Last updated: January 24, 2013 10:09 pm

Mixed earnings weigh on Wall Street

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Netflix shares soared after it surprised analysts by reporting profits when Wall Street was expecting a loss in the fourth quarter.

The online video streaming company added more than 2m new subscribers in the last three months of the 2012, bringing the total number in the US to 27.2m.

Its shares shot up 42.4 per cent to $147.00, its highest one-day jump on record amid high volume, as short-sellers scrambled to cover their positions.

Analysts at Credit Suisse, however, downgraded their rating on the stock to ‘neutral’, saying the valuation is now too high.

“What has not changed is Netflix’s longer term opportunity given the continued consumer adoption of multiple screens, and even as the operating environment as well as investor sentiment shifts back in the company’s favour,” they wrote to clients.

“We have to note that there is still much variability in the model, especially in the cadence of subscriber adds as well as incremental content acquisition costs.”

The rest of US equity market dipped in and out of negative territory with the S&P 500 at some point trading above the 1,500 level for the first time since December 2007. However, markets finished below that level, weighed down by slide in Apple shares after its disappointing earnings.

The S&P 500 closed unchanged at 1,494.82. The benchmark has risen nearly 5 per cent in the year to date.

The Dow Jones Transportation index, seen as a barometer of the US economy’s future performance, has set a new high, outperforming broader indices.

It has gained more than 10 per cent in 2013, double that of the Dow Jones Industrial Average and the broader S&P 500.

The Dow Jones Industrial Average added 0.3 per cent to 13,825.33. The technology-heavy Nasdaq Composite was held back by losses in Apple and closed 0.7 per cent lower at 3,130.38.

Shares in the iPad maker opened sharply lower after quarterly earnings and guidance, reported after Wednesday’s market close, disappointed investors who dumped the stock in after-hours trading.

Apple fell 12.3 per cent to $450.50, triggering a ban on naked short selling of the stock.

“The last time Apple missed analysts’ expectation the stock fell sharply, it became a great buying opportunity, but that was before the company had execution issues and before the competitive landscape,” said Alex Gauna, senior analyst at JMP Securities.

Microsoft reported a 24 per cent jump in revenues in the final months of last year after the launch of Windows 8, but that came below analysts’ forecast, even though the software group beat estimates for earnings per share.

Share price, which was little changed during the day, fell 1.8 per cent in after-hours trading at $27.14.

In other earnings news, 3M shares were little changed after the diversified technology company reported record sales and solid profit growth in 2012, a day after its stock reached an all-time high. Its stock closed 0.2 per cent higher at $99.67.

Shares in Lockheed Martin fell 2.9 per cent to $93.25, even though the company beat estimates for fourth-quarter profits and its forecast for 2013 came above expectations.

However, the outlook was based on the assumption that mandated, across-the-board cuts in all US defence budgets – an option known as sequestration – would not occur.

Raytheon , another defence company reporting on Thursday, downgraded its 2013 profit forecast, saying that it would fall short of analyst estimates after fourth-quarter earnings declined. Its shares fell 2.8 per cent to $56.54.

Southwest Airlines reported a 49 per cent drop in fourth-quarter earnings as it wrestled with higher costs for fuel, maintenance materials and salaries.

The largest US domestic carrier said bookings looked strong in the current quarter and it added that a key revenue measure would likely rise 2 to 3 per cent in January from a year earlier. Its shares added 0.8 per cent to $11.45.

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