With earnings season mostly behind us, it's a good time to take stock of what we've learned over the past few weeks. Many companies' earnings reports weren't anything to get excited about, but some were rather surprising. We asked three of our analysts to tell us which earnings reports caught their attention. Here's what they had to say.
Matt Frankel: One earnings report that caught me by surprise was Twitter's (NYSE:TWTR). I wasn't particularly surprised at the slowing growth rate, which was widely expected, or the company's revenue, which actually came in ahead of expectations. Instead, I was surprised at the pessimistic comments and outlook of the company's executives.
Twitter has rolled out a number of new features in recent quarters, such as group chats, logged-out experiences, and Instant Timelines, which CEO Jack Dorsey said "have not yet had meaningful impact on growing our audience or participation."
Twitter has tremendous brand recognition -- about 95% in key global markets, according to the company -- but has achieved less than a 30% penetration rate. Simply put, Twitter is not easy enough to use to appeal to the masses, and too many people have no idea why they should use Twitter. In perhaps the most disappointing comment of the conference call, Twitter's CFO Anthony Noto said that Twitter's effort to reach the mass market would "take a considerable amount of time."
Twitter seems to have a good grasp on what needs to happen for the company to succeed, but investors don't want to wait. Having said all of that, if Twitter is ultimately able to create a similar mass market appeal as Facebook, this surprisingly negative earnings report could be an opportunity to get into the stock at a discount. Only time will tell.
Brian Stoffel: While selling new daVinci surgical systems is important to Intuitive Surgical (NASDAQ:ISRG), nothing is more crucial for the company's long-term success than increasing the number of operations performed using the machine.
Last year, management forecasted operations growth of 7%-10% for 2015. After Intuitive announced surprising growth of 13% in the first quarter, it bumped the year-long forecast to a range of 8%-11%. But the company once again exceeded expectations during the most recent quarter: 14% growth and a 2015 forecast range of 11%-13% growth.
Much of the strength came from growth in "general surgery." That category is a catchall for procedures that don't fall into the company's legacy areas of gynecology and urology. Management specifically called out hernia operations as the reason for robust growth. Investors will want to keep an eye on continued growth of hernia operations, and related research that comes from the medical community about the efficacy of using the daVinci for these procedures.
What surprised me most was the changed tone of CEO Brian Moynihan. On past calls, the 55-year-old executive focused his conversation on expense controls -- in particular on the bank's Project New BAC initiative, which has reduced operating expenses by more than $8 billion a year, according to Bank of America.
On the latest call, however, Moynihan shifted most of his comments to discussing revenue growth. This is an important change, and it's one that might signal sustainably higher profitability, and thus a higher share price over the not-too-distant future. It's worth noting in this regard that shares of the North Carolina-based bank continue to trade for an 18% discount to book value.
The second reason Bank of America's performance surprised me is because of the substantial decline in outstanding legal claims related to toxic subprime mortgages. Total claims fell by $7.6 billion following a favorable ruling in New York's highest court. Just as importantly, new claims went from a torrent of over $2 billion a quarter to roughly 10% of that.
I may very well be wrong about this, but I believe that when future analysts and commentators look back on today, this will have been the quarter that everything changed for the nation's second biggest bank by assets.