The German economy may be showing signs of a life after more than half a decade of stagnation.
Europe’s largest economy has suffered a series of recent blows, including a surge in energy costs after Russia’s full-scale invasion of Ukraine, higher tariffs on its exports to the U.S and fierce competition from China in key sectors such as automobiles.
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Streaming customers are likely to see more familiar faces and less megabudget content in the coming year.
Shifting consumer tastes and corporate strategies portend changes in programming, with artificial intelligence looming in the background, as major streaming services consider how to use technology and new forms of programming without escalating annual multibillion-dollar content budgets.
“The big quandary is, how do we make [services] profitable? Things have shifted so dramatically and so quickly in how people consume,” Cole Strain, head of research and development at Samba TV, which tracks viewership of shows, said in an interview. “The streamers that find out what consumers truly want — they win.”
Streaming services are facing some big choices, noted Jacqueline Corbelli, CEO of software company BrightLine. “The cost of the content and the length of the content war will force them to make some major decisions. They are trying to figure it out,” she said in an interview.
“Great content has to be paid for, and investors want to see an increasingly efficient and profitable business,” she said, adding: “Right now the economics of these are at odds with one another.”
This year’s prolonged Hollywood strikes, the prevalence of up-close-and-personal sports documentaries and the increased licensing of older cable-TV shows are the most tangible evidence so far of how content is evolving. Throw in cost-cutting, and customers of services like Netflix Inc.
NFLX,
Walt Disney Co.’s
DIS,
Disney+ and Hulu, and Amazon.com Inc.’s
AMZN,
Prime Video are looking at a vastly different content landscape.
What’s at stake? Streaming’s big guns continue to spend lavishly in the pursuit of engagement, which is the single most important metric in media. During its third-quarter earnings calls, Netflix said it would spend $17 billion on content in 2024, while Disney pledged $25 billion, including sports rights.
“‘I think when it comes to creativity, quality is critical, of course, and quantity in many ways can destroy quality.’”
Complicating matters and raising the urgency is the pressure, particularly at Disney, to cut costs. The very future of blockbuster movies is also in doubt in the wake of box-office misfires such as “Wish,” “Indiana Jones and the Dial of Destiny” and the latest Marvel entries, “Ant-Man and the Wasp: Quantumania” and “The Marvels.”
“One of the reasons I believe it’s fallen off a bit is that we were making too much,” Disney CEO Bob Iger said at a recent employee town hall meeting in New York City. “I think when it comes to creativity, quality is critical, of course, and quantity in many ways can destroy quality. Storytelling, obviously, is the core of what we do as a company.”
Also read: Disney CEO Bob Iger walks back comments about asset sales
Speaking at the New York Times DealBook Summit last week, Iger acknowledged that “the movie business is changing. Box office is about 75% of what it was pre-COVID.” Noting the $7 monthly fee for a Disney+ subscription, he said the experience of viewing content from home on large TV screens is both more convenient and less expensive than going to the movie theater.
Iger’s task is significantly more fraught than those faced by his rivals. He is in the midst of a turnaround at Disney aimed at making streaming profitable and is simultaneously fending off yet another proxy fight from activist investor Nelson Peltz.
Part of Iger’s plan is to slash costs. Of the $7.5 billion Disney intends to save in 2024, $4.5 billion will come out of the content budget. Previously, the company was aiming at a $3 billion content cut out of a total annual reduction of $5.5 billion. Disney plans to spend $25 billion on content in 2024, down from $27.2 billion in 2023 and a record $29.9 billion in 2022.
Read more: Bob Iger: ‘I was not seeking to return’ as Disney CEO
What streamers have done so far hews closely to the classic TV model of producing original movies and series, broadcasting live sporting events and throwing in licensed content, or syndication. They’ve also displayed a willingness to place ads on their services after vowing not to (in the case of Netflix) and have managed to mitigate spending on pricey sports rights with behind-the-scenes content.
Most prominently, Netflix has licensed older shows like USA Networks’ “Suits,” reintroducing the cast, including a then-unknown Meghan Markle, to solid viewership. “As the competitive environment evolves, we may have increased opportunities to license more hit titles to complement our original programming,” Netflix said in its third-quarter earnings statement.
During the company’s earnings call in October, Netflix co-CEO Ted Sarandos pointed to the historic streaming success of “Suits.” “This continues to be important for us to add a lot of breadth of storytelling,” he said. “Our consumers have a wide range of tastes, and we can’t make everything, but we can help you find just about anything. That’s really the strength.”
The success of “Suits” and of original sports programming, among several tweaks, indicates that consumers like what they see so far. Streaming additions at Netflix and Disney were significant — 8.76 million and nearly 7 million, respectively — during the recently completed third calendar quarter.
Read more: Netflix’s stock jumps more than 10% on huge spike in subscribers, price hikes
“There exist a lot of popular, good shows that people hadn’t seen before. HBO Max has licensed ‘Band of Brothers.’ ‘Yellowstone’ is on the CBS network after performing well on Paramount Global
PARA,
and Comcast Corp.’s
CMCSA,
Peacock,” Jon Giegengack, founder and principal of Hub Entertainment Research, said in an interview. “Consumers increasingly don’t care if a show is new, if they haven’t seen it before.”
On the sports front, Netflix and Amazon Prime Video have sidestepped expensive rights to live sporting events and instead produced docuseries such as Netflix’s “Quarterback” and “Formula 1: Drive to Survive” and Amazon’s “Coach Prime” and “Redefined: J.R. Smith.” Amazon also continues to air “NFL Thursday Night Football.”
Competition for eyeballs is tight with so many suitors — from Alphabet Inc.’s
GOOGL,
GOOG,
YouTube to TikTok, both of which are developing long-form content — and viewers face “too many streaming options,” said Brittany Slattery, chief marketing officer at OpenAP, an advertising platform founded by the owners of most of the large TV networks.
“There is a high churn rate, because consumers keep popping in and out of services because they can’t afford all these services,” Slattery said in an interview.
Also see: Here’s what’s worth streaming in December 2023: Not much new, yet still a lot to watch
Mark Vena, CEO and principal analyst at SmarTech Research, sums up the typical customer experience: “There are too many services for streaming. I will buy service for a month, watch a movie and then cancel.”
