Tag: Inc. (RIVN)

Rivian (RIVN) vs. Tesla (TSLA): Can the EV Underdog Match the Giant's Success Story?

Posted on by The INO.com Team

Tesla, Inc. (TSLA) accomplished what many believed to be an impossible feat by establishing itself as a prominent electric vehicle (EV) manufacturer entirely from scratch. This achievement positioned Tesla to challenge and compete with major players in the automotive industry.

Rivian Automotive, Inc. (RIVN) shares similar aspirations, aspiring to emulate TSLA’s success. However, investors eagerly anticipating Rivian’s potential to replicate Tesla’s trajectory must closely monitor whether Rivian can address significant challenges in 2024.

Establishing an automobile manufacturing company is particularly challenging due to its capital-intensive nature. This endeavor involves building extensive manufacturing facilities, procuring expensive materials, hiring a substantial workforce, and investing significant time in coordination.

Moreover, navigating regulatory requirements, especially concerning vehicle safety, adds another layer of complexity, as obtaining approvals for road-ready automobiles necessitates stringent compliance measures. Thus, the process of building an automobile manufacturer is not only laborious but also requires substantial financial resources and regulatory adherence.

It took TSLA several years before it could generate consistent profits, a milestone the company reached in 2020. Starting in 2014, Tesla experienced a notable increase in net losses, accompanied by a rise in research and development (R&D) expenses. The electric carmaker, founded in 2003, finally posted its first full year of net income of $721 million in 2020, in contrast to prior losses.

However, during this period, Tesla didn’t face significant competition in the EV market, making it the primary choice for consumers interested in EVs. This relatively unchallenged position allowed Tesla to focus on building its brand and technology without immediate pressure from its dominant peers.

In contrast, RIVN faces a more daunting challenge as it strives to achieve profitability in a market with more players and a competitive landscape different from TSLA’s early years. This means that Rivan’s journey to success is not only challenging and costly but also happening in a market environment that demands strategic adaptation and innovation.

Is Rivian on the Path to Becoming the Next Tesla?

RIVN has made significant strides toward establishing itself as a major player in the EV industry, boasting infrastructure capable of supporting its planned 2024 production target of approximately 57,000 vehicles. For the full year 2023, the company produced 57,232 vehicles and delivered 50,122, surpassing the management’s 2023 production guidance of 54,000 vehicles.

As Rivian’s production and manufacturing progress improved throughout the last year, it showcased its capacity as a legitimate automaker. Moreover, on March 7, 2024, the auto company introduced R2, R3, and R3X product lines built on its new midsize platform.

The launch of new products, including R2 and R3, designed to embody the company’s performance, capability, usability, and affordability, can bring it an expanded market reach, drive higher sales volumes, and offer a competitive edge. Rivian’s design and engineering teams are highly focused on innovating not just the product features but also its approach to manufacturing to achieve substantially reduced costs.

Despite this, Rivian still lags far behind Tesla in a critical investor metric: profitability. Rivian is far from achieving profitability, with its losses significantly exceeding those incurred by Tesla during its initial stages of developing its EV business.

In 2023, while generating substantial revenue of $4.40 billion, Rivian incurred a staggering cost of sales totaling $6.40 billion. This means that Rivian incurred losses for every EV it sold, highlighting an unsustainable business model that requires addressing for long-term viability.

The company reported a net loss of $1.52 billion for the fourth quarter that ended December 31, 2023. The last quarter of 2023 reflected a greater discrepancy between production and deliveries compared to previous quarters and recorded a 10% fall in deliveries.

Also, the company has been burning through cash to ramp up production of its product lines. As of December 31, 2023, RIVN’s cash and cash equivalents stood at $7.86 billion, compared to $11.57 billion as of December 31, 2022. Its cash burn comes at a time when demand for EVs has slowed, with Tesla CEO Elon Musk warning that high interest rates are making cars unaffordable.

“We firmly believe in the full electrification of the automotive industry, but recognize in the short-term, the challenging macro-economic condition,” said RJ Scaringe, Founder and CEO of Rivian.

Elon Musk further made remarks about RIVN’s product design, acknowledging its merit but emphasizing the company’s challenge of scaling up production while maintaining positive cash flow. He pointed out that his rival could face the risk of bankruptcy within six quarters unless significant cost reductions are implemented.

Musk emphasized the urgent need for massive cost-cutting measures to ensure the RIVN’s survival in the competitive automotive market.

