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Why Netflix May Top 8 Million New Subscribers, Plus More Bank Previews

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MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN SHARES OF NFLX

MICHAEL KRAMER OWNS XLF PUTS

Earnings start taking center stage this week with Bank of America, Netflix, Goldman, Johnson and Johnson, Morgan Stanley, IBM, American Express, eBay, Taiwan Semi, and Microsoft all reporting this week.

If the earnings from the banks on Friday tells us anything, it is not to be too optimistic when the others go this week.

BofA

Options traders aren’t pricing in a big move for Bank of America when it reports on Monday morning. The long straddle options strategy, the purchase of one put and one call, suggests that shares of the bank rise or fall by only 2.6 percent from the $28.50 strike price for expiration on July 20, placing the stock in a trading range between $27.75 and $29.25.  The puts outweigh the calls at that strike price with only 18,000 open put contracts, to 11,000 open call contract, suggesting more bets shares will fall following results.

Revenue and earnings estimates have been slashed in a way a big way for Bank of America over the past 30 days. Earnings estimates have dropped by nearly 10 percent to $0.58 per share, while revenue estimates have declined by 3 percent to $22.5 billion. It tells me that any beat the company post is because of the watered down expectations.

It is anyone’s guess if the company will even top the lowered revenue expectations. In fact, the company has a mixed history of beating revenue estimates. Should BofA miss on revenue, it comes on a weakened forecast, and that makes it even worse than they seem.

Goldman

Goldman is viewed more favorably among the options market, with the long straddle options strategy pricing in a rise of 2.6 percent from the $227.50 strike price for expiration on July 20. The number of traders betting shares rise, outweighs the number of bets shares will fall, with roughly 2,000 open call contracts to only 1,100 open call contracts.

Unlike BofA, analysts have upped their revenue and earnings estimates for the second-quarter results, raising both by about 2 percent to $4.65 per share on revenue of $8.75 billion. Goldman has also pretty consistently topped revenue estimates.

Morgan Stanley

The long straddle for Morgan Stanley implies a rising or falling by about 3 percent, placing shares in a trading range of $47 to $50 by expiration on July 20. The calls outweigh the puts, with 2,000 open call contracts to only 800 put contracts at $48.50 strike price.

But like BofA estimates for the investment have dropped for the coming quarter, with earnings and revenue estimates both declining by 1.5 percent. Revenue is forecast to coming in at $10.0 billion on earnings of $1.10 per share. Morgan also has a strong history of topping revenue estimates as well, but again if they do beat, it comes on watered expectations.

Netflix

I’m not going to spend too much time on Netflix because I do not think there is anything more I can add, that I haven’t shared over the past few weeks. I expect subscriber growth to be robust, with a large increase for international. I’m probably in the minority when I say this, but on based on those Google trends searches we have tracked for the past few weeks, I think there is an outside chance they post better growth numbers than in the fourth-quarter.

The company is guiding for net adds 6.2 million, which is down from 7.4 million in the first quarter, and 8.33 million in the fourth quarter.

When you look at the trends in net adds above from the shareholder letter, and we compare it to the Google Trends chart below starting in 2Q’17,  you can see the similarity in trends. So either I am a complete lunatic and spend way too much too time looking at this stuff, or the company is going to post better net adds than in 4Q, and that would mean over 8.3 million new subscribers. We find out Monday night, just how crazy I am or how embarrassed I might feel.  Yikes!

(GOOGLE TRENDS)

More Tomorrow on the rest.

-Mike

PHOTO CREDIT VIA FLICKR

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