Major streamers are pinning many of their hopes on technology as a way to entice viewers and expand beyond the traditional TV model they’ve adopted. Strategies include mobile gaming (Netflix), gambling (Disney’s ESPN Bet) and shoppable media (Amazon).
The biggest near-term change would bring ESPN exclusively to streaming, perhaps as early as 2025, although big games would probably be simulcast on network TV to retain older viewers.
“Technology will be a major impetus for being in the winning circle,” said Hunter Terry, head of connected TV at global data company Lotame, pointing to Amazon’s shoppable-media strategy during Prime Video’s broadcast of an NFL game on Black Friday.
The NFL game, the first ever on a Friday, featured QR codes of Amazon ads for direct purchases via mobile devices and PCs, contributing greatly to what the e-commerce giant said was its best-ever sales day — 7.5% higher than Black Friday 2022. The game drew between 9.6 million and 10.8 million viewers, according to Nielsen and Amazon, making it the highest-rated show on Black Friday for young adults (18-34) and adults (18-49).
And what of generative AI, a major flashpoint in the writers and actors strikes that roiled Hollywood for months earlier this year? Creators feared generative AI would be used to produce low- and middle-brow entertainment without the need for writers, actors or production crew.
The technology is as intriguing to streamers as it is vexing. Full-blown adoption would rankle creators as well as customers. There are also limitations: AI-created content is lacking in humor and original thought, said David Parekh, CEO of SRI International, a leading research and development organization serving government and industry.
“The pressing question is, who goes first among the streamers and risks getting blowback from studios and consumers?” said Rick Munarriz, a contributing analyst at the Motley Fool who covers streaming-service stocks. “You don’t want to offend people, but there are tools to create ideas” at little cost.
AI and machine learning are already being used to mine data to find out what resonates with viewers.
“It is very hard to produce successful content,” said Ron Gutman, CEO of Wurl, which helps streamers and publishers monetize and distribute content, and which was recently acquired by AppLovin Corp.
APP,
for $430 million. “The market is so fragmented. The problem is connecting people to content.”
Big-budget busts present another potential source of content, by salvaging unreleased movies, according to experts.
The so-called dust-bin option is the natural successor to straight-to-video and straight-to-pay-per-view movies. There has been some precedent, with the release of Disney’s superhero hit “Black Widow” simultaneously on streaming and in theaters in May 2021.
Will streaming services end up as the first stop for movies abruptly canceled before release? Candidates include “Batgirl,” which cost $90 million to make and was in post-production when Warner Bros. Discovery Inc.
WBD,
pulled the plug.
The same fate could also await two other shelved Warner Bros. movies, “Scoob! Holiday Haunt” and the completed “Coyote vs. Acme.”
While the $90 million “Batgirl” is a tax write-off, there could be upside to “Coyote” and “Scoob!” if they went to streaming without a costly marketing campaign, said SmarTech Research’s Vena.
Still, the long-term plans of streaming giants to meld tech to TV remains a ticklish task, said Wurl’s Gutman. “TV is a lean-back experience, not a lean-into technology medium,” he said. “People are looking at their phones while watching TV. It is a passive experience.”
Tracy Swedlow, founder and co-producer of the TV of Tomorrow Show conference, said: “They’ve been burning a candle at both ends, investing in original content as well as licensing long-tail content such as ‘Suits’ and ‘Breaking Bad.’ Something has to give.”
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As the fire at an Indiana plastics-recycling storage facility burned over several days and officials scrambled to calm evacuated residents and measure air quality, larger safety questions emerged across a nation that relies on recycling to help offset the impact of teeming landfills and littered waterways.
Authorities in the eastern part of the state on Sunday finally lifted a dayslong evacuation order after it was determined immediate environmental concerns related to the fire had passed.
But the man-made disaster had already done its part, leaving many wondering if recycling centers — challenging to regulate because they range from small community-led efforts to major industrial facilities — are as safe as Americans think they are?
Public health experts told MarketWatch the nation needs to take a harder look at how we store and dispose of chemicals-heavy plastics in particular, along with other recycled materials that can act as a tinderbox in certain conditions. It may be a wakeup call to the scores of Americans who embrace recycling as one of the longest-tested and straightforward solutions to help the environment. What happens after recyclable materials leave the home can be quite another story, however.
Read: Recycling is confusing — how to be smarter about all that takeout plastic
Worker safety in the handling of large recycling machinery remains a priority of the Occupational Safety and Health Administration (OSHA) and other agencies, but less scrutiny may be given to the emissions those workers breathe in, and in the case of the Indiana emergency, what pollution community members near a recycling center may be exposed to.
“Any company, regardless of its intentions, must be held accountable for regulations, not only for the safety of its employees, but for the communities around it,” Dr. Panagis Galiatsatos, a pulmonologist, who is the national spokesperson for the American Lung Association, told MarketWatch.
“This [Indiana crisis] is alarming — a good deed [such as recycling] undone by the consequences of not having sound safety precautions,” said Galiatsatos, who is also an assistant professor at the Johns Hopkins School of Medicine and helps lead community engagement for the Baltimore Breathe Center.
As for the fire in Richmond, Ind., a college town and county seat of about 35,000 people near the Ohio border, the city’s fire chief, Tim Brown, made clear that there were known code violations by the operator of the former factory that had been turned into plastics storage for recycling or resale. This dangerous fire was a matter of “when, not if,” Brown said in the initial hours that the fire, whose origin is not yet known, burned.
The city of Richmond’s official site about the disaster described the fire as initially impacting “two warehouses containing large amounts of chipped, shredded and bulk recycled plastic, [which] caught fire.” The site does offer cleanup help advice.
Brown, the fire chief, reported that just over 13 of the 14 acres which made up the recycling facility’s property had burned, according to nearby Dayton, Ohio, station WDTN. Brown told reporters the six buildings at the site of the fire were full of plastic from “floor to ceiling, wall to wall,” along with several full semi-trailers. He said Sunday that fire fighters would continue to monitor for flare-ups, according to the Associated Press.