Challenges Lie Ahead for Rivian in 2024

RIVN’s outlook for 2024 is influenced by economic and geopolitical uncertainties, particularly the impact of exceptionally high-interest rates. The company plans to maintain its production target at 57,000 vehicles, consistent with 2023 levels. For the full year, Rivian anticipates significant capital expenditures of $1.75 billion and an adjusted EBITDA loss of $2.70 billion.

Amid mounting losses and an increasingly competitive EV market, RIVN announced in February that it would lay off 10% of its salaried workers. Previously, on two different occasions, the EV maker laid off about 6% of its workforce in an effort to reduce its losses.

“Our business is facing a challenging macroeconomic environment — including historically high interest rates and geopolitical uncertainty — and we need to make purposeful changes now to ensure our promising future,” chief executive RJ Scaringe wrote in an email to employees.

Rivian’s cash burn is one of the primary challenges for the company. Its cash burn is unsustainable as it expands R2 and R3 capacity, prompting management to announce a reduction in capital expenditures, specifically in Georgia. Last month, Rivian announced that it would be pausing the construction of its $5 billion manufacturing plant in Georgia to cut down costs.

CEO RJ Scaringe said that production of the R2 will begin at RIVN’s existing plant in Normal, Illinois. While presented as a cost-saving initiative, the decision raises concerns regarding the company's ability to manage its operations effectively.

Bottom Line

RIVN has made significant strides in establishing itself as a major player in the EV industry. The company’s infrastructure supports its ambitious production targets, and the introduction of new product lines like R2 and R3 showcases its commitment to innovation and market expansion. These moves can potentially drive higher sales volumes and enhance its competitive edge.

However, Rivian faces substantial challenges, particularly in achieving profitability. Despite generating decent revenue, the company’s cost of sales has resulted in significant losses, raising questions about the sustainability of its business model. The company’s cash burn is a pressing concern.

While Rivian has shown promise in its technological advancements and product offerings, its path to profitability and long-term viability hinges on its ability to address its cost structure, manage cash flow effectively, and navigate a challenging macroeconomic environment in the EV industry, including high interest rates, supply chain disruptions, and intensified competition.

So, it’s crucial to emphasize that investors should focus on Rivian’s execution toward profitability in 2024. While a shift from losses to profits is significant, consistent progress toward that turning point will determine Rivian’s potential to match Tesla’s success. Investors should also closely monitor Rivian’s efforts to improve operational efficiency and manage costs effectively.

If Rivian can demonstrate steady progress toward profitability, there’s still a chance it could match its rival Tesla’s some of the success achieved. However, given its massive losses, alarming cash burn, and an uncertain outlook, it could be wise to approach RIVN with caution for now.

Will Rivian's Surprise Announcement Paying off for RIVN Stockholders?

Posted on by The INO.com Team

Rivian Automotive, Inc. (RIVN), renowned for its off-road-capable truck and SUV models, has recently announced two new midsize EV SUV lines, including one surprise launch. This strategic move aims to broaden market reach and boost sales figures, showcasing the EV startup’s ongoing innovation within the automotive industry.

The introduction of two midsize SUV product lines – the R2 and the R3 – marks a significant expansion of RIVN’s consumer offerings alongside its existing R1T and R1S models. Among these new offerings is the R3 midsize crossover, accompanied by its high-performance variant, the R3X.

Described as a “midsize SUV delivering a blend of performance, capability, and utility in a five-seat package optimized for both adventurous outings and daily use,” the R2 boasts a starting price of $45,000. Consumers can expect the R2 to become available within the first six months of 2026.

Meanwhile, the company has already opened reservations for U.S. customers interested in midsize SUVs, with Rivian’s CEO RJ Scaringe expressing enthusiasm for the response. “In less than 24 hours, we’ve received over 68,000 R2 reservations,” Scaringe noted, emphasizing the strong resonance of the R2, R3, and R3X with the community.

RIVN plans to prioritize the launch and rapid scaling of the R2 before commencing deliveries of the R3 and its performance variant. The phased approach aims to ensure a seamless introduction of each model. Additionally, upon its debut, the R3 will be priced lower than its midsize counterpart, while the R3X promises “even more dynamic abilities both on and off-road” compared to the R3.

Navigating a Challenging Landscape

RIVN is facing a pivotal moment following its recent product launches. The initial response has provided a much-needed boost to the EV manufacturer. Shares of RIVN have gained more than 17% over the past five days. However, it’s highly doubtful if the stock will manage to sustain this momentum as Rivian’s prospects appear uncertain.

Last month, RIVN disclosed disappointing fourth-quarter 2023 results and a bleak 2024 production guidance, alongside announcing a reduction of approximately 10% in its salaried workforce. Founder and CEO RJ Scaringe attributed these actions to the challenging macroeconomic environment, citing historically high-interest rates and geopolitical uncertainty.

