Stocks soared last week amid news that the US economy has now contracted for two consecutive quarters. Both Dow Jones industry average (^DJI) and the S&P500 (^GSPC) gained over 3% on hopes that corporate earnings will see a soft landing in the second half of 2022 after spiking for most of the past two years.
Hundreds of companies will update investors on their outlook for 2022 over the coming week, and overall these announcements will answer many questions investors have about consumer spending and broader economic growth trends. Let’s take a closer look at three of these reports Electronic Arts (EA), Molson Coors (TAP) and eBay (EBAY).
1. EA’s audience size
Investors have some big questions, which feed into Electronic Arts’ first-quarter earnings report on Tuesday. There was a lot of good news in the video game giant’s latest update. Net bookings grew 18%, or about as fast as earlier phases of the pandemic. EA’s steady drumbeat of new content releases in hit franchises like Apex Legends and EA Sports helped keep viewership growing into early 2022.
That success has investors taking a gamble on Tuesday’s report, with earnings expected to fall about 1% from booming results a year earlier. The big question is whether the company can return to growth just as quickly after a slight dip in demand for digital content Netflix planned for mid-July.
In any case, EA is getting stronger financially, margins are increasing, and cash flow is improving to over $2 billion a year. From here, assuming there are no major content lags, these gains should support solid investor returns.
2. Molson Coors market share
Watch for volatility around Tuesday morning’s Molson Coors earnings update. The liquor giant’s stock has outperformed the market this year, up over 20% despite the S&P 500 falling over 15%. This gap will be tested this week.
The owner of beer brands Coors and Miller Light announced in early May that sales volumes had risen by 10%, giving it market share from competitors such as Beer Anheuser-Busch, constellation marksand Boston beer. Demand gravitates towards many of its core beer products, but the company also thrives in the premium niche, which includes brands like Topo Chico, Simply Spiked, and Molson Ultra.
Investors will want to see more gains in these arenas on Tuesday. Molson will also ideally maintain its strong earnings outlook, which requires a modest increase in profitability despite rising costs. If executives continue to forecast higher margins this week, the stock is likely to attract more attention from investors looking for a recession-proof company with solid pricing power.
3. eBay buyer pool
There has been a dramatic shift in sentiment around eBay’s business that can be directly attributed to the growth hangover. After soaring earlier in the pandemic, organic growth has turned negative in recent quarters, and investors aren’t happy about it.
Watch for further declines in Wednesday’s earnings update. eBay executives forecast organic sales would fall as much as 9% this quarter, with losses moderating for the remainder of fiscal 2022.
Watch the buyer pool for signs of an impending recovery. eBay lost 13% in the most recent quarter and 9% in the previous quarter. The stock’s price performance will likely depend on how well the marketplace platform manages to slow and then reverse those losses over the next few quarters.
Demitri Kalogeropoulos has positions at Netflix. The Motley Fool has positions in and recommends Constellation Brands and Netflix. The Motley Fool recommends Boston Beer, Electronic Arts, and eBay and recommends the following options: short July 2022 $57.50 calls on eBay. The Motley Fool has a disclosure policy.