Richmond Mayor Dave Snow said the owner of the buildings has ignored citations that dinged his operation for code violations, and the city has continued to go through steps to get the owner to clean up the property, including preventing the operator from taking on additional plastic.
“We just wish the property owner and the business owner would’ve taken this more serious from day one,” Snow said, according to the report out of Dayton, which cited sister station WXIN. “This person has been negligent and irresponsible, and it’s led to putting a lot of people in danger,” the mayor added.
But some environmental groups say lax enforcement puts citizens at risk.
“Indiana is already top in the nation for water and air quality violations, but the consequences are too negligible here for industry to adhere to the laws,” said Susan Thomas, communications director at Just Transition Northwest Indiana, a climate justice group based in the state.
“We need real solutions to the climate crisis, not more false ones that shield chronic polluters from justice,” she said.
The Environmental Protection Agency (EPA) had collected debris samples from the Richmond fire and searched nearby grounds for any debris, which will be sampled for asbestos given the age of the buildings housing the recycling facility. Residents have been warned not to touch or mow over debris until the sample results are available. Testing was also carried out on the Ohio side of the border.
No doubt, the catastrophe had impacted daily life. Wayne County, Ind., health department officials and fire-safety officials told residents to shelter in place and reduce outdoor activity if they even smelled smoke. According to the health department’s help line, symptoms that may be related to breathing smoke include repeated coughing, shortness of breath or difficulty breathing, wheezing, chest tightness or pain, palpitations, nausea or lightheadedness.
When a lens on recycling is widened, it comes to light that how facilities handle their plastic and other materials may not involve much more care than that given to chemical-emitting plastic left to break down in a landfill, say the concerned public health officials.
Of the 40 million tons of plastic waste generated in the U.S., only 5%-6%, or about two million tons, is recycled, according to a report conducted by the environmental groups Beyond Plastics and The Last Beach Cleanup. About 85% went to landfills, and 10% was incinerated. The rate of plastic recycling has decreased since 2018, when it was at 8.7%, per the study.
Generally speaking, when plastic particles break down, they gain new physical and chemical properties, increasing the risk they will have a toxic effect on organisms, says the environmental arm of the United Nations. The larger the number of potentially affected species and ecological functions, the more likely it is that toxic effects will occur.
And although the conditions of the Indiana fire differ from those experienced earlier this year when a Norfolk Southern Corp.
NSC,
freight train carrying hazardous materials in several cars derailed near East Palestine, Ohio, the public’s concern for that event — which also sparked an evacuation after a chemical plume from a controlled burn — spread widely on social media.
Now, add in Richmond. The public, at large, is increasingly wondering if officials are doing their job to prevent such disasters, and whether the full extent of chemical exposure is known.
“This [fire in Indiana] overlaps in a general sense the chemical safety question raised by the Ohio derailment — and it shouldn’t have just been raised by that one event, but that certainly brought it into focus,” said Dr. Peter Orris, chief of occupational and environmental medicine at the University of Illinois – Chicago.
Orris said lasting solutions pushing awareness and safety around the storage and transportation of chemicals and chemical-based plastic must span political differences over the reach of regulation. He recalled a time just after the 9/11 terror attacks when a fresh look at the transportation of toxic chemicals and the storage and shipment of ammonia and other substances that can have nefarious uses in the wrong hands drew support from unusual partners.
“Shortly after 9/11 a rather broad coalition, including environmental interests such as Greenpeace, and consumer groups, with congressional support, alongside Homeland Security all pushed a model bill about where and how you could transport toxic chemicals, especially going through populated areas,” he said. “Dealing with new concerns around chemicals and recycling plastic may require the same breadth of interests.”
Already, the Biden administration has shown the will to target chemical exposure in U.S. water. Earlier this year, the EPA moved to require near-zero levels of perfluoroalkyl and polyfluoroalkyl substances, part of a classification of chemicals known as PFAS, and also called “forever chemicals” due to how long they persist in the environment. Both the chemical companies and their trade groups have pushed their own steps toward reducing risk, they say. Exposure to some of the chemicals has been linked to cancer, liver damage, fertility and thyroid problems, as well as asthma and other health effects.
Read more: Cancer-linked PFAS — known as ‘forever chemicals’ — could be banned in drinking water for first time
And, Orris stressed, regulating recycling with a one-size-fits-all approach may not work.
Surprisingly, it can be the smaller recycling facilities that take bigger steps in curbing emissions than their larger counterparts. Orris in recent years reported on efforts of a San Francisco recycling plant that made emissions reduction a priority, including by banning incineration. The same research trip turned up issues with a Los Angeles-area plant, exposing “real problems with its policies and procedures beginning with the neighborhood smell from organic materials to other issues with toxins.”
Specifically, the chemicals that help fortify plastic for its many uses present their own unique conditions.
As plastic is heated at high temperatures, melted and reformed into small pellets, it emits toxic chemicals and particulate matter, including volatile gases and fly ash, into the air, which pose threats to health and the local environment, says a Human Rights Watch paper, citing environmental engineering research. When plastic is recycled into pellets for future use, its toxic chemical additives are carried over to the new products. Plus, the recycling process can generate new toxic chemicals, like dioxins, if plastics are not heated at a high enough temperature.
There are other concerns. Plastic melting facilities can emit volatile organic compounds (VOCs) and carcinogens, which in higher concentrations can pollute air both inside facilities and in areas near recycling facilities.
“Plastics, the way they burn, put out dangerous toxins. And plastic can create its own unique chemistry even when it comes into interaction with benign chemicals,” said Galiatsatos of Johns Hopkins.
“There are the lung issues from people breathing in these chemicals and the toxins associated with them. But there is more: systemic inflation from breathing in chemicals, and that can lead to heart disease,” he said.
“I wish we would pay the same amount of attention to plastics, their recycling and their disposal, as we do with sewer systems. When was the last time we heard of a waste system-based cholera outbreak in the U.S.?” he asked rhetorically. “Exactly. That we care about. Yet plastics, especially the burning of chemicals, we treat too lightly.”
There is currently no dispute over who wears the crown of world’s wealthiest person. It isn’t Tesla Chief Executive Elon Musk.