RIVN, which employs a total of 16,700 individuals, declined to specify the number of salaried employees affected. The workforce reduction follows two prior instances where the company laid off 6% of its staff as part of its efforts to mitigate losses.

The expansion of electric vehicle sales has also slowed over the past year, with automakers attributing some of this deceleration to high-interest rates. Concurrently, Tesla, Inc.’s (TSLA) aggressive price cuts on its vehicles have exerted pressure on competitors. RIVN reported a fourth-quarter loss of $1.52 billion last year, compared to approximately $1.72 billion during the same period in 2022.

Elon Musk, CEO of TSLA, commented last month on RIVN’s product design, acknowledging its merit but emphasizing the challenge of achieving volume production with positive cash flow. Musk suggested that RIVN could face bankruptcy within six quarters without substantial cost reductions and stressed the necessity of “cutting costs massively” for the company's survival.

Operational Realignment

RIVN’s latest announcement regarding the relocation of R2 production from a new Georgia facility to its existing plant in Illinois has stirred skepticism among investors. The decision, while touted as a cost-saving measure, raises concerns about the company's ability to manage its operations effectively.

Given the company’s history of falling short on production targets at its Illinois site, doubts loom over its capability to meet future goals. The move to halt construction in Georgia and redirect production efforts underscores underlying challenges within the company’s operational framework.

Investors, already wary of the company's cash burn rate and unmet expectations, could now face heightened uncertainty regarding its financial health and strategic direction. The abrupt shift in manufacturing plans may exacerbate apprehensions surrounding RIVN’s long-term viability in the competitive automotive market.

Investor Scrutiny

Pomerantz LLP has been investigating RIVN on behalf of its investors, focusing on potential securities fraud or other unlawful practices involving RIVN and certain executives. The probe aims to determine the veracity of allegations surrounding the company’s conduct.

RIVN’s fourth-quarter 2023 financial report highlighted significant disparities from analysts’ projections. The company disclosed its intention to produce 57,000 vehicle units in 2024, a figure notably lower than the anticipated 80,000 units.

These revelations may have far-reaching implications for RIVN and its stakeholders. Shareholders could experience negative impacts on their investments as confidence in the company's financial health and management practices may erode. Moreover, RIVN’s market value may face downward pressure amid concerns about its operational performance and strategic decision-making.

The Road Ahead

RIVN’s fourth-quarter and full-year 2023 results, unveiled on February 21, showcased a robust revenue expansion of 167.4%. However, the company notably floundered in crucial aspects beyond financial metrics, signaling significant shortcomings despite meeting revenue expectations.

More alarmingly, the EV company’s 2024 production forecast of merely 57,000 vehicles fell below analysts’ predictions, hinting at subdued revenue growth prospects for the year ahead.

Also, it’s imperative to recognize that RIVN is likely to deplete a significant portion of its cash reserves as it scales up production, prepares for the rollout of the R2 vehicle lineup, notably the R2 midsize SUV aimed at the mass market, and absorbs consequent quarterly operational deficits.

Compounding the situation, the launch timeline for the R2 models, including a budget-friendly electric pickup variant, extends beyond the current year, delaying consumer availability until 2026. The protracted timeline, coupled with anticipated ongoing losses, underscores a prolonged path toward revitalizing growth for RIVN.

Furthermore, RIVN may find itself compelled to seek external funding once more before the arrival of the R2 lineup in 2026. The potential necessity underscores the company's ongoing financial challenges and the imperative of securing additional capital to sustain its operations and strategic initiatives.

Bottom Line

RIVN’s strategic expansion with the recent announcement of new product launches could broaden the company’s market reach and boost its sales. However, despite the initial positive reception, the company could continue to face formidable challenges, including mounting losses, production delays, increasing cash burn, and fierce competition.

Therefore, until the EV company demonstrates sustainable profitability and operational stability, it could be wise to steer clear of RIVN.

2024 Outlook: Analyzing RIVN’s Competitive Edge Gained From AT&T Partnership

Posted on by The INO.com Team

The automotive industry is witnessing a major seismic shift toward technological advancements. Electric vehicles (EVs) are becoming mainstream at an unprecedented rate, showing no signs of slowing down in the upcoming decade. The U.S. EV sales surpassed the 300,000 mark for the first time in 2023's third quarter.

Despite the turbulence created by widespread price wars throughout 2023, coupled with inflation and surplus inventory, the EV market continues to ascend. Even though the growth hasn't been as vigorous as initially forecasted, companies like Rivian Automotive, Inc. (RIVN) continue to carry momentum into 2024, recently enhancing its prospects with positive news.

