Netflix Earnings, the 4th-Quarter Earnings Season, and Icahn on eBay

Still wishing you had a snow day yesterday to finally build one of these epic snowman creations that you've always dreamed of? We don't blame you. Wednesday wasn't fun on Wall Street either, as the Dow Jones Industrial Average dipped another 41 points on more mixed earnings reports (and no fun, awesome snow sculptures).

1. The fourth-quarter earnings season report card
It's 86 down, 414 to go. This magical time of year when public companies report their quarterly performance is a marathon of beaten expectations, embarrassing "one-time" mistakes, and the occasional throwing the CEO under the bus for a bad earnings report (someone's got to take the fall). Individual company profits are fun to watch, but nearly a quarter of the way through earnings season, how's corporate America looking?
Gains of 30% in the S&P 500 last year set the bar high for earnings. Stock valuations are driven more by expected future profits than anything else, so after the monstrous rise of stock prices of 2013, investors think it's time for those companies to freakin' deliver. Even though 70% have beaten profit expectations, Wall Street isn't satisfied. Wall Street wants more.
The positive economy must translate to strong profits, or else your mutual fund manager will have a midlife crisis. Investors bought stocks in 2013 because economic reports were good all year (the Federal Reserve's stimulus polices didn't hurt, either). But that assumes good econ reports lead to good future profits for companies. America's houses are worth more, its unemployment rate is lower, its confidence is up ... now it's time for America to spend.
The Dow is down 1.2% in 2014, and it's spent a cold January trudging down like a confused snail caught in a polar vortex without a North Face shell. The S&P 500 is down 0.2%. Investors want their expectations to be met with rock-star profit performances, and lukewarm earnings of the past 10 days have had markets stuck all week.

2. Netflix earnings dominate with subscriber surprise
Speaking of earnings, shares of video-streaming mammoth Netflix popped more than 17% in after-hours trading on Wednesday after releasing a better-than-expected earnings report that revealed 2.3 million new subscribers were added last quarter to bring its total up to 33.4 million in the U.S. -- plus, it expects to add another 2.25 million over the next three months.

Why the two-thumbs up? Ever since Netflix stock tanked in 2011 worse than Will Smith's After Earth, after changing its mail-order-DVD pricing strategy, the 'Flix has introduced Emmy-winning original programing (think House of Cards), added family programing through a Disney partnership, and retwerked its pricing model. The result sent the stock up more than 230% in 2013 as the best performer in the S&P 500.

The takeaway is that during the earnings call, CEO Reed Hastings also dished on a whole bunch of other issues. He addressed the fact that Netflix users take up a third of America's broadband Internet capacity watching Breaking Bad reruns (he thinks the technology will improve, so get over it) and the big "net neutrality" controversy over whether those using more Internet infrastructure should pay more for it.

3. Icahn wants to tear apart eBay
eBay is great if you're trying to sell your used sneakers. But a major profit driver for the mother of all auction websites is PayPal, eBay's proprietary online payments website. A juicy detail in eBay's fourth-quarter earnings report was billionaire power investor Carl Icahn's proposal to "spin-off" PayPal into a separate company.
eBay stock rose after the report as much as 5% in after-hours trading. Investors like the idea of two separate companies -- you know them better, you love them better, and you can cherish them more. According to Icahn, PayPal will also be able to innovate and grow faster as a separate company, unleashed from the ball and chain of ol' eBay.

  • Weekly jobless claims
  • Fourth-quarter earnings from McDonald's and Starbucks
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Fool contributors Jack Kramer and Nick Martell have no position in any stocks mentioned. The Motley Fool recommends and owns shares of eBay, McDonald's, Netflix, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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