The net worth of Bernard Arnault, the founder and chairman and chief executive officer of LVMH Moet-Hennessy Louis Vuitton SE
MC,
stood at $210 billion as of Thursday, according to the Bloomberg Billionaire Index. That makes him the world’s richest person by that marker, with an increasingly comfortable lead over Tesla’s
TSLA,
Musk, who also leads SpaceX and Twitter and whose wealth stands at $180 billion. At times the two have been in a neck-and-neck race for that top spot.
LVMH shares closed at a record €883 on Thursday, helping lift the French CAC-40
PX1,
to an all-time high. That followed forecast-beating first-quarter sales from the luxury giant, thanks to returning China shoppers as COVID-19 restrictions eased, and rebounding international travel that drove duty-free sales. Up 7% so far this week, LVMH shares rose another 0.5% on Friday to €888.70.
The stock surge padded Arnault’s fortune by $11.6 billion on Thursday, the second-biggest single-day gain ever for him and a fresh record fortune, according to Bloomberg. Musk didn’t do badly.
He increased his wealth by $3.83 billion on Thursday, before Tesla and U.S. equities
SPX,
generally retreated a bit on Friday.
Read: Who is Bernard Arnault, the world’s richest person after surpassing Elon Musk?
LVMH owns jewelers Bulgari and Tiffany, alongside fashion houses Louis Vuitton and Dior. Results released late Wednesday showed the luxury standard-bearer beating expectations across every division, led by fashion and leather goods, the latter of which is significant, Berenberg analysts observed.
“As the most profitable division, this also bodes well for margin development,” said Berenberg analyst Graham Renwick, in a note to clients on Friday.
“This performance sets the standard for [first quarter] luxury reporting and gives encouragement on China’s recovery from pandemic disruption. Overall, we think these results continue to demonstrate LVMH’s strong momentum and best-in-class execution — again reaffirming its high quality and strong track record, which we believe investors are favoring in this uncertain macro environment,” said Renwick, who reiterated a buy rating on LVMH’s stock and lifted his share-price target to €960.
The luxury sector got another confidence boost on Friday, as Hermès International SCA
RMS,
revealed sales momentum in the first quarter, driven by a bump in tourism and new stores. The maker of the legendary Birkin handbag saw a 23% annual increase in first-quarter sales and backed “ambitious” organic revenue-growth targets.
Luxury stocks have seen an impressive rebound in 2023, after a weak 2022 — LVMH shares fell 6% in 2022 as travel restrictions in China and overall economic worries weighed on shoppers.
LVMH shares are up 30% so far in 2023, with Hermès up 36% and Christian Dior SE
CDI,
and Gucci owner Kering SA
KER,
up 26% and 21%, respectively.
As for Musk, his wealth is divided among his businesses. While Tesla accounts for $76 billion, Bloomberg estimates his share of SpaceX is worth $49 billion, and his share of Tesla is worth nearly $10 billion. He paid $44 billion for Twitter last year, after an attempt to wriggle out of the deal, and its current valuation is a matter of much speculation. Musk has fired thousands of employees and claimed this week that a return to profitability is now just around the corner.
Tesla is slated to report quarterly results next week, and some analysts aren’t optimistic due to persistent price cuts of its models.
The Justice Department and the Environmental Protection Agency have filed a complaint against Norfolk Southern Corp. for unlawful discharge of pollutants and hazardous substances in the Feb. 3 train derailment in East Palestine, Ohio.
The complaint seeks penalties and injunctive relief for the unlawful discharge of pollutants, oil and hazardous substances under the Clean Water Act, according to statements released by the Justice Department and the EPA. The Justice Department and EPA are also seeking a declaratory judgment on liability for past and future costs under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
Norfolk Southern’s
NSC,
stock has fallen 16.8% since the derailment near the Ohio-Pennsylvania border. The stock is up 0.3% Friday.
Related: Norfolk Southern will do ‘everything it takes’ for East Palestine, CEO tells senators
“When a Norfolk Southern train derailed last month in East Palestine, Ohio, it released toxins into the air, soil, and water, endangering the health and safety of people in surrounding communities,” Attorney General Merrick Garland said in a statement. “With this complaint, the Justice Department and the EPA are acting to pursue justice for the residents of East Palestine and ensure that Norfolk Southern carries the financial burden for the harm it has caused and continues to inflict on the community.”
In a separate statement, EPA Administrator Michael Regan said: “No community should have to go through what East Palestine residents have faced. With today’s action, we are once more delivering on our commitment to ensure Norfolk Southern cleans up the mess they made and pays for the damage they have inflicted as we work to ensure this community can feel safe at home again.”
Norfolk Southern has created a website, nsmakingitright.com, to track its progress in cleaning up the site.
“Our job right now is to make progress every day cleaning up the site, assisting residents whose lives were impacted by the derailment, and investing in the future of East Palestine and the surrounding areas,” a spokesperson for Norfolk Southern told MarketWatch. “We are working with urgency, at the direction of the U.S. EPA, and making daily progress. That remains our focus and we’ll keep working until we make it right.”
Related: Norfolk Southern sued by Ohio over ‘entirely avoidable’ East Palestine derailment
More than 9.4 million gallons of affected water have been recovered and transported off-site for final disposal, according to Norfolk Southern, along with 12,904 tons of waste soil that has been removed for proper disposal.
The company has also flushed 5,200 feet of affected waterways and sampled more than 275 private drinking water wells, according to nsmakingitright.com.
The suit from the Justice Department and the EPA comes just two weeks after Ohio Attorney General Dave Yost filed a 58-count civil lawsuit against Norfolk Southern over the derailment in East Palestine.
Now read: Here are the chemicals spilled near Philly as U.S. drinking-water safety is top of mind
No one was killed or injured in the Ohio derailment, but the incident has been described as a “PR nightmare” for Norfolk Southern and the rail industry. The derailed cars included 11 tank cars carrying hazardous materials that subsequently ignited, damaging an additional 12 railcars, according to the National Transportation Safety Board, and setting off concerns about the impact on air and water quality and dangers to health in the region.
Earlier this month, Norfolk Southern CEO Alan Shaw was grilled by senators when he provided testimony on the disaster before the Senate Committee on Environment and Public Works.
