ECON435: Financial News Analysis: Apple’s and Netflix’s market performance

Week Market Performance

All 10 groups in the S&P 500 declined. Technology stocks fell as Apple Inc. tumbled below $400 for the first time since 2011. The stock price of most of the top 10 firms with greater market capital like Apple, General Electric, Exxon Mobil, Microsoft and Google decreased yesterday. It is clear how the positive results in the S&P 500 is now swinging back the other way.

Financial News

Bad signs for Apple

The stock has tanked more than 40% from a peak of $702 last September to a new low of about ~$400 yesterday.

Why so much pessimism around Apple?

The company’s growth has vanished much faster than what investors and analysts anticipated.
Apple’s Gross margin dropped in the last year: 44% in Q1 2012, 47% in Q2 2012, 42% in Q3 2012, 40% in Q4 2012, 38% in Q1 2013
The CEO of the company is not a product visionary and has not articulated a vision of where he wants to take Apple going forward.
Some analysts expected the new iPhone to be released on June, but new rumors say the release will be on September.
Higher the bar, higher are the expectations.
Apple keeps $135 billion in cash. Investors claim some part of this money should come back to them through dividends.
Apple is being beaten in the fast-growing Indian smartphone market by a couple of aggressive local competitors.

Apple Falls Below $400 as Supplier Reports IPhone Chip Glut – Cirrus Logic Inc. falls 15.69%

Cirrus makes sound components for the iPhone and iPad and Apple accounts for more than 90% of Cirrus Login Inc. revenue.

Cirrus Logic Inc. (Nasdaq: CRUS) announced two days ago a preliminary net revenue of as much as $170 million, less than analysts’ average $197.3 million estimate. The company also announced an inventory glut and that it will record a net inventory reserve of $23.3 million for the fourth quarter that ended in March. As a result its stock price went down nearly 16%

While the iPhone is the most popular handset, Samsung Electronics Co. has become the leading overall provider of smartphones by introducing a variety of devices with different designs and prices. For analysts, Apple is reducing expectations.

Cirrus yesterday reported preliminary fiscal first-quarter net revenue of as much as $170 million, less than analysts’ average $197.3 million estimate. Because Cirrus relies on Apple for most of its revenue, this suggests that the iPhone maker told the chipmaker to anticipate fewer orders.

Finally, iPad mini shipments are expected to drop as low as 30% in 2013 due to lack in demand.

Netflix performance in the last 3 weeks

03/26: Price went up to 197 dollars per share

Pacific Crest Securities analyst, Andy Hargreaves boosted his price target for Netflix to $225 per share due to the possibility that the number of subscribers of the online video streaming company will increase
Netflix is the best performing stock in the S&P 500 Index this year. The stock price of the company doubled due to investors’ optimism on its future profitability. (At the start of the year price was 98 and it reached its higher peak of 197 per share)

03/31: Price starts to fall

Netflix Face a Big Data Miner Shortage
Problems with content suppliers. (media holding companies like Sony and Starz, argue that Netflix is underpaying for the content they provide and are thinking about ending the deal they have )

04/03: Price collapsed to 159 dollars a share

Hastings will not face any sanction from the Securities and Exchange Commission (SEC) in connection with his action in announcing that the company streamed 1 billion hours of content in June, in his account on Facebook. Netflix did not inform its shareholders that it will use the CEO’s Facebook account to disclose information about the company. According to SEC, may use social media to announce important information about the company as long as investors are aware about it.
Online streaming video service getting even more crowded, as Time Warner is launching a streaming video competitor to chip away at Netflix’s market dominance.
Rumors said that activist investor Carl Icahn had sold some of his 10% stake in Netflix. Later Icahn denied the rumor.

04/9: There is a rebound in the stock price. On the 04/14 its price went up to 181 dollars per share

The company will introduce premium priced package. Such packages would enable the company to increase the amount of revenue each customer brings it.
Netflix and Hasbro Announce Expanded Multi-Year Kids Programming Agreement. Through this agreement, Netflix becomes the exclusive over the top streaming subscription destination in the US for five of Hasbro Studios most popular shows

04/17: Stock price falls down again and reach 169 dollars per share

Wedbush analysts said their bearish on Netflix for a few reasons. They believe the company will face some challenges in the second half of this year. In their view, the company will be hurt in the second half of the year because its two most high-profile exclusive series were both released in the first half of the year. They also said the company could continue expanding internationally, which would improve long-term growth but put a pause on near-term profitability.