie-dimon-warns-us-likely-to-tip-into-recession-in-6-to-9-months.html

14

Retrieved 14 Oct 2022 https://s22.q4cdn.com/959853165/files/doc_financials/2022/q2/FINAL-Q2-22-Shareholder-Letter.pdf

15

Retrieved 30 Nov 2022 https://ir.tesla.com/press-release/tesla-vehicle-production-deliveries-and-date-financial-results-webcast-third-quarter

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