While safety was the primary focus of the hearing, Shaw was also pressed on Norfolk Southern’s stock buybacks and the company’s use of precision scheduled railroading, which focuses on the movement of individual train cars rather than whole trains.
Related: Train derailment in Minnesota thrusts rail safety back into the spotlight
In his testimony, Shaw vowed to do “everything it takes” for the community affected by the derailment.
Rail safety was thrust into the spotlight again this week with the derailment of a BNSF train carrying ethanol and corn syrup in Minnesota early Thursday.
Everstream Analytics, a supply-chain analytics company, has been researching train derailments involving Class I rail carriers between 2018 and 2023. A Class I carrier is defined as any carrier earning annual revenue greater than $943.9 million, according to the U.S. government’s Surface Transportation Board. Data show that derailments across rail companies increased considerably in the U.S. between 2021 and 2022, according to Everstream Analytics.
After one of the worst years in Wall Street’s history, investors have some serious questions for companies. As holiday returns roll in — and with them, forecasts for the months or year ahead — many have the chance to answer those questions, or avoid them.
In the busiest week of the holiday-earnings season so far, three big names will take the stage on back-to-back-to-back afternoons. Here is what to expect:
Microsoft
MSFT,
shed $737 billion in market value last year, the third-most of any S&P 500 company, then announced plans to lay off some 10,000 workers this month. Previously a Wall Street darling thanks to the phenomenal growth of its Azure cloud-computing offering, Microsoft now faces a cutback in enterprise spending on cloud and other products, as companies seek to cut their bills after spending wantonly during the early years of the COVID-19 pandemic.
First Take: Big Tech layoffs are not as big as they appear at first glance
When the company announced layoffs, Chief Executive Satya Nadella admitted customers were cutting, saying “as we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize their digital spend to do more with less.” Analysts believe Azure may be holding up better than rivals, however, and will expect to hear about it when Microsoft results hit Tuesday afternoon.
“Our Azure checks were mixed, but generally better than public cloud sentiment that has turned highly negative over the past few months,” Mizuho analysts wrote. “More specifically, we have heard of increasing levels of optimization, but it is being partially offset by many organizations prioritizing digital transformation.”
From October: The cloud boom has hit its stormiest moment yet, and it is costing investors billions
As cloud growth slows down, expect Microsoft to point to the next big buzzword in tech: Artificial intelligence, specifically ChatGPT, the chatbot product developed by OpenAI, which Microsoft has invested heavily in and expects to incorporate into its products. D.A. Davidson analyst Gil Luria this month wrote that Microsoft’s investments in OpenAI would help it build out more AI technology, including in its search engine Bing.
Tesla
TSLA,
stock suffered a much larger percentage decline than Microsoft in 2022,as the electric-vehicle maker’s shares closed out their worst year on record with their worst quarter and month ever. After the year ended, Tesla began slashing prices in China and the U.S. in hopes of qualifying for more consumer tax incentives and reinvigorating demand, which could lead to questions about previously fat margins.
In-depth: Tesla investors await clues on demand, board actions and weigh downside risks in 2023
For Tesla, which reports fourth-quarter results Wednesday, the results will offer more context on production of the Cybertruck — currently set to start in the middle of the year — demand in China, competition and the impact of price cuts. Auto-information website Edmunds on Thursday said that Tesla’s decision to slash prices by as much as 20% in the U.S. and Europe led to a jump in interest in the vehicles.
While those cuts seem likely to hurt profit, Deutsche Bank analyst Emmanuel Rosner called it “a bold offensive move, which secures Tesla’s volume growth, puts its traditional and EV competitors in great difficulty, and showcases Tesla’s considerable pricing power and cost superiority.” And a survey from Wedbush analysts found that “76% of EV Chinese consumers are considering buying a Tesla in 2023.” But Toni Sacconaghi, an analyst at Bernstein, said Tesla needed more low-cost electric-vehicle offerings, which might not ship until 2025.
Tesla earnings preview: Price cuts in focus as stock hovers around 2-year low
With Tesla’s stock in the gutter, some analysts have raised the possibility of a share buyback to spur investor interest, and Chief Executive Elon Musk said such a plan was being discussed in the previous earnings call. Musk is not in great favor with many investors right now, however, following some heavy selling of Tesla shares in the wake of his purchase last year of Twitter, which some on Wall Street have said has distracted him from the needs of the auto maker. Musk’s tweets have landed him in trouble elsewhere: Opening arguments began last week for a trial centered on allegations that Musk put investors at risk when he tweeted in 2018 that he was “considering” taking Tesla private and had secured the money to do so.
‘He broke the stock’: Why a prominent Tesla investor wants Elon Musk to put him on the board
Intel’s
INTC,
questions were not fresh in 2022, as the chip maker for years has seen rivals like Advanced Micro Devices Inc.
AMD,
and Nvidia Corp.
NVDA,
challenge it in ways that would have been unthinkable in previous generations. Shares still dove more than 43% last year, as declining sales led to plans for $3 billion in cost cuts.
There’s little hope for a big rebound when Intel reports Thursday afternoon. Personal-computer sales have experienced their biggest year-over-year declines ever recorded, and Intel’s long-delayed new data-center offering that is meant to answer AMD’s challenge only began selling this year.
Opinion: The PC boom and bust is already ‘one for the record books,’ and it isn’t over
Intel CEO Pat Gelsinger, though, has a chance to lay out his vision for a long-term Intel rebound, as he attempts to make Intel a chip-manufacturing powerhouse again after years of struggles. He was forced to trim his annual outlook multiple times last year, so it will be important for him to provide attainable numbers this time, but without reducing hopes in the path forward.
Expectations remain low for fourth-quarter earnings season overall, with consumers squeezed by higher prices and interest rates, and hopes fading for any relief from the holiday shopping season. But even with a low bar, the fourth-quarter results from companies so far have been worse than the historical norm, with FactSet senior earnings analyst John Butters writing Friday that “the fourth-quarter earnings season for the S&P 500 is not off to a strong start.”
So far, 11% of S&P 500 companies have reported fourth-quarter results, with roughly one-third reporting earnings better than estimates, Butters reported. That’s lower than the 10-year average of 73%.
