What Might Be Expected From Tesla’s and Netflix’s Reports?

As we near the end of January, key earnings releases may be shaking markets worldwide. Giants in their respective industries, Netflix and Tesla are set to reveal their earnings reports to the public in the coming days. Let’s take a closer look:

Netflix to Cash In?

Streaming video pioneer Netflix (NFLX) is expected to release fourth fiscal quarter results on Tuesday, January 23rd, after the ring of the closing bell, and it is expected that the streaming giant has had a strong finish to 2023. The company's guidance suggests an anticipated surge of around 9 million new subscribers in the quarter, leading to approximately 24 million net additions for the full year. Investors will closely scrutinise Netflix's revenue initiatives, including efforts to combat password sharing, the introduction of an ad-supported tier, and recent price hikes on certain subscription plans.

Despite the positive subscriber outlook, Netflix's film chief, Scott Stuber, is set to exit in March, adding an element of interest for investors. The company's revenue initiatives are anticipated to positively impact key profitability metrics such as free cash flow, operating margins, and average revenue per member (ARM). Netflix aims for full-year 2023 operating margins to reach 20%, at the high end of the previously forecasted range of 18% to 20%. However, ARM is expected to remain weak in Q4 before strengthening later in the year with the effects of the ad tier and price hikes taking hold.

Estimates are for earnings per share (EPS) for the quarter to come in at $2.20 on revenues of $8.71 billion. According to some, the company can be considered as the big winner in the so-called "streaming wars." Changes in market dynamics and a focus on profitability have led other media companies to re-evaluate their streaming ambitions. 

The recent success of Netflix's ad tier, surpassing 23 million monthly active users, is seen as a positive development for profitability, bringing more coins into the firm's coffers. While monthly active users do not necessarily equate to paying subscribers, analysts note the accelerated growth in ad-supported subscriptions as a positive factor for Netflix's profitability and the overall bull thesis for the stock. Looking forward, Netflix's primary focus in 2024 could turn out to be investing in long-term ad growth. So far in 2024, Netflix shares are down by 0.2%; whether this trend will continue remains to be seen. (Source: Yahoo Finance)

Tesla Powers Up

Tesla’s (TSLA) anticipated Q4 earnings release on Wednesday, January 24th after market close is set to come on the back of the electric vehicle giant’s record deliveries report. The electric vehicle (EV) company is expected to address challenges such as offsetting price cuts, increased labour costs, and losses from supply-chain disruptions. Analysts estimate revenue to be around $25.88 billion, an increase from the previous quarter and the fourth quarter of 2022.

Record-high deliveries in the fourth quarter were driven by declining prices, with the average transaction price for a Tesla vehicle dropping by more than 25% to $50,051 in December. Despite strong delivery numbers, savvy market watchers expressed concerns about large downside risks to earnings, citing a lower volume outlook than the market assumes, pricing pressure, Cybertruck margin impact, and a higher tax rate in China.

Tesla launched the Cybertruck in the fourth quarter of 2023, raising investor concerns about scaling production and deliveries. Some anticipate that positive cash flow from the Cybertruck may not materialise for another 12 to 18 months.

CEO Elon Musk and other Tesla officials are expected to discuss cost-cutting measures to address increased labour costs and supply-chain challenges. The company recently increased wages for some production employees, a move that analysts estimate could cost $360 million in incremental annual labour costs, representing a 3% hit to 2024 earnings before interest and taxes (EBIT).

Tesla also faced supply-chain disruptions, leading to a production stoppage at its Berlin facility. Analysts note that Tesla was the only automaker in their coverage impacted by this disruption, but they anticipate potential negative effects on other companies with a large footprint in Europe, particularly suppliers.

Investors will be closely watching how Tesla plans to navigate these challenges and the insights provided by Elon Musk during the earnings release, especially regarding strategies to maintain profitability amid various headwinds. With Tesla having declined by 16% since the beginning of the year, Wednesday’s release could have a large impact on the firm’s fortunes throughout 2024.

Conclusion

All in all, the market seems to be eagerly awaiting insights from these firms on how they are grappling with challenges, both old and new. Tuesday's and Wednesday's earnings reports could not only reflect recent performance but also shape the trajectories of these industry leaders in 2024, influencing investor confidence and market dynamics.