The US earnings calendar is becoming increasingly active, with the banking sector's reports now behind us. The spotlight is gradually shifting towards technology stocks. Two major tech companies, the electric vehicle powerhouse Tesla and the streaming giant Netflix, will release their quarterly figures on Wednesday, after the closing bell. Let's delve into the market sentiment ahead of the earnings announcements.
The Nasdaq Composite rallied on Monday as money managers displayed optimism in betting on the inherently volatile tech sector ahead of the anticipated earnings season. The tech-heavy Wall Street index added 1.2% to kick off this week's trading.
However, as evident in the chart, US indices retreated during the first half of Tuesday's session. Once again, the bullish momentum failed to sustain. We cannot say the decline took us by surprise, while the upside swing ahead of earnings did. The uncertain economic climate, coupled with elevated interest rates, doesn't generally favor tech stocks.
Nonetheless, Tesla and Netflix are gearing up for their quarterly reports.
In Tesla's case, the company has already disclosed its Q3 vehicle delivery and production numbers, which significantly contribute to its revenue. This quarter marked a departure from the consistent delivery records, as Tesla had previously warned about lower figures due to planned factory shutdowns for upgrades.
Tesla's profit margins are expected to decline in the third quarter and could take a more significant hit in the final quarter of 2023, causing concerns about the necessity of price reductions to stimulate demand. The price competition, including cuts exceeding 6% across models from July to September, likely led to Tesla's margins hitting a four-year low of 18.1%, excluding regulatory credits, as indicated by a poll of nine analysts by Visible Alpha. This downward trend is anticipated to persist into the fourth quarter, with margins potentially falling below 15%, according to Wells Fargo analysts.
In contrast, Netflix is in a more favorable position. The Zacks consensus estimate predicts that this internet video service will report quarterly earnings of $3.47 per share in its upcoming financial statement, reflecting a year-over-year increase of 11.9%. Revenues are expected to reach $8.53 billion, marking a 7.7% growth compared to the same quarter in the previous year.
It's important to note that stock performance is not solely determined by earnings beats or misses. Many factors can influence a stock's movement, and some stocks may decline even after surpassing earnings expectations, while others can rise despite falling short of estimates due to unforeseen catalysts.
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