Tesla, Netflix down post earnings

Nasdaq futures are down this morning, by about 0.50% at the time of writing, after the afterhours trading session was shaken by results from two US tech giants: Tesla and Netflix. For both there was good and less good news.  

Tesla’s price cuts that boosted sales and got the company to sell almost half a million cars less quarter, also squeezed its profit margins for the 3rd straight quarter to 9.6%. This number was almost 15% earlier this year. But Elon Musk said he believes this is the right choice still, and it certainly is. Tesla’s earnings jumped 20% and total revenue rose 47% - both better than expected. But the stock price fell more than 4% in the afterhours trading. Netflix on the other hand added 5.9 mio subscribers last quarter – more than double what was estimated by analysts - as banning password sharing encouraged people to … subscribe! Note that Netflix had its 2nd best quarter since the heart of the pandemic, yet, its sales and revenue fell short of expectations due to price cuts in some markets and the unfavourable exchange rate, while Q3 forecast disappointed, and the stock fell more than 8% in the afterhours trading. Netflix rally could pause after a 175% rally since last May but Hollywood strike and the deteriorating macro conditions are not all negative for Netflix. First, Netflix gets a big chunk of its content from outside the US and should help the streaming giant diversify risks from Hollywood, and second, as the living crisis in some parts of the world gets worse, people could be tempted to stay home and watch Netflix. Plus, it is said that with competition tightening its purse’s strings, Netflix could find itself with less competition too. Pricewise, it could be time for a downside correction in Netflix which actually trades in overbought market conditions, but price pullbacks could also serve as interesting entry opportunities for further gains. Though, we all know that this quarter’s jump in subscriptions was probably a one-off jump, making it hard to predict how the numbers be impacted in the next few quarters.  

Apple also made headlines yesterday, as news that it’s quietly working on generative AI called ‘Ajax’ but that employees call Apple GPT, pleased investors sent Apple just a few points below the $200 mark yesterday. Microsoft and Google fell more than 1% on the news. But Apple doesn’t have a clear strategy for releasing the technology to customers, and no matter what they say, ChatGPT’s arrival was like a bomb, and it will be hard to dethrone Microsoft with a bigger bang soon.  

On the banks front, well Goldman Sachs was right warning investors that it was going to have a BAD quarter, because it really had a BAD one. I mean its earnings slumped 58% last quarter on investment banking – the worst among the big US banks and the return on equity – the key measure of profitability - fell 4%. That was also the worst among the big US banks. But happily, investors were prepared for the bad news and barely reacted. The bank shares will likely come under pressure in the coming weeks in expectation of tighter capital rules. 

Overall, the S&P500 and Nasdaq both extended gains yesterday but we could see some consolidation and downside correction today. The US 2-year yield remains steady around 4.70/4.80% range, as Federal Reserve (Fed) officials are in their quiet period before the next policy meeting and can’t insist that there will be more rate hikes on horizon! The US dollar index consolidates and slightly corrects near the overbought territory. The dollar-yen tested the 140 resistance, again, on the back of softening Bank of Japan (BoJ) expectations with no more than a fifth of forecasters predicting that the BoJ will adjust its YCC policy this July. The new governor Ueda is sticking to easy policy and the improved functioning of the bond market doesn’t call for urgent action. October is now the month that investors expect a change to happen.  

Cable tipped a toe below the 1.29 mark yesterday after the latest inflation figures came in softer than expected yesterday morning and helped traders trim a 50bp hike expectation for the next meeting. While the euro took the opposite direction, after the core CPI came in higher than expected, at 5.5% in June. The latter somehow pushed back the European Central Bank (ECB) doves that were boosted earlier this week by comments from ECB’s Knot that a rate hike beyond the next policy meeting is all but guaranteed.  

In commodities, wheat futures were up 8.5% yesterday as Russia fuels tensions in the Black Sea. Russian Defense ministry said that all vessels in the Back Sea heading to Ukrainian ports will be considered potential carriers of military cargo starting from today.