Wireless carrier AT&T Inc. (T) has entered into a partnership agreement with RIVN, announcing its decision to receive a range of pilot electric delivery vans (EDVs), R1T pickup trucks, and R1S sport utility vehicles commencing in 2024. The main objectives of this joint venture are to assess cost-efficiency, amplify safety measures, and reduce the carbon footprint.

For many years, T has been progressively converting its commercial fleet into vehicles operating on alternative fuels, including compressed natural gas and hybrid electric vehicles. To meet its ambitious goal of achieving carbon neutrality by 2035, T is leveraging EVs coupled with route optimization and artificial intelligence (AI). Adding to this initiative, T is the exclusive provider of connectivity for RIVN vehicles, facilitating seamless over-the-air (OTA) software updates.

Considering stringent environmental, social, and corporate governance (ESG) goals and emission reduction targets, companies are fiercely competing to transition toward zero-emission fleets. High interest rates have posed affordability challenges for consumers as they increase the already hefty price tags of EVs compared to traditional gas-powered vehicles, leading to raised concerns over softening demands.

RIVN reported considerable interest and demand for its electric vans. In November, the company announced it was in dialogues with other potential customers, reinforcing speculations of additional EDV partnerships on the horizon for RIVN despite not revealing any specific names.

Last month, RIVN ended its exclusivity deal with Amazon (AMZN) for its EDV. This move provides RIVN with the opportunity to market its EDVs to a broader client base, with T reportedly being its first outside customer. The termination doesn’t impact the previously stated commitment from RIVN to fulfill an order of 100,000 vans for AMZN by the end of this decade. Indicative of progressive momentum, AMZN already had over 10,000 Rivian EDVs in operation as of October.

Moreover, RIVN also outlined its production strategy for the near future. The manufacturing plant in Normal, Illinois, is scheduled to cease operations for a single week at the closing of 2023 in anticipation of a more extended shutdown in mid-2024.

This hiatus aims to facilitate extensive line modifications and advancements, including part design changes, component simplification, and optimizations to elements such as the HVAC system and vehicle body structure. While these temporary production halts are expected to reduce output in the short term, they are deemed necessary to enable cost reductions and augment long-term production capacity.

“The impacts of the shutdown are temporary in nature, but the benefits will be there for the future,” said RIVN’s chief financial officer, Claire McDonough.

Outlook

Last month, Irvine, California-based RIVN raised its production forecast for the full year by 2,000 vehicles to 54,000 units on the back of sustained demand for its trucks and SUVs. Management forecasts 2023 adjusted EBITDA of negative $4 billion.

Analysts expect RIVN’s revenue to surge 164.6% year-over-year to $4.39 billion, while EPS is expected to stay negative at $4.92 for the fiscal year ending December 2023.

Moreover, RIVN’s stock is trading above its 50-, 100-, and 200-day moving averages, indicating an uptrend. Wall Street analysts expect the stock to reach $25.63 in the next 12 months, indicating a potential upside of 8.9%. The price target ranges from a low of $15 to a high of $40.

What are the Bumps in the road for RIVN?

Since its IPO two years ago, the automaker has experienced a tumultuous journey due to overall market conditions and operational challenges. Widespread supply-chain disruptions have further exacerbated conditions for the entire automobile industry, with RIVN facing its unique set of complexities during its launch. Some challenges the company encountered included product recalls and price rises that were subsequently required to be reversed.

RIVN’s products remain strong, even with a relatively limited product line. Moreover, it is expected to begin production in 2026 in Georgia on a lower-cost consumer EV called the R2. Given the steady increase in production, it is not anticipated that RIVN will reach profitability imminently.

The company's quarterly cash expenditure is estimated to be approximately $1 billion. Given its significant distance from attaining mass production levels required for improved cost efficiency, RIVN may face additional challenges in the foreseeable future.

Bottom Line

RIVN's operation has seen decent stability in the past year, although its share value contends with apprehensive investors troubled by unmet production benchmarks, expanding debts, and considerable financial losses. So far this year, RIVN shares have appreciated by roughly 28%. Yet, they currently trade 70% lower than its IPO price of $78.

The earlier-than-expected bond issuance in October took shareholders by surprise, triggering a sell-off that significantly undercut the stock's value. However, market analysts foresee possible improvements as the company extricates itself from supply chain predicaments that have plagued recent quarters.

