After months of uncertainty and heightened macro risks that have kept many investors on the sidelines, the environment for equities is beginning to improve. Just last week, the U.S. Federal Reserve gave perhaps the clearest signal yet that it’s ready to be patient about rate hikes and remain on the sidelines for now.
With interest rates on hold, job growth continuing strong and some key companies still producing impressive earnings, some analysts have begun talking about another robust rally for stocks in 2019. However, we remain in the camp of those who advise caution.
Some big risks continue to hover, including the U.S.-China trade spat, Brexit and a slowing Chinese economy. That said, we should get some more evidence this coming week that could help us understand whether this rally has legs, when some of the most prominent U.S. multinationals release their quarterly earnings. Here are three we're keeping an eye on:
1. Google
Alphabet (NASDAQ:GOOGL), the parent company of the world’s most powerful search engine Google, will report its fourth quarter earnings on Monday, February 4, after the market close.
On average, analysts are forecasting $10.86 earnings per share. That will be a 12% jump from the same period a year ago. Sales are likely to increase by 20%, to $38.94 billion during the period that ended on December 31.
The consensus numbers look terrific, and for any other, more traditional company, they provide a stellar reason to celebrate. But for big tech companies like Google, it’s hard to satisfy growth-hungry investors with just double-digit growth. These investors want to see new catalysts that could power uninterrupted expansion for years to come.
In the case of Google, the main benchmarks for investors are the company’s efforts to diversify away from its primary source of income—digital advertising—which makes up the bulk of its revenue stream. Markets will reward Google if it shows strong growth in its cloud computing business, where it’s competing with Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN). Investors will also be keen to know how the company is progressing in its bid for a piece of the driverless car market, a segment where its Waymo unit currently leads the pack.
Nevertheless, investors are not too excited about social media stocks right now, as they face increased regulatory scrutiny and their reputations get hit by data breaches and privacy issues. That’s reflected in Google’s share performance over the past 12 months—it's hardly budged. The stock closed at $1,118.62 on Friday. Monday’s earnings may change that, if the company has something exciting to show the market.
2. Disney
The Walt Disney Co. (NYSE:DIS) is another high-profile media stock scheduled to report its fiscal 2019, first quarter earnings on Tuesday, February 5, after the market close. The House of Mouse is expected to report $1.55 a share profit, down 18% from the year ago period. Sales are likely to remain flat, at around $15 billion.
Disney's past is probably not too relevant at this juncture. Rather, the main focus will be on how this traditional media giant is setting itself up to take on Netflix (NASDAQ:NFLX) later this year, its biggest push into the streaming video business.
Disney plans to launch Disney+ —its third online video service alongside ESPN+ and Hulu (which it owns jointly with 21st Century Fox (NASDAQ:FOX), Comcast (NASDAQ:CMCSA) and AT&T (NYSE:T)—in late 2019. This service will package movies and TV shows from Marvel, Pixar and Star Wars, and from content assets obtained via its $71 billion takeover of Fox's entertainment portfolio.
These new ventures mean investors should forget about profit and revenue growth, at least in 2019. Costs will surge as the company creates new programming, while marketing and delivering these videos will add to the bill. Disney could also lose revenue as shows and movies are pulled from Netflix and other outlets.
Disney’s shares have been pressured by these challenges. The stock has hardly budged during the past one year. Trading at $111.30 as of Friday's close, Disney shares are a long-term bet but success isn’t guaranteed.
3. Twitter
Twitter (NYSE:TWTR) is yet another important digital economy stock that's scheduled to report fourth quarter earnings in the upcoming week. Analysts are expecting a 31% surge in income to $0.25 a share on sales of $869 million. The company will report on Thursday, February 7, before the market opens.
While Twitter suffered its steepest decline ever in its number of monthly active users worldwide in the third quarter, the company saw a significant jump in revenue from advertising, particularly in the U.S.
We see the revenue trend continuing as the company’s push to increase its video content resonates well with advertisers. We believe this strategy, which is one of the main components of CEO Jack Dorsey’s turnaround plan, will continue to strengthen Twitter’s appeal. The video segment now accounts for more than half of Twitter's ad revenue.
Twitter’s upfront approach to cleaning up its platform from fake accounts and putting an end to hate speech also separated the company from other social media companies. Its shares, which closed on Friday at $33.19, have handsomely rewarded investors over the past 12 months, rising more than 30%.