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Netflix stumbles after earnings; AMC jumps amid board shuffle, M&A

Select technology, media and telecommunications stocks were met with ups and downs this week as the year's second-quarter earnings season began.

Shares in Netflix Inc. tumbled after the streaming giant reported second-quarter results that fell short of Wall Street's forecasts. The company reported net income of $1.35 billion, or $2.97 per share, while the S&P Capital IQ consensus estimate for the second quarter was $3.16 on a GAAP basis and $3.15 on a normalized basis.

However, the company managed to beat membership guidance, reporting paid net new members of 1.5 million, compared to prior guidance of 1.0 million. For the third quarter, Netflix expects 3.5 million paid net additions.

On the earnings call, Netflix also publicly confirmed its expansion into gaming, beginning with games focusing on mobile and existing intellectual property. But some analysts are yet to be fully convinced of the gaming opportunity for Netflix.

"To us, it seems like Netflix is taking a page out of [The Walt Disney Co.] playbook, and trying to create a flywheel model where it can monetize intellectual property across various business segments," MoffettNathanson analyst Michael Nathanson said in a June 29 note. "Although gaming represents an opportunity for Netflix, we do not anticipate it will become a meaningful business if Netflix pursues a similar strategy of primarily licensing intellectual property to game developers."

Netflix shares closed at $511.77 apiece on July 22, down 3.5% for the week to date.

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In theaters, popular meme stock AMC Entertainment Holdings Inc. zigzagged this week amid an announcement July 21 that CEO and President Adam Aron has been named chairman of the company's board of directors, effective July 20. AMC also said that Lincoln Zhang and John Zeng, senior executives of China's Wanda Group, resigned their board seats. Aron — who has been CEO, president and a member of the board since 2016 — will remain CEO and president.

The theater giant also announced July 19 that it reached a lease agreement with real estate firm Caruso to acquire two theaters in the Los Angeles area that have been closed for more than a year due to the pandemic, with plans to reopen both theaters next month.

The two theaters will feature AMC amenities, including food and beverage offerings, and AMC Stubs, a loyalty and subscription service. AMC also plans to renovate the theater auditoriums to offer IMAX and other movie experiences.

AMC closed at $37.24 apiece July 22, up 6.5% for the week to date.

In tech, Zoom Video Communications Inc. stock slid early this week after the teleconferencing company announced plans to acquire Five9 Inc. for $14.7 billion in an all-stock deal. The transaction would be Zoom's largest acquisition to date that as the company expands into the contact center market.

The pandemic-driven surge in demand for communication and collaboration tools made Zoom one of the biggest COVID-19 success stories, and the company's share-price growth is helping to fund the all-stock deal. Analysts say Zoom must evolve from a pure-play video-conferencing provider to an all-purpose communication and collaboration platform to continue growing and compete on a larger playing field. The Five9 deal helps Zoom do exactly that.

In a research note, Piper Sandler analyst James Fish wrote that the deal makes "complete sense over the long-term," making Zoom "an even more formidable force" in the communications software sector.

Zoom recovered as the week went on and closed at $361.39 apiece July 22, roughly flat for the week to date.

Meanwhile, shares of Apple Inc. trended up in the latter half of the week amid a Nikkei Asia report that the company's iPhone lineup for 2022 will only include 5G-capable phones.

The lineup will include an updated version of budget handset iPhone SE, which is expected to be launched as early as the first half of 2022. This phone will be powered by Apple's own A15 processor as well as Qualcomm's X60 modem chip, which would enable 5G connectivity.

With Apple set to report its quarterly earnings next week, Wedbush analyst Dan Ives in a July 21 note maintained an "outperform" rating on the stock and upped its price target to $185. Ives anticipates the iPhone 13 to launch this September with similar demand to that of the iPhone 12, adding that the "tech bull cycle" will continue for the company well into next year.

Apple closed July 22 at $146.80, up 0.3% for the week to date.

The S&P 500 remained relatively flat for the week as its initial dip from COVID-19 delta variant fears on July 19 rebounded throughout the week. The broad market index closed at 4,367.48 on July 22, up just under 1% for the week to date.