It’s been an up-and-down week for the stock market, but it looks like investors are ready to celebrate on Friday. On index futures Nasdaq Composite (^IXIC) It rose nearly 1% in premarket trading on Friday morning as the benchmark looked to reverse steep losses over the past few days.
For years, FAANG stocks captured investor attention and fueled big gains for the Nasdaq, as they represented leaders in key industries fueling innovation and growth. Stock preference Netflix (Nflx -3.23%) And the alphabet (GOOG 2.32%) (GOOGL 2.12%) Conditions leading to a bear market in 2022 proved vulnerable, but investors are now hopeful that the two companies are getting back on track. Below, you’ll see why shareholders are rallying shares of Netflix and Alphabet on Friday, and whether this signals a broader rebound for the market as a whole.
Netflix gets an ad-supported boost
Shares of Netflix jumped 7% in premarket trading on Friday. The streaming video pioneer released its latest quarterly results on Thursday afternoon, and investors were generally pleased with what it saw as a new growth driver that could help boost the stock’s long-term prospects.
Netflix’s fourth quarter numbers weren’t universally good. Revenue of $7.85 billion was up 2% year over year but down sequentially for the second quarter in a row. Net income dipped to just $55 million, earning just $0.12 per share.
However, most investors are focused on increasing the number of subscriptions. Netflix added 7.66 million new paid streaming subscriptions, climbing to 230.75 million and a 4% increase from year-ago levels. The company said it was pleased with the initial results of its ad-supported service level after launching in November 2022. Moreover, free cash flow was solid at $332 million, showing that the streaming company still has the financial resources to make new investments in content and other revenue-enhancing initiatives.
Netflix expects better times ahead. It estimated that year-over-year sales growth would pick up in the first quarter of 2023, helping to send net income back toward levels consistent with the previous quarter. Furthermore, the video specialist expects free cash flow of at least $3 billion.
Shareholders are also comfortable with Netflix’s succession move, as Reed Hastings stepped down from the co-CEO role to focus on his role as executive board chair, overseeing Ted Sarandos and Greg Peters. After a rough start to 2022, Netflix stock has performed well over the past six months, and shareholders are happy to ride the positive momentum higher.
Join the alphabet pruning trend
Alphabet shares rose 3% in premarket trading. Google parent became the latest tech giant to announce job cuts, adding to concerns about a white-collar recession but pleasing shareholders with its efforts to rein in costs.
In a filing with the US Securities and Exchange Commission, Alphabet revealed a message that CEO Sundar Pichai sent to Google employees. The message said the company has reduced its workforce by 12,000 roles, with employees seeing the impact of the cuts both in the US and internationally.
From an investment perspective, Pichai emphasized his confidence in Alphabet’s investment in artificial intelligence (AI). In fact, capturing the full potential of AI was the primary rationale for the job cuts, as Alphabet conducted a thorough review of all its product areas and functions to determine which were most closely aligned with its highest business priorities.
Alphabet’s severance package will include full pay during the required notice period, 16 weeks of pay plus two weeks for each year of service, equity-based compensation pay acceleration, bonus payments and vacation time and assistance with job placement and health insurance coverage. . That’s more than many laid off employees get elsewhere, but it still shows how much the tech industry has had to reverse aggressive past hiring practices in light of deteriorating economic conditions more broadly. Many hope this will be the end of such moves, but it seems more companies announce similar measures on an almost daily basis.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Dan Caplinger has positions in the alphabet. The Motley Fool has positions and recommends Alphabet and Netflix. Motley Fool has a revealing policy.