The automaker's upbeat forecast serves as a glimmer of hope for a sector grappling with the adverse effects of inflated costs, sagging consumer interest, and price reductions aimed at stirring demand. In a departure from the norm, RIVN has opted not to lower prices, choosing instead to manufacture its Enduro powertrains in-house, a decision aimed at decreasing supplier dependence and cost overheads.

Despite delivering vehicles for eight consecutive quarters, the company still posts negative gross margins. RIVN's immediate priority is achieving a positive gross margin, which will place it on the path to operating profit. This feat, however, cannot be accomplished until gross profits outperform rising operating expenditures, currently estimated at an average of about $1 billion per quarter.

Following this, RIVN needs to generate sufficient operational profit and cash flow to fund its CAPEX, consequently transitioning RIVN to cash flow positivity. Achieving this landmark will require a minimum of five years, given that sales of R1 and EDV models alone will not secure profitability or positive cash flow. The successful launch and profitable scaling of the R2 model by 2026 is integral to the realization of this goal.

Its primary challenge is attaining positive free cash flow to sustain growth independent of balance sheet reserves. Although the financial outlook has improved, there are enduring concerns over whether its $7.94 billion cash reserve, as of September 2023, would suffice, considering that RIVN postponed previously anticipated CAPEX this year. An initial CAPEX projection of $2 billion in 2023 has been revised to $1.1 billion.

RIVN can leverage capital markets for additional funding. While debt financing may not be the most attractive approach amid the prevailing high-interest-rate climate, interest rates could potentially decrease by the time RIVN finds a pressing need for such resources, likely not before 2026. Another plausible circumstance suggests that an increased valuation for RIVN could render equity financing a more appealing strategy to accrue funds instead of accumulating debt.

In either case, it's noteworthy to mention the company’s commendable efforts toward curbing its cash burn rate. Investors are advised to keep a vigilant eye on RIVN's financial activities in the coming year to monitor whether this trend sustains. An unforeseen increase in cash burn over a span of a few quarters would not necessarily amount to a significant detriment to the firm, given the time it has before the requirement to inject more capital arises.

Keeping these considerations in mind, investors should wait for a better entry point into the stock.

 

High Stakes: Can Tesla (TSLA) and Netflix (NFLX) Surpass Earnings Expectations?

Posted on by The INO.com Team

Tesla, Inc. (TSLA), the undisputed leader in EVs, is scheduled to release its fiscal 2023 second-quarter results on July 19 after the closing bell. Analysts expect TSLA’s revenue to increase 45.7% year-over-year to $24.67 billion for the quarter that ended June 2023.
The consensus earnings per share (EPS) estimate of $0.82 for the about-to-be-reported quarter indicates an increase of 8.2% year-over-year. For the fiscal year ending December 2023, the EV maker’s revenue and EPS are expected to increase 24% and decrease 13.2% year-over-year to $100.98 billion and $3.53, respectively.

Streaming giant Netflix, Inc. (NFLX) is also set to report its second-quarter earnings after the market close on July 19, kicking off media earnings season. The company is expected to put light on its subscriber momentum, the progress of its cheaper advertising tier, and the impact of its password-sharing crackdown.

Analysts expect NFLX’s revenue for the fiscal second quarter (ended June 30, 2023) to increase 3.9% year-over-year to $8.26 billion. However, the consensus EPS estimate of $2.86 for the same quarter indicates a decline of 10.8% year-over-year.
In addition, the company’s revenue and EPS for fiscal year 2023 are expected to grow 7.7% and 13.5% year-over-year to $34.06 billion and $11.29, respectively.

Let’s analyze each stock and determine the chances of them surpassing analysts’ expectations:

TSLA designs, develops, manufactures, and sells electric vehicles (EVs) and energy generation and storage systems in the United States, China, and internationally. The company operates through two segments: Automotive; and Energy Generation and Storage.

TSLA recently released its second-quarter production and delivery numbers, easily beating estimates as the effects of the company’s price cuts, coupled with federal EV tax credits, boosted sales.

In April, the EV maker slashed prices of some of its Model Y and Model 3 EVs in the United States, the sixth time of lowering U.S. prices this year. TSLA’s Model Y “long range” and “performance” vehicles prices were cut by $3,000 each, and that of its Model 3 “rear-wheel drive” by $2,000 to $39,990.
Further, the Elon Musk-led company lowered prices in Europe, Israel, and Singapore along with Japan, Australia, and South Korea, expanding a discount drive it commenced in China in January to drive demand.

During the second quarter, TSLA produced approximately 480,000 vehicles and delivered nearly 466,000 vehicles. The delivery figures easily beat Wall Street consensus estimates of 448,599 units and the previous quarter’s total of 422,875. Both production and delivery figures for the second quarter were all-time records for the company.

