Later this month, earnings season will kick into high gear. While lots of interesting stories are sure to surface as companies report their latest quarterly results, two companies' earnings reports in July will be particularly interesting: streaming television leader Netflix (NASDAQ:NFLX) and social network juggernaut Facebook (NASDAQ:FB). The two companies' stocks have risen 39% and 48%, respectively, year to date, crushing the S&P 500's 18% rise over the same time frame. With such strong performance so far this year, investors will be looking for solid execution. Can they deliver?
Here's a preview of some of the key metrics investors will want to watch when Netflix and Facebook report their latest results.
Streaming-TV company Netflix is scheduled to report its second-quarter results after market close on Wednesday, July 17.
The company is expected to post more strong growth, with management guiding for revenue to rise 26% year over year and global paid memberships to increase by 24% over the same time frame.
While a lot of metrics will be worth watching when Netflix reports results, investors may specifically want to check on any commentary provided on free cash flow (cash from operations less capital expenditures). As of the company's first-quarter earnings release in April, Netflix said it was expecting free cash flow in 2019 to be negative $3.5 billion as the company's aggressive investment in new content weighs on the profitability metric.
Hopefully Netflix can at least maintain -- if not increase -- this guidance.
Investors should also look for management to reiterate its outlook for free cash flow to improve in 2020 and beyond.
When Facebook reports earnings later this month, investors will want to check on the company's adjusted earnings per share. With revenue growth decelerating and operating expenses rising faster than its top line, Facebook has lost the operating leverage it has benefited from in years past.
In Facebook's most recent quarter, non-GAAP (adjusted) earnings per share came in at $1.89, up 12% year over year. This was slower than Facebook's revenue growth rate of 26% during the quarter, reflecting the company's loss of operating leverage as operating expenses have surged.
Since revenue is supposed to decelerate further in Q2, analysts expect earnings-per-share growth to be even more modest during the period. The consensus forecast calls for $1.87, up from 7% year over year.
Facebook will report its second-quarter results after market close on Wednesday, July 24.