The earnings season is still in full swing with 70% of S&P 500 companies having reported already and so far, headlines are mostly “better than expected” which is a bit empty given how low estimates have come down over the past year. Growth in S&P 500 revenue and earnings is around 4% and 0% y/y respectively. EBITDA growth y/y is just around 1% for MSCI World while -7% for MSCI Emerging Markets reflecting the global slowdown.
Next week more European and Japanese companies will
take over releasing earnings but given their important the US earnings will get
the most headlines. In particularly we expect Uber’s earnings release on Monday
to be key focus as one of the most anticipated IPOs in recent years has
disappointed with shares closing yesterday at 31.50 compared to the IPO price
of 45.
Analysts are expecting revenue growth of 15% down from
37% a year ago highlighting the issue for investors; growth rates are coming
down much faster than anticipated. In addition, cash flows from operations worsened in Q2 pushing the negative free
cash flow to $1.1bn in just a single quarter. In our view, Uber only has a few
couple of quarters to show a clearer path to profitability in order to avoid
investors beginning to a more touch assessment of valuation multiples. The
key issue for Uber is drivers costs which could jump by 20% if drivers are
forced to be treated like employees as a recent bill in California is
suggesting. European regulators also want Uber to be treated as a regular
transportation company and it might give access to growth, but it comes with
higher complexity and costs. If Uber is forced to treat drivers as employees
can they then retain those drivers? And will the costs reach levels where Uber
is not significantly cost competitive with normal taxi companies? Many unknown
answers for investors.
While Uber will
surely get the media attention the most important earnings next week are from
Siemens and Toyota which have much larger global footprint directly linked to
consumer and industrial demand. Siemens is expected to deliver
only 1.5% revenue growth and the key focus for investors is cash flow generation
which has been a disaster the last three quarters.
Toyota is expected to deliver 2% revenue growth and
showing margin pressure as global car demand is still weak as consumers are
holding back. With 40% of its business in Japan and Asia the earnings release
is a good indicator on consumer confidence in Asia.
The table below shows the 30 largest companies on
market value reporting earnings next week.
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