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from Breakingviews:

Sky-high valuations no match for earnings reality

By Robert Cyran

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Sky-high valuations are no match for the sober black-and-white of quarterly earnings. Investors knocked more than 10 percent, or well over $3 billion, off Twitter’s worth in early trade on Tuesday despite a third-quarter report on Monday that showed sales doubling from a year earlier. Blame the company’s overdone valuation. Twitter trades at more than 100 times its own “non-GAAP estimated earnings” measure. Other U.S. companies on high multiples have suffered a similar reality check.

Six companies in the S&P 500 Index with price-to-estimated earnings ratios above 35 have reported quarterly earnings so far, according to Thomson Reuters data. Five of them – Amazon, Netflix, Under Armour, Adobe and Chipotle Mexican Grill – saw their stock prices take a hit after they announced results. Only Hudson City Bancorp’s stock rose, by 1.8 percent. On average, these companies lost 6 percent of their value. Yelp is another highly valued firm whose stock took a hit after it reported earnings.

Momentum investing often works – stock prices tend to continue moving in a given direction. One explanation is that realization comes slowly to investors. It can take them multiple quarters or even years, for example, to grasp the future prospects of a company that is creating a new market or upsetting an existing one. Another possible reason is that investors themselves create momentum by chasing winners or selling losers.

from Breakingviews:

Duracell jolt highlights the value of focus at P&G

By Kevin Allison

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Procter & Gamble’s Duracell jolt highlights the value of focus at the sprawling $225 billion consumer products giant. Investors were energized by the detergent-to-diapers behemoth’s plan to offload its batteries arm. Spinning off copper tops won’t create much value on its own. But it’s a solid plank in boss A.G. Lafley’s campaign to shed underperforming brands and simplify an unwieldy business.

from Breakingviews:

Amazon’s ambition outruns its cash flow

By Robert Cyran

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Amazon’s ambition is outrunning its cash flow. The online retailer’s 20 percent sales growth in its third quarter was slower than expected, and its $437 million loss was an ugly record. But it’s the firm’s voracious need for investment that is the bigger problem. Chief Executive Jeff Bezos’ vision may be limitless, but his company’s ability to finance it is not.

from Breakingviews:

Goldman pulls every lever to make machine run

By Antony Currie

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Goldman Sachs pulled every lever to ensure its machine ran properly over the summer. The bank earned $2.1 billion in the three months to September, blowing past Wall Street expectations. Its dealmakers and traders played their part, as did the firm’s own investments. The real fillip, however, to the bank’s annualized 11.8 percent return on equity came from socking away less for pay.

from Breakingviews:

Netflix stock horror follows familiar script

By Jeffrey Goldfarb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Netflix is sticking to the script. The film and TV streaming service lost $7 billion of market value in after-hours trading on Wednesday following news that it had signed up fewer new subscribers last quarter than originally forecast. Even for one of the most-shorted and volatile stocks, a 25 percent decline is notable. And yet investors have seen this movie before.

from Breakingviews:

Vladimir Putin is the new bad weather

By Richard Beales and Jeffrey Goldfarb

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Vladimir Putin is not just bad news but also bad weather. Unrest in Ukraine has become the bogeyman to replace snow when a company’s profit hopes need to be managed downward. Just ask Volkswagen or McDonald’s. The World Cup goes the other way, helping Twitter and maybe Walt Disney. The message could be muddled in four years when Russia and soccer converge.

from Breakingviews:

Weak yen makes Japanese electronics firms giddy

By Peter Thal Larsen

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

Japan's assault on the yen has produced some clear winners: investors in the country's beaten-up consumer electronics industry. Shares in Panasonic jumped 17 percent on Feb. 4 after the group reported a less-severe-than-expected quarterly loss. The hope is that stronger exports and recent cost-cutting will transform earnings. But with revenue still shrinking, the recent rally is largely based on hope.

from Breakingviews:

Japan risks consumer electronics death spiral

By Peter Thal Larsen

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

“We are among the losers in consumer electronics.” That frank assessment by Panasonic president Kazuhiro Tsuga sums up the state of Japan’s once world-beating electronics industry. The economy is partly to blame for slumping demand for Japanese gadgets, but so are rivals like Apple and Samsung. The worry is that the financial squeeze undermines product development, leaving Japan ever further behind.

from Breakingviews:

Beware “blame China” earnings phenomenon

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Get ready for some corporate China-bashing this earnings season. Investors are already punishing companies like Burberry and Cummins for what they perceive to be disappointing growth from the Middle Kingdom. A slowdown in the world’s growth engine will see many more CEO fingers pointing east.
 
Trench-coat maker Burberry’s shares fell 7.4 percent on June 11 after it said annual Chinese same-store growth was somewhere near 15 percent in the past quarter, compared with twice that a year earlier. Never mind that this time last year Burberry had just bought out and glammed up its Chinese stores, making 2011 a tough act to follow. Investors saw a hole in the China story and ran through it.

from Breakingviews:

Corporate earnings hopes are still too high

By Robert Cole

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Equity analysts are sharpening their red pencils. As euro zone worries clog the wheels of global commerce, forecasts for corporate earnings are falling. Yet global investors may still be expecting too much from companies, at least in the near term.

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