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Tesla and Netflix Q3 earnings: who will win investors' hearts?


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Both Tesla and Netflix will step into the spotlight this week as they unveil their third-quarter earnings on October 18th after the US market closes. What are the expectations?

original-size.webpSource: Bloomberg
 

 

Hebe Chen | Market Analyst, Melbourne | Publication date: Wednesday 18 October 2023 08:16

Both Tesla and Netflix will step into the spotlight this week as they unveil their third-quarter earnings on October 18th after the US market closes. What are the expectations for them, and which one is more likely to capture the hearts of investors after the earnings announcements?

Tesla Q3 earnings expectation

Following Tesla’s lower-than-expected third-quarter deliveries published two weeks ago, the market actually doesn't set up high expectations for its impending Q3 results. It is projected that both revenue and earnings per share will be lower than the previous quarter, while revenue is anticipated to 12% higher than the level of Q3,2022.

Tesla Q3,2023 Expectation QOQ YOY
Revenue $24.22B -3% +12%
EPS $0.74 -10% -30%

Source: Nasdaq

It’s not difficult to notice that Tesla has encountered two primary challenges in the past quarter: slowing production and a shrinking margin. According to the recent update, in Q3, Tesla's total deliveries were 30,000 units less than those in Q2, and its overall production also declined by almost 50,000 units due to a planned reduction in manufacturing output.

While the production bottleneck may be viewed as a temporary issue, Tesla's shrinking profit margins could be a long-term pain. After several rounds of price cuts, Tesla's operating margin has declined from double digits a year ago to only 9% now, which is nearing the average margin level for traditional automakers. As such, a pivotal question arises: can Tesla's stock price maintain its premium valuation if its profit margin keeps shrinking?

Nonetheless, Tesla might have some good news to share. Investors are eagerly awaiting updates on Tesla's next generation product--the Cybertruck, as well as the development of AI-supported EV line.

Overall, the Q3 is not expected to be a record-breaking quarter for Tesla's shareholders. However, the outlook for the EV king in the midst of prevailing headwinds is likely to be the key factor that captures investors' attention.

Netflix Q3 earnings expectation

2023 is a year of transformation for Netflix. After a struggling year to grow its subscriber numbers, Netflix made a strategic shift towards revenue diversification through changes in its product offerings, pricing structures, and increase advertising revenue streams.

This new strategy has so far proven successful for Netflix. In the previous quarter, Netflix announced a remarkable increase of over 5.9 million new subscribers, far surpassing expectations of 1.82 million. Naturally, one of the vital watch points in the upcoming earnings report is whether Netflix can carry on its strong user growth momentum from Q2 to Q3. In addition, Netflix’s capability to translate the growing subscriber base into revenue and improve its margin will also be closely monitored.

Netflix Q3 Expectation QOQ YOY
Revenue $8.54B +3% +61%
EPS $3.48 +21% +8%

Source: Nasdaq

Tesla and Netflix Q1&Q2 comparison

Now, let's have a look at the actual earnings results of these two companies compared to the expectations over the past two quarters and compare how their share prices have responded on the earnings day.

Revenue Q1,2023 Q2,2023
Tesla Miss expectation by 0.43% Beat expectation by 0.81%
Netflix Miss expectation by 0.2% Miss expectation by-1.24%

 

EPS Q1,2023 Q2,2023
Tesla Meet expectation Beat expectation by 11.12%
Netflix Beat expectation by 0.57% Beat expectation by 15%

 

Stock price change on earnings day Q1,2023 Q2,2023
Tesla -9.8% -5%
Netflix -10% -8%

 

Tesla and Netflix technical analysis

Despite experiencing three rounds of correction of as much as 29% so far this year, Tesla's stock price has risen by over 130% since early January.

As shown in the daily chart, Tesla's stock price is currently on the verge of dropping out from the triangular pattern with the lower boundary formed by the lows from May. In the scenario where the earnings report fails to impress investors, there is a high likelihood that the stock price may dip below the 100-day moving average as well as the five-month-long ascending trendline. In this case, the stock price may likely retest the September low of below $240.

Conversely, if the earnings report manages to please shareholders and propels the stock price higher, the immediate target is expected to be in the range of $269 to $275.

Tesla1017.png

Netflix's stock price has entered the sliding mode following its second-quarter earnings and has since fallen by 26%. However, Netflix is still up by 20% year to date , outperforming the S&P 500, which has gained 11% so far this year.

Looking at the daily chart, the stock price has been trading within a descending trajectory over the past four weeks and has dropped below nearly all moving averages, indicating a bearish-dominated sentiment. Immediate support can be found around $350-$355. On the flip side, if the upcoming earnings report manages to encourage a rebound, buyers may see the opportunity to retest the February high at around $369-$378.

Netflix1017.png

Summary

Both Tesla and Netflix have faced their fair share of challenges and opportunities. For Tesla, maintaining its growth trajectory and profit margins remains a key concern. On the other hand, Netflix has undergone a transformation in 2023, resulting in better-than-expected user growth in the previous quarter. However, this new strategy is still in its early stages, which may keep investors cautious for its long-term outlook.

Furthermore, despite the recent pullbacks, both stocks have seen substantial gains so far this year, which could potentially set a higher bar for the earnings reports to impress their investors.

 

 

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

 

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