Yet, TSLA, earlier in April, reported a 4% sequential increase in deliveries in the first quarter and a 17.8% sequential rise during the fourth quarter.
Furthermore, TSLA is rapidly expanding its Supercharger network with industry competitors. On July 7, German luxury giant Mercedes-Benz (MBG.DE) became the latest to join Tesla’s Supercharger network. Beginning in 2024, Mercedes-Benz electric vehicle owners would get access to 12,000 Tesla Superchargers across North America via the use of an adapter.

In 2025, new Mercedes EVs in North America would have TSLA’s North American Charging Standard (NACS) port built into the cars for access to the Supercharger network. This deal with Mercedes is similar to TSLA’s other charging partnerships with other automakers, Ford Motor Company (F), General Motors Company (GM), Rivian Automotive, Inc. (RIVN), and Volvo ADR (VLVLY).

On May 26, TSLA and F announced a surprise deal on electric vehicle charging technology and infrastructure. Under the agreement, Ford owners will get access to more than 12,000 Tesla Superchargers across the U.S. and Canada starting early next year.

In addition, GM followed crosstown rival F in partnering with TSLA to use its North American charging network and technologies. Under this deal, GM owners will get access to Tesla’s 12,000 fast chargers using an adapter and its EV charging app beginning the following year.
Signing on additional partners to TSLA’s charging network is expected to be a boon for the EV maker’s top line. According to Piper Sandler analyst Alexander Potter, charging deals from partners could add upward of $3 billion in revenue by 2030 and up to $5.40 billion by 2032.
The company’s first-quarter revenue of $23.33 billion was slightly below Wall Street estimates of $23.35 billion. It reported a gross margin of 19.3%, compared to 29.1% in the same period in 2022, as the cost of several price cuts hit its profitability.

Furthermore, TSLA’s net income was $2.51 billion for the first quarter, a decline of 24% year-over-year, and its EPS decreased 23% year-over-year to $0.73. TSLA’s CEO, Elon Musk, also indicated that the company would prefer higher volumes to higher margins.

Analysts continue to ring warning bells on the company’s profit margins. Gary Black, co-founder and managing partner of Future Fund expects TSLA’s adjusted EPS for the second quarter to be around $0.87, higher than the prior quarter’s $0.85 and the year-ago quarter’s $0.76. The consensus estimate stands at $0.82 per share.

However, Gary Black predicts the company’s gross margin to contract as it had offered discounts on its vehicles to boost sales.
Another stock that gears for second-quarter earnings this week is NFLX. The company offers entertainment services. It provides TV series, feature films, documentaries, and mobile games across various genres and languages.

In May, after ignoring password sharing for many years, the streaming company expanded its crackdown on password sharing across the United States and more than 100 other countries, alerting users that their accounts cannot be shared for free outside their households. It also stated that an additional fee of $7.99 per month would be charged for shared passwords in the United States.

Since the company told its users they could no longer share accounts across multiple households, daily U.S. sign-ups for the streaming service climbed by the most in at least four and a half years. According to data from the analytics platform Antenna, between May 25-28, Netflix witnessed the four single-largest days for signing up of U.S. customers since the firm began tracking this data in 2019.

During that time, NFLX saw nearly 100,000 daily sign-ups on two of the days, based on the report from Antenna.

Furthermore, the streaming giant’s ad-supported tier began to show signs of life six months following its debut. NFLX revealed that its ad-supported tier garnered five million active users globally, with sign-ups having more than doubled since early this year. The company stated that more than a quarter of new signups opt for the ad-supported plan in countries where it is offered.

During the first quarter of 2023 that ended March 31, NFLX reported mixed first-quarter results, missing Wall Street subscriber estimates while surpassing analysts’ EPS estimates. The company reported an EPS of $2.88 compared to the consensus estimate of $2.86. While its revenues increased 3.7% year-over-year to $8.16 billion, it missed the consensus estimate of $8.18.

For the first quarter, NFLX added 1.75 million streaming subscribers, which fell short of the analyst estimate of 2.06 million additions. However, its average paid memberships increased 4% year over year, while the paid net adds were 1.75 million for the quarter compared to a negative 0.2 million in the prior-year quarter. Also, its non-GAAP free cash flow rose 164% from the year-ago value to $2.12 billion.

In recent days and weeks, several analysts have raised their price targets on NFLX’s stock. One central theme across Wallstreet is an expectation of optimistic updates on the progress of the company’s password-sharing crackdown and advertising tier rollout.

