Weekly Kick Start | 21 October 2023

This week has seen increased volatility across various asset classes, primarily due to the ongoing Israel-Hamas conflict. Notable events included the release of earnings results for Netflix and Tesla, as well as the unveiling of China’s GDP growth numbers. In this week’s report, we have provided coverage of the earnings reports for these two prominent companies.

On Top of Our Mind This Week: Netflix and Tesla release their earnings

Comparison of Netflix and Tesla Price Chart (Source: Google Finance)

Key Details from Tesla’s Earnings Announcement

Investors witnessed Tesla’s stock drop by 15.88% this week. Although Tesla managed to achieve a 9% year-over-year increase in total revenue to $23.35 billion, auto-related sales grew more modestly at 5%, reaching $19.63 billion. However, a substantial 43% rise in operating expenses led to a 37% decrease in adjusted net income, down to $2.32 billion, equivalent to adjusted earnings of $0.66 per share. 

Factors affecting revenue growth included reduced vehicle selling prices, driven by pricing decisions, research and development expenses for the Cybertruck rollout, AI initiatives, and factory upgrades. Despite the challenges, Tesla retains over $26 billion in cash and investments, positioning it favorably for future projects.

Tesla’s Investment in AI and Flexibility: Tesla’s disappointing Q3 earnings report also revealed substantial investment in AI and factory upgrades. These investments led to increased expenses, which impacted profitability but positioned Tesla as a well-capitalized player in the industry. With over $26 billion in cash and investments, Tesla can pursue AI initiatives and future projects without having to tap capital markets. This financial strength provides Tesla with a competitive advantage over rivals with less capital at their disposal.

Action Point for Investors: Keep an eye on Tesla’s strategies to mitigate operational expenses and maintain robust cash reserves. And evaluate how its financial strength and strategic investments position the company in the evolving EV industry.

Key Details from Netflix’s Earnings Announcement

In contrast, Netflix shares surged by 12.07% this week as the streaming giant reported robust third-quarter financial results and unveiled a significant pricing increase. Netflix’s revenue increased by nearly 8% year over year, reaching $8.54 billion, while net income rose by 20% to $1.68 billion, equating to earnings of $3.73 per share. The company’s subscription growth accelerated to nearly 11%, thanks to measures to combat password sharing. Netflix now boasts over 247 million subscribers worldwide, with a net gain of 8.76 million in the past three months alone. 

Netflix’s Bold Pricing Strategy: Netflix’s decision to increase subscription prices, particularly for the premium package, reflects the company’s confidence in its service’s value and customer loyalty. Despite intense competition in the streaming industry, past price hikes have not led to substantial customer churn. Netflix’s bold pricing strategy underscores its belief in its content and its ability to retain subscribers, even in a competitive marketplace.

Action Point for Investors: Consider the impact of Netflix’s continued subscriber growth and pricing strategy on its long-term value.

Market Recap This Week

Equity markets experienced significant declines due to the ongoing Israel-Hamas conflict, with the S&P 500 dropping 2.4%, the Nasdaq falling 3.2%, and the Hang Seng Index decreasing by 3.6%. These markets historically show a negative correlation with volatility and uncertainty.

Uncertainty surrounding the Federal Reserve’s next actions, coupled with a somewhat hawkish tone from the Fed, led to a 30 basis point increase in yields.

Gold, a traditional safe haven asset, increased by 2.3% as demand rose. Additionally, crude oil and Bitcoin saw gains of approximately 2.3% and 10.6%, respectively, during this period.

Source: Google Finance, Syfe Research, 21 October 2023 

What is on the Radar for This Week? 

In the upcoming week, investors should closely monitor Federal Reserve Chairman Powell’s speech. Additionally, they should be attentive to the release of data on initial jobless claims and the GDP growth rate on a quarterly basis in the United States. These key events will provide valuable insights into the economic and monetary policy outlook.

Source: Reuters, abc News, Bloomberg, Google Finance

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