US Big Banks
The Wall Street Titans will release earnings for the fourth quarter of 2020 next week. Bank of America, Goldman Sachs, and UBS will kick off the earnings call on Tuesday. The financial index is showing positive momentum towards the earning dates. XLF, the largest financial ETF with total assets of $30 billion, has gained 5% year-to-date despite market volatility during the pandemic.
The financial sectors have recovered from Mar. 2020 dip and hit the all-time high. Large financial stimulus and quantitative easing support the banking sectors from the meltdown, layoffs, and defaults. Even though consumer spending is relatively low, the sector experienced growth in online payment transactions and increased digital-driven economy activities.
The banks are still conservative in issuing new loans, but the mortgage application has increased due to the ultra-low interest rate . The economists worry that it will start the latest housing bubble, similar to what happened in 2008. However, the regulator has stricter rules on mortgage rules to prevent speculation that caused the housing bubble. People are more likely to apply for a new mortgage to refinance and shift from renter to homeowner as the cost of owning a home is lower than rent.
The stay-at-home stocks may not experience similar gain during the height of the pandemic. The new subscription number may be lower than in the previous quarters. However, the cancellation amount will likely reduce as consumer behavior has permanently shifted from analog to digital entertainment. Therefore, the net membership will continue to rise at a consistent rate following the natural growth path.
Netflix, in particular, has spent significant investment in new movies and originals shows. The strategy of bold content addition beyond Hollywood has paid off and improved consumer loyalty to the brand. The streaming company still has the largest market share, among others, like HBO, Amazon, Disney+, and more.
However, Netflix operates in a competitive market, especially with the arrival of strong and authentic content from YouTube. The company should continue to explore the different market and content opportunities to stay ahead and avoid extinction, similar to its major rival, Blockbuster.
IBM shifted its business model radically into the hybrid-cloud business after the mega-merger with Red Hat. The strategy will hinge on developing and selling IT infrastructure to optimize the cloud computing workloads for its clients. The technology will allow seamless integration between private and public clouds to manage IT network efficiently.
However, the strong competition from Amazon, Microsoft, Google, Oracle, and Snowflake in cloud computing keeps eroding IBM’s market share even though it is a trillion-dollar opportunity. The competition will be on pricing, quality, and service, which is very difficult to manage for a large organization like IBM. The leadership must ensure a lean, innovative, and effective business model to survive the competition.