TD Cowen analyst John Blackledge said, “Netflix’s paid sharing coupled with the ad tier rollout should drive long-term revenue upside, and the launch of paid sharing in the second quarter of 2023 along with the ramping ad tier should help drive membership and revenue growth in the second half of 2023.”
The TD Cowen analyst forecasts net subscriber growth of 2.37 million during the second quarter, compared with a consensus estimate of around 1.70 million, and “revenue re-acceleration” in the second half of 2023. John Blackledge reiterated his “outperform” rating and $500 stock price target.

Also, UBS analyst John Hodulik increased his stock price target from $390 to $525 while maintaining his Buy rating.

Hodulik stated, “We continue to believe paid sharing will drive 5 percent-plus uplift to revenue and see the roll-out as key to driving scale in advertising with the growth in the ad-tier mix and better targeting. Netflix eliminated its basic ad-free tier in Canada (and de-emphasized in the U.S.), which we estimate could provide a 10 percent uplift to average revenue per user over time and should help scale the ad base faster than prior expectations.”

The UBS analyst raised his estimates and predicted second-quarter financials would surpass management’s guidance, adding that he and his team “still expect accelerating second-half growth.” Hodulik expects 3.60 million net subscriber gains in the about-to-be-reported quarter and 6.50 million in the third quarter.

Bottom Line

EV giant TSLA’s better-than-expected delivery and production figures for the second quarter will likely boost the company’s second-quarter earnings. However, concerns still revolve around the impact on margins due to discounts Tesla offered on its new vehicles across different regions. But vehicle prices stabilized in the second quarter after substantial reductions announced earlier in the year.
While streaming company NFLX took a hit after reporting its first subscriber loss in a decade last year and mixed financials in the first quarter of 2023, there are higher chances of beating analysts’ estimates for the second quarter, with rising expectations of positive updates on the company’s progress on the password-sharing crackdown and advertising tier rollout.

Can Tesla (TSLA) and Netflix (NFLX) Surpass Earnings Expectations?

Posted on by The INO.com Team

Tesla, Inc. (TSLA) , the undisputed leader in EVs, is scheduled to release its fiscal 2023 second-quarter results on July 19 after the closing bell. Analysts expect TSLA’s revenue to increase 45.7% year-over-year to $24.67 billion for the quarter that ended June 2023.

The consensus earnings per share (EPS) estimate of $0.82 for the about-to-be-reported quarter indicates an increase of 8.2% year-over-year. For the fiscal year ending December 2023, the EV maker’s revenue and EPS are expected to increase 24% and decrease 13.2% year-over-year to $100.98 billion and $3.53, respectively.

Streaming giant Netflix, Inc. (NFLX) is also set to report its second-quarter earnings after the market close on July 19, kicking off media earnings season. The company is expected to put light on its subscriber momentum, the progress of its cheaper advertising tier, and the impact of its password-sharing crackdown.

Analysts expect NFLX’s revenue for the fiscal second quarter (ended June 30, 2023) to increase 3.9% year-over-year to $8.26 billion. However, the consensus EPS estimate of $2.86 for the same quarter indicates a decline of 10.8% year-over-year.

In addition, the company’s revenue and EPS for fiscal year 2023 are expected to grow 7.7% and 13.5% year-over-year to $34.06 billion and $11.29, respectively.

Let’s analyze each stock and determine the chances of them surpassing analysts’ expectations:

TSLA designs, develops, manufactures, and sells electric vehicles (EVs) and energy generation and storage systems in the United States, China, and internationally. The company operates through two segments: Automotive; and Energy Generation and Storage.

TSLA recently released its second-quarter production and delivery numbers, easily beating estimates as the effects of the company’s price cuts, coupled with federal EV tax credits, boosted sales.

In April, the EV maker slashed prices of some of its Model Y and Model 3 EVs in the United States, the sixth time of lowering U.S. prices this year. TSLA’s Model Y “long range” and “performance” vehicles prices were cut by $3,000 each, and that of its Model 3 “rear-wheel drive” by $2,000 to $39,990.

Further, the Elon Musk-led company lowered prices in Europe, Israel, and Singapore along with Japan, Australia, and South Korea, expanding a discount drive it commenced in China in January to drive demand.

During the second quarter, TSLA produced approximately 480,000 vehicles and delivered nearly 466,000 vehicles. The delivery figures easily beat Wall Street consensus estimates of 448,599 units and the previous quarter’s total of 422,875. Both production and delivery figures for the second quarter were all-time records for the company.

Yet, TSLA, earlier in April, reported a 4% sequential increase in deliveries in the first quarter and a 17.8% sequential rise during the fourth quarter.