Still, Wall Street generally expects strong profit margins for companies in the S&P 500, as earlier price increases — which help businesses offset their own costs and test the limits of consumer demand — mix with more recent cost cuts.
For the week ahead, 93 companies in the S&P 500 index
SPX,
and 12 of the 30 Dow Jones Industrial Average
DJIA,
components, are set to report quarterly results.
Mark your calendars! Here is MarketWatch’s full earnings calendar for the week
Among the highlights: General Electric Co.
GE,
reports Tuesday for the first time since splitting off its GE HealthCare Technologies
GEHC,
business. 3M Co.
MMM,
— which makes Post-it Notes, duct tape, air filters, adhesives and coatings — also reports Tuesday, after the company in October said the costs of raw materials, a big driver of inflation, were showing signs of easing.
And as demand for goods eases amid worries about a downturn, a number of railroad operators that ship those goods report during the week. Union Pacific Corp.
UNP,
whose lines ship across the Western half of the U.S., reports on Tuesday, while CSX Corp.
CSX,
which covers much of the East, reports Wednesday. Norfolk Southern Corp.
NSC,
also reports Wednesday.
Telecom giants Verizon Communications Inc.
VZ,
AT&T Inc.
T,
and Comcast Corp.
CMCSA,
report Tuesday, Wednesday and Thursday, respectively. Results there will offer a clearer sense of the state of demand for Apple Inc.’s
AAPL,
iPhones, as premium models suffer from production snags, and for broadband, which saw heightened demand when more people were staying home due to the pandemic.
Southwest, post-meltdown: Southwest Airlines Co.
LUV,
which reports on Thursday, will offer executives with plenty to answer for, after bad weather and an overloaded, aging scheduling system caused thousands of flight cancellations over the holidays.
For more: Southwest Airlines turns to repairing its reputation after holiday meltdown
The implosion has raised questions about the air carrier’s investments in its own technology — after restarting dividend payments shortly before the disruptions — and airlines’ ability to handle the post-lockdown travel rebound. The breakdown has underscored the airline industry’s bigger issues with understaffing, after 2020’s wave of departures, as carriers try to reload flight schedules to meet pent-up travel demand.
Scott Kirby, chief executive at United Airlines Holdings Inc.
UAL,
said during his company’s earnings call last week that he felt the industry’s goals to expand their flight coverage this year and beyond were “simply unachievable.” And he said that airlines that tried to follow prepandemic patterns were destined to face trouble. He said manufacturers were suffering from delays in building jets, engines and other parts, and that airlines had outgrown their technology infrastructure.
For more: United Airlines swings to profit despite ‘worst’ winter storm’
“All of us, airlines and the FAA, lost experienced employees and most didn’t invest in the future,” he said. “That means the system simply can’t handle the volume today, much less the anticipated growth.”
American Airlines Group Inc.
AAL,
Alaska Air Group Inc.
ALK,
and JetBlue Airways Corp.
JBLU,
are also expected to report results Thursday morning, along with Southwest.
Visa, Mastercard and consumer spending: The return of travel and entertainment, along with rising prices, have helped prop up consumer spending. But as Visa Inc.
V,
Mastercard Inc.
MA,
American Express Co.
AXP,
and Capital One Financial Corp.
COF,
prepare to report, their finance-industry counterparts are getting nervous — and taking more steps to pad themselves against the fallout from consumers struggling to pay their bills.
Credit-card issuer Capital One reports results on Tuesday, while card payments-network providers Visa and Mastercard report on Thursday, with Amex on Friday morning. They’ll report after shares of Discover Financial Services
DFS,
got hit last week after the company, which also offers credit cards and loans, set aside more money to cover souring credit, and reported a bump in its net charge-off rate — a measure of debt a company thinks is unlikely to be recovered.
Larger banks, like JPMorgan Chase & Co.
JPM,
have also set aside more money to guard against credit losses.
After one of the worst years in Wall Street’s history, investors have some serious questions for companies. As holiday returns roll in — and with them, forecasts for the months or year ahead — many have the chance to answer those questions, or avoid them.
In the busiest week of the holiday-earnings season so far, three big names will take the stage on back-to-back-to-back afternoons. Here is what to expect:
Microsoft
MSFT,
shed $737 billion in market value last year, the third-most of any S&P 500 company, then announced plans to lay off some 10,000 workers this month. Previously a Wall Street darling thanks to the phenomenal growth of its Azure cloud-computing offering, Microsoft now faces a cutback in enterprise spending on cloud and other products, as companies seek to cut their bills after spending wantonly during the early years of the COVID-19 pandemic.
First Take: Big Tech layoffs are not as big as they appear at first glance
When the company announced layoffs, Chief Executive Satya Nadella admitted customers were cutting, saying “as we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize their digital spend to do more with less.” Analysts believe Azure may be holding up better than rivals, however, and will expect to hear about it when Microsoft results hit Tuesday afternoon.
“Our Azure checks were mixed, but generally better than public cloud sentiment that has turned highly negative over the past few months,” Mizuho analysts wrote. “More specifically, we have heard of increasing levels of optimization, but it is being partially offset by many organizations prioritizing digital transformation.”
From October: The cloud boom has hit its stormiest moment yet, and it is costing investors billions
As cloud growth slows down, expect Microsoft to point to the next big buzzword in tech: Artificial intelligence, specifically ChatGPT, the chatbot product developed by OpenAI, which Microsoft has invested heavily in and expects to incorporate into its products. D.A. Davidson analyst Gil Luria this month wrote that Microsoft’s investments in OpenAI would help it build out more AI technology, including in its search engine Bing.
Tesla
TSLA,
stock suffered a much larger percentage decline than Microsoft in 2022,as the electric-vehicle maker’s shares closed out their worst year on record with their worst quarter and month ever. After the year ended, Tesla began slashing prices in China and the U.S. in hopes of qualifying for more consumer tax incentives and reinvigorating demand, which could lead to questions about previously fat margins.
In-depth: Tesla investors await clues on demand, board actions and weigh downside risks in 2023
For Tesla, which reports fourth-quarter results Wednesday, the results will offer more context on production of the Cybertruck — currently set to start in the middle of the year — demand in China, competition and the impact of price cuts. Auto-information website Edmunds on Thursday said that Tesla’s decision to slash prices by as much as 20% in the U.S. and Europe led to a jump in interest in the vehicles.
