Netflix Soars, Tesla Sours on Earnings Reports

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After U.S. markets closed on Wednesday, two widely followed stocks released their third-quarter earnings reports. Analysts were mostly keeping their powder dry, with muted expectations for both profits and revenue.

For Netflix Inc. (NASDAQ: NFLX), less than half of analysts following the stock had a Buy or better rating on the shares. And despite solid performance in the prior quarter, the stock dropped 27% of its value on worries about the writers’ and actors’ strikes, as well as the company’s subscription growth.

Netflix put all those worries behind it Wednesday night, reporting revenue growth of 7.8% year over year and earnings per share (EPS) growth of 20.3% for the third quarter. EPS came in nearly 7% higher than the consensus estimate, while revenue was just a bit higher.

The big news was that Netflix added 8.8 million net subscribers in the quarter, soaring above the consensus estimate of 6.1 million. Operating cash flow rose by nearly a third and free cash flow rose by more than 40%.

Results were so good that Netflix announced a price hike for its Premium and Basic subscribers, effective immediately. The price for the Basic plan rises from $9.99 to $11.99, and the Premium plan’s price jumps from $19.99 to $22.99. Netflix made no change to its ad-supported and Standard plans.

For the fourth quarter, Netflix forecast revenue of $8.69 billion, slightly below the consensus estimate calling for sales of $8.76 billion. Operating margin is forecast to drop from 22.4% in the third quarter to 13.3%, and diluted EPS is forecast to fall from $3.73 to $2.15. The fourth quarter historically is the company’s weakest for EPS.

Shortly after Thursday’s opening bell, Netflix stock traded up about 16.5% at $403.00. The stock’s 52-week range is $252.09 to $485.00. Netflix’s total one-year return is 67.6%.

Analysts were also holding their collective breath over what Tesla Inc. (NASDAQ: TSLA) would have to say about its third quarter. The company telegraphed its third-quarter deliveries earlier this month, but the impact of its price cuts was unknown.

Now we know. Gross margin on vehicle sales fell from 16.3% in the second quarter to 7.6%. That drop sent EPS down from $1.05 to $0.66, missing the consensus estimate of $0.73. Total automotive revenue came in at $19.63 billion, up 5% year over year, on an increase in vehicle sales.

CEO Elon Musk laid the blame for the drop in profitability directly at the feet of high interest rates. On the conference call, he said, “I can’t emphasize this enough … [for] the vast majority of people buying a car is about the monthly payment.” High interest rates mean fewer cars sold.

Tesla’s outlook did little to soften the bad news. Tesla had little to say about Cybertruck sales, now set to begin late next month. Tesla is also dialing back on investment in its Mexico assembly plant. The company has changed its mind about where to build its sub-$25,000 model, announced in 2020. Tesla originally planned to assemble the car in Mexico but now plans to begin production at its Texas plant.

In early trading on Thursday, shares were down 7% at around $226.00, in a 52-week range of $101.81 to $299.29. Tesla stock’s one-year return is around 2.4%.

Originally published at 24/7 Wall St.

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