Market News & Analysis
Tesla, Twitter, Microsoft shares over and under-react
Ken Odeluga October 25, 2019 2:33 AM
Amazon shares may face an unforgiving response to anything other than stellar earnings
TESLA Q3 RESULTS REVIEWED
So far, investor reactions to the rising flood of earnings from key fast-growing U.S. firms have been all over the map. There isn’t much of a plausible pattern to be discerned. Tesla’s around-20% surge following, admittedly, a surprise profit when a loss was expected, ought, arguably to have been moderated by the quite dodgy year-on-year numbers.
- Key Q3 auto sales fell 12% year-on-year
- Operating income collapsed -37% y/y
- Key auto gross margin slipped 297 basis points, even though group gross margin widened faster than expected
In short, a beat of questionable quality. Though this is Tesla. Its investor reactions are often ‘non-standard’.
TWITTER Q3 RESULTS REVIEWED
Meanwhile, user growth changed from being the most important metric for judging Twitter’s quarterly performance, apparently, judging by an around 20% sell-off even as the group posted active user gains above market expectations. True, both revenues and EPS disappointed. And the group’s admission that a ‘bug’ had been accessing user data without permission to the benefit of ad revenues was a shock, whilst the ‘around 3%’ revenue impact of ending assistance from the glitch is significant, given overall growth of 9% in Q3.
But it’s difficult to envisage user growth and ad sales momentum seen over the last several quarters simply evaporating. Progress would have to grind to a halt and reverse to justify the toasting of around $5bn in TWTR market value seen on Thursday.
MICROSOFT Q1 RESULTS REVIEWED
Then there’s Microsoft, whose revenue growth beat all estimates, on continued solid performances across all business lines, but driven by Intelligent Cloud. The cloud opportunity continues to be widely recognised as far bigger than existing growth. True, the rate of that growth is moderating, as the enterprise cloud market matures. Yet superior positioning suggests MSFT can still weather any economic storm better than hardware and cloud rivals.
The shares’ modest 2% rise just now has an eye to a more cautious outlook than some investors expected. As well, cloud flagship Azure’s 59% sales growth disappointed the highest expectations. A lack of surprises also explains the subdued reaction.
All told, so far, investor responses to earnings from leading high-beta and fast-growing U.S. firms look rather idiosyncratic. A recently discussed shift to quality isn’t on show, looking at modest Microsoft buying. Yet the post-earnings moves may also be called disproportionate. These conditions point to a possible unforgiving reaction to FAANG laggard Amazon, which reports in a while, unless its third-quarter report has shock and awe. The stock remains highly rated given that it’s up 18% this year, though it’s gain lags behind the Nasdaq’s 25% advance, and more importantly most big tech counterparts. Read an earnings preview for AMZN and other big tech names here.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.