5 Reasons to Worry About Next Week
The economy is showing signs of fumbling the recovery.
For the first time in three years, the country's gross domestic product -- or GDP -- took a step back.
Sure, the 0.1% decline isn't as gloomy as it may first seem. Between the U.S. government scaling back its spending and Hurricane Sandy wreaking havoc during the early weeks of the quarter, there were plenty of headwinds facing the economy.
However, many of the consumer-facing components held up better than that. At the end of the day, GDP expanding by 2.2% for all of 2012 after inching 1.8% higher the year before that isn't terrible. The rub here, though, is that analysts weren't expecting a decline at all for the quarter.
The news isn't just iffy on the macro level. There are also more than a few companies that aren't pulling their own weight in this supposed economic recovery.
There are still plenty of names posting lower earnings than they did a year ago. Let's go over a few of the companies that are expected to go the wrong way on the bottom line next week.
Latest-Quarter EPS (Estimated)
Year-Ago Quarter EPS
Clearing the table
Let's start at the top with Glu Mobile. The developer of mobile games including Deer Hunter and Blood & Glory has tried to make its mark in "freemium" diversions. These are mobile games that are free to play in ad-supported mode, but then engaged players are encouraged to pay up for virtual goods that enhance the experience.
Yes, this is a growing market. Unfortunately, it's also one with meager barriers to entry. The programming tools are out there for even modest developers to put out the next great app.
Analysts see Glu Mobile posting its fourth loss in five quarters on flat revenue growth.
Disney is a surprising name to see on this list. ESPN is a steady grower. Its theme park resorts should be hopping after the recent additions of Cars Land in California and New Fantasyland in Florida. The family entertainment giant does experience lumpiness as its theatrical releases work their way through the distribution cycle. If Disney's quarterly performance is pitted against a blockbuster a year earlier or if it's come up short at the box office this time around, the bottom line can get volatile.
At the end of the day, Wall Street sees Disney posting a slight dip in profitability on a mere 4% top-line advance.
Zynga is suffering from many of the same crowded marketplace conditions as Glu Mobile, though its rise has come primarily from FarmVille and other freemium games that were originally birthed on social networking websites. Zynga's a big player in mobile, too. Over the years it has acquired the developers of hot games including Words With Friends and Draw Something.
Investors have learned to steer clear of Zynga. There was plenty of buzz when the company went public 14 months ago, but the shelf life of a hot social game is apparently not too long. Zynga is perpetually under fire to continue to crank out popular playthings, and it hasn't been able to keep up lately. Bookings have been slipping sequentially, and too many executives bolted as the stock price crashed through 2012.
TriQuint Semiconductor is a provider of RF solutions and foundry services. Topeka Capital initiated coverage of TriQuint with a hold recommendation last month. Despite the analyst's fondness for the company's bulk acoustic wave filter technology, the lack of "significant catalysts to drive revenue and margins" ultimately led to the ho-hum rating.
Finally, we have Exelon. Investors are drawn to the utility provider because of its healthy 6.7% yield, but the real challenge is to grow earnings to keep powering up its payouts. Well, that's certainly been a challenge here lately. Exelon is expected to post declining profitability for all of 2012 and the same thing can be said for all of 2013.
Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks. Lower earnings translates into higher earnings multiples, and nobody wants to see that happen.
The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.
The more I think about it, the less worried I become.
Start moving in the right direction
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The article 5 Reasons to Worry About Next Week originally appeared on Fool.com.Longtime Fool contributor Rick Aristotle Munarriz owns shares of Walt Disney. The Motley Fool recommends Exelon and Walt Disney. The Motley Fool owns shares of TriQuint Semiconductor and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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