While those cuts seem likely to hurt profit, Deutsche Bank analyst Emmanuel Rosner called it “a bold offensive move, which secures Tesla’s volume growth, puts its traditional and EV competitors in great difficulty, and showcases Tesla’s considerable pricing power and cost superiority.” And a survey from Wedbush analysts found that “76% of EV Chinese consumers are considering buying a Tesla in 2023.” But Toni Sacconaghi, an analyst at Bernstein, said Tesla needed more low-cost electric-vehicle offerings, which might not ship until 2025.
Tesla earnings preview: Price cuts in focus as stock hovers around 2-year low
With Tesla’s stock in the gutter, some analysts have raised the possibility of a share buyback to spur investor interest, and Chief Executive Elon Musk said such a plan was being discussed in the previous earnings call. Musk is not in great favor with many investors right now, however, following some heavy selling of Tesla shares in the wake of his purchase last year of Twitter, which some on Wall Street have said has distracted him from the needs of the auto maker. Musk’s tweets have landed him in trouble elsewhere: Opening arguments began last week for a trial centered on allegations that Musk put investors at risk when he tweeted in 2018 that he was “considering” taking Tesla private and had secured the money to do so.
‘He broke the stock’: Why a prominent Tesla investor wants Elon Musk to put him on the board
Intel’s
INTC,
questions were not fresh in 2022, as the chip maker for years has seen rivals like Advanced Micro Devices Inc.
AMD,
and Nvidia Corp.
NVDA,
challenge it in ways that would have been unthinkable in previous generations. Shares still dove more than 43% last year, as declining sales led to plans for $3 billion in cost cuts.
There’s little hope for a big rebound when Intel reports Thursday afternoon. Personal-computer sales have experienced their biggest year-over-year declines ever recorded, and Intel’s long-delayed new data-center offering that is meant to answer AMD’s challenge only began selling this year.
Opinion: The PC boom and bust is already ‘one for the record books,’ and it isn’t over
Intel CEO Pat Gelsinger, though, has a chance to lay out his vision for a long-term Intel rebound, as he attempts to make Intel a chip-manufacturing powerhouse again after years of struggles. He was forced to trim his annual outlook multiple times last year, so it will be important for him to provide attainable numbers this time, but without reducing hopes in the path forward.
Expectations remain low for fourth-quarter earnings season overall, with consumers squeezed by higher prices and interest rates, and hopes fading for any relief from the holiday shopping season. But even with a low bar, the fourth-quarter results from companies so far have been worse than the historical norm, with FactSet senior earnings analyst John Butters writing Friday that “the fourth-quarter earnings season for the S&P 500 is not off to a strong start.”
So far, 11% of S&P 500 companies have reported fourth-quarter results, with roughly one-third reporting earnings better than estimates, Butters reported. That’s lower than the 10-year average of 73%.
Still, Wall Street generally expects strong profit margins for companies in the S&P 500, as earlier price increases — which help businesses offset their own costs and test the limits of consumer demand — mix with more recent cost cuts.
For the week ahead, 93 companies in the S&P 500 index
SPX,
and 12 of the 30 Dow Jones Industrial Average
DJIA,
components, are set to report quarterly results.
Mark your calendars! Here is MarketWatch’s full earnings calendar for the week
Among the highlights: General Electric Co.
GE,
reports Tuesday for the first time since splitting off its GE HealthCare Technologies
GEHC,
business. 3M Co.
MMM,
— which makes Post-it Notes, duct tape, air filters, adhesives and coatings — also reports Tuesday, after the company in October said the costs of raw materials, a big driver of inflation, were showing signs of easing.
And as demand for goods eases amid worries about a downturn, a number of railroad operators that ship those goods report during the week. Union Pacific Corp.
UNP,
whose lines ship across the Western half of the U.S., reports on Tuesday, while CSX Corp.
CSX,
which covers much of the East, reports Wednesday. Norfolk Southern Corp.
NSC,
also reports Wednesday.
Telecom giants Verizon Communications Inc.
VZ,
AT&T Inc.
T,
and Comcast Corp.
CMCSA,
report Tuesday, Wednesday and Thursday, respectively. Results there will offer a clearer sense of the state of demand for Apple Inc.’s
AAPL,
iPhones, as premium models suffer from production snags, and for broadband, which saw heightened demand when more people were staying home due to the pandemic.
Southwest, post-meltdown: Southwest Airlines Co.
LUV,
which reports on Thursday, will offer executives with plenty to answer for, after bad weather and an overloaded, aging scheduling system caused thousands of flight cancellations over the holidays.
For more: Southwest Airlines turns to repairing its reputation after holiday meltdown
The implosion has raised questions about the air carrier’s investments in its own technology — after restarting dividend payments shortly before the disruptions — and airlines’ ability to handle the post-lockdown travel rebound. The breakdown has underscored the airline industry’s bigger issues with understaffing, after 2020’s wave of departures, as carriers try to reload flight schedules to meet pent-up travel demand.
Scott Kirby, chief executive at United Airlines Holdings Inc.
UAL,
said during his company’s earnings call last week that he felt the industry’s goals to expand their flight coverage this year and beyond were “simply unachievable.” And he said that airlines that tried to follow prepandemic patterns were destined to face trouble. He said manufacturers were suffering from delays in building jets, engines and other parts, and that airlines had outgrown their technology infrastructure.
For more: United Airlines swings to profit despite ‘worst’ winter storm’
“All of us, airlines and the FAA, lost experienced employees and most didn’t invest in the future,” he said. “That means the system simply can’t handle the volume today, much less the anticipated growth.”
American Airlines Group Inc.
AAL,
Alaska Air Group Inc.
ALK,
and JetBlue Airways Corp.
JBLU,
are also expected to report results Thursday morning, along with Southwest.
Visa, Mastercard and consumer spending: The return of travel and entertainment, along with rising prices, have helped prop up consumer spending. But as Visa Inc.
V,
Mastercard Inc.
MA,
American Express Co.
AXP,
and Capital One Financial Corp.
