“Earnings season” is the time of year in which most publicly traded companies release their quarterly earnings reports. Each season helps investors decide whether they should buy or sell shares. And for this quarter, it has been a particularly exciting earnings season.
Corporate profits are the highest they’ve ever been. That should be good news for investors, but stocks actually aren’t quite at all-time highs. Despite the generally excellent reports, there have been several concerns weighing down the markets. Among those concerns is the possibility of a trade war with China and the rising interest rates by the Fed. Let’s take a look at what a few favored companies reported:
Tesla investors recently became acquainted with what CEO Elon Musk termed a “Flufferbot”—piece of machinery which places fluff in the battery packs of Model 3 cars. Musk blamed the breakdown of these machines as well as over-automation of the assembly line for delays in shipping Model 3’s to pre-order customers. Tesla was able to deliver 29,997 cars across all models in the past quarter. The problem facing Tesla is that only 8,810 of 500,000 Model 3 pre-order reservations have been delivered to customers since the beginning of the year.
To boot, Tesla lost $3.35 per share in Q1 2018—the worst quarterly loss in Tesla’s history. But Musk believes that Tesla will not need to raise additional capital this year. Musk believes that the company will be cash flow positive and report a profit by Q3 and Q4. Analysts are skeptical, and shares declined upon this news from Musk. The reason that Tesla stock dropped is perhaps mostly due to Musk’s refusal to answer analyst questions regarding Tesla’s capital structure. He even called one analyst “boneheaded.” It was a comment Musk later said he regretted.
Tesla investors also learned that if the company needs to raise capital this year through debt, it could mean higher interest rates for Tesla. Three brokerage houses downgraded the stock after the news.
It was not a pretty quarterly earnings report for Snap Inc., which lost $385M or 17 cents per share in the first quarter of 2018. Several problems that Snapchat faces may stem from its controversial app re-design, which upset users. Kylie Jenner is perhaps the most famous critic of the re-design, who tweeted in February that she doesn’t even open the app anymore.
Snap had 191M daily active users, up 2.13% from Q4 2017 in the last quarter. That was the slowest growth in company history. Revenues increased 54% year over year to $230.7M. But the slowing of user growth overshadowed that. CEO Evan Spiegel remained adamant that the re-design was the best thing for the company long term.
Facebook had a blowout quarter, reporting $1.69 EPS against a consensus estimate of $1.35. Daily active users came in at 1.45 billion. The stock soared on the report, which was somewhat depressed following the Cambridge Analytica scandal. If you’re not familiar with the scandal, Facebook improperly shared the data of more than 87 million users through data harvesting. But despite the recent drama, Facebook is still in investment mode. The company looks to invest heavily in securing its platform in the wake of the data breach and in creating new experiences for its users. It has also been rapidly hiring for content moderators.
Apple had strong earnings, posting a quarterly revenue increase of $16% to $61.1Bn. Earnings growth outpaced revenue growth at 30% YoY in a sign of improving efficiency, with an EPS of $2.73. It also raised the stock dividend 16% in line with the revenue increase.
Apple confirmed what some of the detractors of capital repatriation tax cuts predicted, that the money will be used for shareholder enrichment instead of hiring workers. To this end, Apple announced it is buying back $100 billion of its own stock. This move was incentivized by a reduction on the tax rate corporations must pay on cash repatriated from abroad from 35% to between 8 – 15.5%. Nearly all of Apple’s quarter-trillion dollar cash hoard is overseas. So the repatriation tax rate changes is a massive boon to shareholders.
Amazon may be a huge company, but it’s still growing like a startup. Quarterly net income came in at 1.6Bn equating to an EPS of $3.27 vs. $1.26 consensus. AWS, Amazon’s cloud service division, grew at 49% YoY and was most responsible for the company’s quarterly net income. The price of Amazon Prime is also increasing to $119 per year. It was a picture-perfect quarter for CEO Jeff Bezos. He is now the richest man in modern history.
If anything, the company could attract scrutiny for being too powerful. Critics say that AWS is unfairly subsidizing the retail operations of Amazon, as other retailers do not have a profitable, market-dominating cloud computing business to help stabilize their operations.
Nvidia is set to report quarterly earnings on May 8th, after the close. The consensus estimate is for the company to earn $1.45 per share. Nvidia has significantly benefited from the rise of cryptocurrency mining. Investors find great promise in it’s GPU assemblies for autonomous vehicles.
Alibaba’s stock continues to be a wild ride. The company earned $0.91 per share, above the estimate of $0.84. The company also took a 33% stake in Ant Financial, the world’s most valuable private fintech company. Alibaba indeed strikes many investors as being akin to a smaller, faster-growing version of Amazon. Alibaba’s cloud computing business grew 103% YoY to $669M. It’s core business increased 62% to a total of $8.2 billion. The company is certainly making moves, and its foray into the fintech arena with it’s Ant Financial stake is big news.