Earnings Watch: Netflix, ASML, and Tesla

Netflix headwinds persists

The video streaming giant Netflix reports earnings tonight after the US market close and analysts expect revenue growth of 5% y/y and EPS of $2.22 down 23% y/y as rising input costs are pressuring Netflix’s business. The strong demand during the pandemic has disappeared, competition has increased significantly, and content production has been weak running at higher costs than estimated. The key upside factor for Netflix is the new ad-tiered business model which will enable a new revenue stream and reduce the risk of subscribers cancelling their subscriptions due to the cost-of-living crisis.

The semiconductor party is coming to an end for ASML

ASML, the world’s largest and most important semiconductor equipment manufacturer, reports Q3 earnings tomorrow morning before European trading opens. Revenue growth is expected to decline to just 1.6% y/y from 35% y/y in Q2. While we believe ASML will meet expectations for operating income and revenue we are more worried about orders as the ongoing tensions between the US and China over semiconductors are negatively impacting the industry. The US has imposed several export restrictions on semiconductors and equipment to China and the full-speed realignment of semiconductors will hit industry growth in the short-term. We have recent seen negative outlook on semiconductors from Samsung and Micron Technology. As the ninth largest European publicly listed company this earnings release will be important for sentiment in European equities.

Tesla is confronted with lithium issues and high electricity prices

There is probably not a more important stock than Tesla when it comes to sentiment in the technology and growth segments of the equity market. The EV-maker reports Q3 earnings tomorrow night after the US market close. Estimates are looking for revenue growth of 61% y/y and EPS of $1.02 up 106% y/y as EV adoption has accelerated this year despite supply constraints, price hikes on EVs and high electricity prices. Tesla recently missed estimates on Q3 deliveries and the main focus will be on lithium supply and prices, and to what extent it is impacting Tesla’s margins. We are also curious to see Tesla outlook given the high electricity prices.

Car sales has recently stabilised in the US and Europe, and in China growth is coming back. However, the news flow from Chinese EV-makers has recently been negative and that might be a warning sign on the outlook. Tesla has moved from being a premium brand to an average brand when judged on average selling price as Tesla is now firmly in at the same average price as Ford and GM in the US. Its gross margin when factoring out R&D costs of cost of goods sold for other carmakers is also only the 11^th best. The question remains whether Tesla can continue to command a high equity valuation, but as the fifth largest publicly listed company in the US this earnings release is the most important earnings release this week.