COF,
prepare to report, their finance-industry counterparts are getting nervous — and taking more steps to pad themselves against the fallout from consumers struggling to pay their bills.
Credit-card issuer Capital One reports results on Tuesday, while card payments-network providers Visa and Mastercard report on Thursday, with Amex on Friday morning. They’ll report after shares of Discover Financial Services
DFS,
got hit last week after the company, which also offers credit cards and loans, set aside more money to cover souring credit, and reported a bump in its net charge-off rate — a measure of debt a company thinks is unlikely to be recovered.
Larger banks, like JPMorgan Chase & Co.
JPM,
have also set aside more money to guard against credit losses.
The U.S. Senate on Thursday voted 80-15 in favor of a bill that would prevent a rail strike by imposing a deal on freight-rail workers, after rejecting a separate House-passed measure that would require rail companies to provide those workers with seven days of paid sick leave per year.
The vote for the bill imposing a deal keeps Washington on track to block a strike, as the House of Representatives passed it Wednesday. President Joe Biden is expected to sign the legislation into law given that he called on Monday for Congress to act.
Business groups have been warning that even a short-term strike would have a tremendous impact and cause economic pain.
The deal that would be imposed on rail employees includes a 24% increase in wages from 2020 through 2024, but workers have remained concerned about a lack of paid sick time.
In the vote on sick leave, there were 52 senators in favor, while 43 were opposed, and 60 votes for it were needed. A half dozen Republican senators were in favor, while Sen. Joe Manchin of West Virginia was the only Democrat in opposition.
“While I am sympathetic to the concerns union members have raised, I do not believe it is the role of Congress to renegotiate a collective bargaining agreement that has already been negotiated,” Manchin said in a statement.
Earlier Thursday, the Senate also voted against an amendment from Republican senators that aimed to deliver a cooling-off period so talks between rail companies and their workers could continue.
Railroad operators’ stocks finished with gains Tuesday as traders reacted to Washington’s moves to prevent a strike, but Norfolk Southern Corp.
NSC,
CSX Corp.
CSX,
and Union Pacific Corp.
UNP,
all lost ground Thursday as the broad market
SPX,
DJIA,
closed mostly lower.
OMAHA, Neb. — President Joe Biden on Monday asked Congress to intervene and block a railroad strike before next month’s deadline in the stalled contract talks, following pressure by business groups on the stalled negotiations.
“Let me be clear: a rail shutdown would devastate our economy,” Biden said in a statement. “Without freight rail, many U.S. industries would shut down.”
Congress has the power to impose contract terms on the workers, but it’s not clear what lawmakers might include if they do. They could also force the negotiations to continue into the new year.
Both the unions and railroads have been lobbying Congress while contract talks continue. Four rail unions that represent more than half of the 115,000 workers in the industry have rejected the deals that Biden helped broker before the original strike deadline in September and are back at the table trying to work out new agreements. Eight other unions have approved their five-year deals with the railroads and are in the process of getting back pay for their workers for the 24% raises that are retroactive to 2020.
Biden said that as a “a proud pro-labor president” he was reluctant to override the views of people who voted against the agreement. “But in this case — where the economic impact of a shutdown would hurt millions of other working people and families — I believe Congress must use its powers to adopt this deal.”
Biden’s remarks came after a coalition of more than 400 business groups sent a letter to congressional leaders Monday urging them to step into the stalled talks because of fears about the devastating potential impact of a strike that could force many businesses to shut down if they can’t get the rail deliveries they need. Commuter railroads and Amtrak would also be affected in a strike because many of them use tracks owned by the freight railroads.
The business groups led by the U.S. Chamber of Commerce, National Association of Manufacturers and National Retail Federation said even a short-term strike would have a tremendous impact and the economic pain would start to be felt even before the Dec. 9 strike deadline. They said the railroads would stop hauling hazardous chemicals, fertilizers and perishable goods up to a week beforehand to keep those products from being stranded somewhere along the tracks.
“A potential rail strike only adds to the headwinds facing the U.S. economy,” the businesses wrote. “A rail stoppage would immediately lead to supply shortages and higher prices. The cessation of Amtrak and commuter rail services would disrupt up to 7 million travelers a day. Many businesses would see their sales disrupted right in the middle of the critical holiday shopping season.”
A similar group of businesses sent another letter to Biden last month urging him to play a more active role in resolving the contract dispute.
On Monday, the Association of American Railroads trade group praised Biden’s action.
“No one benefits from a rail work stoppage — not our customers, not rail employees and not the American economy,” said AAR President and CEO Ian Jefferies. “Now is the appropriate time for Congress to pass legislation to implement the agreements already ratified by eight of the twelve unions.”
Congressional leaders and the White House have said they are monitoring the contract talks closely but haven’t indicated when they might act or what they will do. House Majority Leader Steny Hoyer, D-Md., said leaders are aware of the situation with the rail negotiations and will monitor the talks in the coming days.
Rep. Brian Fitzpatrick, R-Pa., said on “Fox News Sunday” that congressional intervention is a last resort but that lawmakers will have to be ready to act.
“Congress will not let this strike happen. That’s for sure,” said Fitzpatrick, who helps lead a bipartisan group of 58 lawmakers. “It would be devastating to our economy. So, we’ll get to a resolution one way or another.”
“It certainly could end up in Congress’ lap, which is why we are headed to D.C. this week to meet with lawmakers on the Hill from both parties,” said Clark Ballew, a spokesman for the Brotherhood of Maintenance of Way Employes Division, which represents track maintenance workers. “We have instructed our members to contact their federal lawmakers in the House and Senate for several weeks now.”
The unions have asked the railroads to consider adding paid sick time to what they already offered to address some of workers’ quality of life concerns. But so far, the railroads, which include Union Pacific
UNP,
Berkshire Hathaway’s
BRK.B,
BNSF, Norfolk Southern
NSC,
CSX
CSX,
and Canadian Pacific’s
CP,
Kansas City Southern, have refused to consider that.
The railroads want any deal to closely follow the recommendations a special board of arbitrators that Biden appointed made this summer that called for the 24% raises and $5,000 in bonuses but didn’t resolve workers’ concerns about demanding schedules that make it hard to take a day off and other working conditions.