Twitter Earnings on Tap, But All Eyes on Musk Court Battle

The second-quarter earnings season got off to a rocky start last week following disappointing reports from several big banks. Wall Street will stay focused on how the financial sector fared over the three-month period, but notable names from other corners of the market are featured on this week's earnings calendar, as well. Among them are communication services stocks Twitter (TWTR, $37.22) and Netflix (NFLX, $185.77), as well as healthcare giant Johnson & Johnson (JNJ, $177.76).

"The communication services sector has recorded the second-largest percentage decrease in estimated earnings of all eleven sectors since the start of Q2," says John Butters, senior earnings analyst for FactSet. "As a result, the estimated (year-over-year) earnings decline for this sector is now 9.1%, compared to an earnings growth rate of 0.3% on March 31."

As for healthcare stocks, FactSet data points to a more modest estimated earnings decline of 0.2%.

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But John Lynch, chief investment officer for Comerica Wealth Management, suggests that company guidance could be more important than the actual reported profits this time around, particularly as it relates to the impacts of inflation, slowing growth, the Ukraine war and the Fed's monetary policy. "We believe each of these areas will weigh on sales and margins in the coming quarters, suggesting consensus estimates are too optimistic going forward," Lynch says.

Twitter Q2 Earnings Set for Sizable Drop

The path forward will certainly be top of mind for investors when Twitter unveils its second-quarter earnings report before the July 22 open.

Analysts, on average, are looking for the social media platform to report second-quarter earnings of 15 cents per share, down 25% year-over-year (YoY). Revenue is expected to arrive at $1.3 billion (+23.8% YoY).

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But updates surrounding Twitter's looming court battle with Tesla (TSLA) CEO Elon Musk will really be what Wall Street is waiting for. Specifically, on July 12, the company filed a lawsuit against Musk after he said he is terminating his $44-billion dollar deal to purchase the company. TWTR alleges that the billionaire "refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests."

"The Street and legal experts across the board view Twitter as having a strong upper hand heading into the Delaware court battle after months of this fiasco and nightmare playing out since April," says Wedbush analyst Daniel Ives (Neutral). The analyst says there are "a range of possibilities" that can come from the lawsuit, including settlement or the enforcement of a deal.

"For now, Twitter's stock will continue to trade as a standalone basis as the long and ugly courtroom battle now begins to play out in Delaware courts," he adds.

It should be noted, however, that Twitter previously said per a July 13 press release that it will not be hosting a conference call after its Q2 results.

Netflix Subscriber Losses Main Focus for Q2 Earnings

Netflix has had its fair share of drama in 2022, with shares down more than 69% for the year-to-date. A significant portion of these losses came in the wake of the streaming service's Q1 earnings report, when it unveiled its first subscriber loss in over a decade.

But in Q2, Wedbush analyst Michael Pachter believes NFLX will report fewer subscriber losses than initially feared. He estimates a 1.5 million global net streaming loss, versus guidance for a net streaming loss of 2.0 million.

"We think that Netflix is positioned to exceed its guidance for Q2, particularly because of the staggered release date for Stranger Things 4, which has very strong viewership," Pachter says. "While it is possible that the company will once again issue downbeat guidance for Q3, we think that the staggered release dates limited churn at quarter end and once again."

Additionally, the analyst – who has an Outpeform (Buy) rating on NFLX – says there is "clearly significant upside" to the stock following its recent selloff.

Overall, consensus estimates for Netflix's second-quarter report – due out after Tuesday's close – are for earnings of $2.96 per share (-0.3% YoY) and revenue of $8.0 billion (+9.5% YoY).

Forex Headwinds Biggest Swing Factor for J&J Earnings

Johnson & Johnson is one of just a handful of Dow Jones stocks trading in positive territory for the year-to-date, with shares up around 3.8%.

"U.S. Biopharma continues to trade defensively despite volatility in the broader market mostly due to solid sector fundamentals," says BofA Global Research analyst Geoff Meacham. "Indeed, even with a lingering COVID-19 impact, forex volatility and rising inflation, biopharmas have been thus far resilient to macro stresses in the first half of 2022."

Meacham adds that JNJ's second-quarter earnings report, which will be released ahead of the July 19 open, could help set the tone for the sector.

"Overall, we aren't expecting many surprises with JNJ likely to reiterate 2022 guidance, with forex headwinds the biggest swing factor," the analyst says. As far as segments go, he's upbeat on pharma and consumer, but expects to see a decline in revenue for medical devices due to continuing dynamics in procedure volume.

Analysts' average estimates for Johnson & Johnson's Q2 report include earnings of $2.57 per share (+3.6% YoY) and revenue of $23.8 billion (+2.2% YoY).