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Fresh hope for GE Power after Trump lobbies for major deal with Iraq

Despite the deteriorating financial health and operational challenges, General Electrical (GE) has remained buoyant about its turnaround strategy and issued a positive outlook in the June quarter. The company’s shareholders, who are particularly disappointed with its ailing power segment, continue to pin their hope on the ongoing restructuring program.

Shares of the engineering juggernaut made significant gains soon after trading started Wednesday, following reports that GE has grabbed a high-value power generation contract in the Middle East, outbidding its German rival Siemens.

The company has entered into a major power equipment contract with the Iraqi government, reportedly following an intervention by President Donald Trump. Siemens had been touted as the preferred bidder for the $15-billion deal that involves the supply of power-generation equipment of about 11 gigawatts.

Following reports of the Iraq deal, shares of the engineering juggernaut made significant gains in early trading Wednesday

The deal is expected to breathe new life into GE’s struggling electricity division, whose dismal performance in recent years had prompted the company to weigh the option of a write-down in the near term, most probably in the third quarter. While the contract is unlikely to rescue GE Power from the current lows, it will definitely reduce the segment’s losses.

Since GE has pitched in now, after Trump convinced the Iraqi administration by reminding it of America’s long-term political engagement with the country, Siemens will have to settle for a smaller pie of the lucrative contract.

General Electric gets an upgrade from Barclays

It needs to be noted that a non-binding agreement exists between Washington and Baghdad for co-operation in energy production, including electricity generation. Earlier, GE had secured a series of contracts from Iraq for the supply of power equipment, with hardly any rival bidder.

Last week, the management put off the announcement of GE’s third-quarter results to allow CEO Larry Culp, who assumed office recently, to complete certain business reviews. An official statement on the Middle East deal is expected when GE reports the results later this month.

GE shares plunged about 49% over the past twelve months and 33% since January this year, underperforming the market miserably. The stock gained about 4% in early trading Wednesday.

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All key comments from Netflix Q3 earnings conference call

Netflix (NFLX) on Tuesday posted yet another blowout quarterly figures, sending its stock up 10% during aftermarket trading. The streaming giant tripled its third-quarter earnings to 89 cents per share, whereas analysts had expected just 68 cents. Total streaming revenue jumped 36% to $3.91 billion, as it added 6.96 million subscribers.

Key comments from Netflix Q3 earnings conference call:

# Going forward, Netflix will continue to focus on bundle strategy – partnering with a mobile operator, internet service provider or Pay-TV operator – to reach out to markets that are less technology driven.

# When asked how the company manages growth in saturated markets like the United States, Chief Product Officer Greg Peters said they are making the product easier to access for new users through an application or Pay-TV partnership. By removing the friction that stops some users from signing up for the service directly, small pockets of subscriber growth opens up.

# In India, Netflix saw a significant increase in customer base following the launch of regional language content. These shows enabled Netflix to achieve better media coverage, as well as establish a connection with the audience who were hitherto unaware of the service.

Netflix’s road to profitability runs through India. Here’s why.

# CFO David Wells expressed confidence in achieving the target of 100 million subscriber additions in India in the long term. To achieve the same, the company hopes to expand into other Indian regional languages, establish more pricing options and explore service partnerships.

# CEO Reed Hastings said the company is aware of the rising competition from Disney (DIS), AT&T (T) and YouTube. However, the company’s core focus lies on providing great quality content to beat competitors.

# Netflix said the partnership with radio company Sirius XM was more of a marketing experiment, rather than a monetization effort, at least in the short term.

# Netflix will use pricing to offset negative dollar appreciation or forex headwinds in the mid-to-long term.

Netflix third quarter 2018 Earnings Infographic

# David Wells said he expects the company to post breakeven free cash flow in a few years as Netflix is approaching a point where operating profit will grow faster than the content spend.

# Netflix has added renowned directors including Alfonso Cuaron, Susanne Bier, the Coen Brothers and Tamara Jenkins to make content for them.

# Reed Hastings said diversifying into other areas is a long-term plan as the company continues to see growth potential in streaming services for a few more years. “And someday, many, many years from now, we may need to diversify, but for now, let’s focus on the core of those amazing title brands,” he said.

NFLX shares were trading up 6.5% at 11:10 AM ET on Wednesday.

 

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