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How Investors React to Earnings Reports from Netflix, PepsiCo, and Tesla

INVESTINGHow Investors React to Earnings Reports from Netflix, PepsiCo, and Tesla

Netflix and PepsiCo have reported better-than-expected financial results, yet the market responded with a drop in their stock prices. Conversely, Tesla saw its shares rise after announcing worse-than-expected results.

The earnings season for American companies, which heavily influence stock market indices, is underway. Reports may please investors, with nearly 80% of companies surpassing market expectations.

However, there’s a noticeable shift in how the market reacts to company reports. Investors seem to be disregarding the overall positive picture and instead scrutinizing the smallest details.

Take Netflix, for example. Despite posting strong results for 1Q24, the company’s stock fell by over 8%. This happened despite higher revenues and profits than anticipated.

“Although the company surpassed market expectations, investors focused on one detail: Netflix’s announcement that it will stop disclosing subscriber numbers from 2025,” says Tymoteusz Turski, an equity market analyst at XTB. “Subscriber data has long been crucial for investors in forecasting and assessing Netflix’s situation.”

The company justified its decision by stating that its cash flows are stable and its financial results clear enough that subscriber data is no longer necessary. However, investors interpreted this as a signal that Netflix may anticipate a decrease in these metrics and growth slowdown. This single detail contributed to an 8% drop in the stock price, according to the XTB expert.

A similar situation unfolded with PepsiCo’s stocks. The beverage manufacturer exceeded market forecasts in all key aspects of its financial performance but reported a decline in sales volume in the US market, leading to a peak-time devaluation of -3.5%.

“We can observe investors’ high sensitivity to companies’ results and thorough scanning of reported data for potential shortcomings,” comments an XTB expert. “We’re seeing isolated cases that suggest investors are moving away from optimistic reactions to stock price increases when a company shows better-than-expected results. Whether this is a lasting change remains to be seen in subsequent quarters during earnings reporting.”

Investors eagerly awaited Tesla’s results with heightened interest. The electric car manufacturer had a tough quarter, with its stock declining by 40% since the beginning of the year, making investors more anxious for the latest report. However, Tesla reported results significantly below market expectations.

The company reported revenues of $21.30 billion (-8.7% y/y), marking a -8.7% difference from what the market anticipated. Lower sales volumes, totaling 386.81 thousand vehicles (-9% y/y), combined with price reductions, pushed the company’s revenues below market expectations.

Tesla is heavily feeling the competition from the Chinese market, necessitating significant price cuts. Coupled with market saturation, evidenced by consumers’ preference for hybrid cars, Tesla faces challenges.

The company’s profitability also suffered in 1Q24. Tesla recorded an operating profit of $1.17 billion, marking a -32.5% difference from the consensus and a -56% difference y/y. The sharp decline in profitability primarily stems from increased operating expenses related to projects utilizing artificial intelligence.

The company attributes the downturn in 1Q24 results to a series of challenges faced, including an arson attack at the Gigafactory in Berlin and conflict in the Red Sea. The global electric car market is currently experiencing challenges from strong competition from hybrid cars. Tesla’s operating cash flows amounted to only $242 million, marking its worst performance in three years, while adjusted EBITDA reached its lowest values since 2Q22, continuing a downward trend since mid-2023.

“The market’s reaction to Tesla’s poor results was also different from what we might have expected until recently, with one piece of news making the difference,” explains T. Turski from XTB. “Investors focused on the news of accelerating production plans for new models in the second half of 2025. The introduction of new, cheaper models is seen as a way to combat Chinese competition. Following this news, Tesla’s price rose by 6.8% in after-hours trading.”

In the latest presentation of results from American companies, we can also talk about a capital flow from technology companies to financial companies, which provide slightly greater security.

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