How Did Netflix, IBM, Tesla & Goldman Sachs Fare in Q2?

Wednesday, July 19th, was certainly an eventful day for the markets as companies from various market sectors reported their financial earnings and revealed how they have fared over the second quarter of what was already a challenging year for the economy. 

From automotive to entertainment and banking to tech, here’s what you need to know about Wednesday’s earnings releases from some of the biggest companies in the market:

Tesla’s Stock Drops Despite an Earnings Beat

EV giant, Tesla (TSLA) reported better-than-expected earnings and revenue for Q2 on Wednesday after the ring of the bell. As such, it may come as a surprise to learn that the company closed the trading day with a drop of 0.7%. 

On the one hand, Tesla reported revenue of $24.93 billion which is above the expected $24.47 billion, and an adjusted EPS of 91 cents vs analysts’ expectations of 82 cents. Furthermore, Tesla announced an adjusted net income of $2.70 billion, which is 20% above last year’s figures.

On the other hand, the company’s margin came in below analysts’ expectations which may have driven its stock downward. Whereas analysts expected 18.8% in Q2 gross margin, the results came in at 18.2%. Comparatively, in Q1, the gross margin was 19.3%, representing a decline from Q4's 24%. Moreover, Tesla's operating margin dropped to 9.6%, which is nearly 5% lower than the figure recorded a year ago.

However, despite these less-than-stellar margins, the company claims that its operating margin“remained healthy at approximately 10%, even with price reductions in Q1 and early Q2.” (Source:CNBC)

It may also be worth noting that, CEO, Elon Musk revealed in a conference call that Tesla’s overall production in Q3 is likely to drop because of Telsa factory upgrades. Overall, however, it seems that Musk may have some promising outlooks for the company’s future as he also revealed that Tesla is allocating over $1 billion to invest in the development of a supercomputer that is designed for AI machine learning and computer vision training. The supercomputer called “Dojo” is supposedly an advanced system that will enable Tesla to enhance its existing software by gathering video clips and data from customers and company vehicles in order to enhance its vehicles' safety and performance.  

Whether or not Tesla's efforts and advancements will help it sustain the gain of almost 170% it acquired since the beginning of the year and recoup yesterday’s losses is yet to be seen.

Subscribers Surge: Can Netflix Chill Now? 

Streaming and entertainment behemoth Netflix (NFLX) reported a growth surge in subscribers in its earnings report on Wednesday. The report showed that Netflix gained over 238 million subscribers in June, adding 5.9 million members since March. This may have been much-needed news given the fact that the company has struggled to sustain its customers lost year and over the past couple of months.

The reason for this above-expected gain hails back to the company’s password-sharing crackdown which allows only members within a "Netflix Household" (those sharing the same internet connection), to have access to the account. This means that additional users can be included by subscribing to a “Standard” or “Premium” plan and those who are currently using a borrowed Netflix password, will receive an update upon login, guiding them on how to create their own account.

While the crackdown may have been frowned upon by some customers, its overarching effect shows that it boosted Netflix’s subscriber base. 

Nonetheless, it seems that the subscription growth was overshadowed by Netflix’s revenue miss which came to $8.19 billion vs. the $8.30 billion predicted by analysts, and its revenue guidance for Q3 which came in at $8.52 billion vs. analysts’ expected $8.67 billion.

As for the adjusted EPS, Netflix reported $3.29 vs. analysts’ predictions of $2.90, and the company’s free cash flow and operating margins came in above expectations. (Source:Yahoo Finance)

The company commented by saying that “We expect revenue growth to accelerate in the second half of ‘23 as we start to see the full benefits of paid sharing plus continued steady growth in our ad-supported plan." In addition, the company stated that “it still has more work to do to reaccelerate its growth,” although it believes that it has “made steady progress. The company revealed that it will focus on “ creating a steady drumbeat of must-watch shows and movies; improving monetization” as well as growing and investing in services.

Following the mixed earnings data, the streaming giant’s share price gained 0.4% on Wednesday continuing the upward trend it has experienced since the beginning of the year.

IBM: Big Tech Gets a Boost

Just a week before some of the biggest technology companies’ earnings reports, multinational tech corporation, IBM’s (IBM), earnings surpassed expectations and its stock gained 0.1% in response. 

In Q2 2023, IBM disclosed its revenue as $15.48 billion, showing a slight YoY decrease of 0.4%. While its EPS for the same period was $2.18, compared to $2.31 from the previous year. Despite the fact that IBM's reported revenue slightly missed the Zacks Consensus Estimate, which projected $15.54 billion, the company outperformed expectations on EPS, with a positive surprise of +9.00%, as the consensus EPS estimate was $2.00.

Additionally, it seems that some of IBM's strongest revenue segments were from software, global financing, hybrid infrastructure, transaction processing, application operations, and consulting. 

All in all, despite yesterday’s rise it may be worth keeping in mind the fact that since the beginning of the year, IBM has had a volatile trajectory and experienced some ups and down. Only time will tell how it will perform in the near future. 

Goldman Sachs: Big Bank in Distress?

Big bank, Goldman Sachs’ (GS) earnings report on Wednesday may have shown some signs of distress as both the bank’s profits, revenue, and earnings fell in the second quarter. 

The bank’s investment revenue dropped by 20% from the year-ago figures while its earnings plunged by 58% to land in at $1.2 billion as the bank’s dealmaking and trading decreased.

These results are expected to increase the level of scrutiny of Goldman Sachs’ CEO, David Solomon, as he faces various challenges, including partner discontent and strategic concerns, while also dealing with the aftermath of an expensive consumer-banking experiment. 

The report also gave Goldman Sachs a gloomy record low as its Q2 profits were deemed the bank’s lowest quarterly profits since early 2020. 

Nevertheless, Goldman is not the only big bank to have suffered lately as results from both Citigroup (C) and JPMorgan (JPM) revealed that these big banks also suffered losses in revenues. 

Despite yesterday’s dreary data, however, Goldman Sachs’ stock rose by 0.9% while overall it has dropped 1.7% since the beginning of the year.

In Conclusion

As the current week draws nearer to its end and a new week approaches, traders may want to take note of this week's earnings results and consider their implications as they head into the upcoming week. More earnings reports from various companies are on the horizon, which could potentially impact the markets and shed more light on the state of the economy.