Furthermore, TSLA is rapidly expanding its Supercharger network with industry competitors. On July 7, German luxury giant Mercedes-Benz (MBG.DE) became the latest to join Tesla’s Supercharger network.
Beginning in 2024, Mercedes-Benz electric vehicle owners would get access to 12,000 Tesla Superchargers across North America via the use of an adapter.

In 2025, new Mercedes EVs in North America would have TSLA’s North American Charging Standard (NACS) port built into the cars for access to the Supercharger network. This deal with Mercedes is similar to TSLA’s other charging partnerships with other automakers, Ford Motor Company (F), General Motors Company (GM), Rivian Automotive, Inc. (RIVN), and Volvo ADR (VLVLY).

On May 26, TSLA and F announced a surprise deal on electric vehicle charging technology and infrastructure. Under the agreement, Ford owners will get access to more than 12,000 Tesla Superchargers across the U.S. and Canada starting early next year.

In addition, GM followed crosstown rival F in partnering with TSLA to use its North American charging network and technologies. Under this deal, GM owners will get access to Tesla’s 12,000 fast chargers using an adapter and its EV charging app beginning the following year.

Signing on additional partners to TSLA’s charging network is expected to be a boon for the EV maker’s top line. According to Piper Sandler analyst Alexander Potter, charging deals from partners could add upward of $3 billion in revenue by 2030 and up to $5.40 billion by 2032.

The company’s first-quarter revenue of $23.33 billion was slightly below Wall Street estimates of $23.35 billion. It reported a gross margin of 19.3%, compared to 29.1% in the same period in 2022, as the cost of several price cuts hit its profitability.

Furthermore, TSLA’s net income was $2.51 billion for the first quarter, a decline of 24% year-over-year, and its EPS decreased 23% year-over-year to $0.73. TSLA’s CEO, Elon Musk, also indicated that the company would prefer higher volumes to higher margins.

Analysts continue to ring warning bells on the company’s profit margins. Gary Black, co-founder and managing partner of Future Fund expects TSLA’s adjusted EPS for the second quarter to be around $0.87, higher than the prior quarter’s $0.85 and the year-ago quarter’s $0.76. The consensus estimate stands at $0.82 per share.

However, Gary Black predicts the company’s gross margin to contract as it had offered discounts on its vehicles to boost sales.

Another stock that gears for second-quarter earnings this week is NFLX. The company offers entertainment services. It provides TV series, feature films, documentaries, and mobile games across various genres and languages.

In May, after ignoring password sharing for many years, the streaming company expanded its crackdown on password sharing across the United States and more than 100 other countries, alerting users that their accounts cannot be shared for free outside their households. It also stated that an additional fee of $7.99 per month would be charged for shared passwords in the United States.

Since the company told its users they could no longer share accounts across multiple households, daily U.S. sign-ups for the streaming service climbed by the most in at least four and a half years.According to data from the analytics platform Antenna, between May 25-28, Netflix witnessed the four single-largest days for signing up of U.S. customers since the firm began tracking this data in 2019.

During that time, NFLX saw nearly 100,000 daily sign-ups on two of the days, based on the report from Antenna.

Furthermore, the streaming giant’s ad-supported tier began to show signs of life six months following its debut. NFLX revealed that its ad-supported tier garnered five million active users globally, with sign-ups having more than doubled since early this year. The company stated that more than a quarter of new signups opt for the ad-supported plan in countries where it is offered.

During the first quarter of 2023 that ended March 31, NFLX reported mixed first-quarter results, missing Wall Street subscriber estimates while surpassing analysts’ EPS estimates. The company reported an EPS of $2.88 compared to the consensus estimate of $2.86. While its revenues increased 3.7% year-over-year to $8.16 billion, it missed the consensus estimate of $8.18.

For the first quarter, NFLX added 1.75 million streaming subscribers, which fell short of the analyst estimate of 2.06 million additions. However, its average paid memberships increased 4% year over year, while the paid net adds were 1.75 million for the quarter compared to a negative 0.2 million in the prior-year quarter. Also, its non-GAAP free cash flow rose 164% from the year-ago value to $2.12 billion.

In recent days and weeks, several analysts have raised their price targets on NFLX’s stock. One central theme across Wallstreet is an expectation of optimistic updates on the progress of the company’s password-sharing crackdown and advertising tier rollout.

TD Cowen analyst John Blackledge said, “Netflix’s paid sharing coupled with the ad tier rollout should drive long-term revenue upside, and the launch of paid sharing in the second quarter of 2023 along with the ramping ad tier should help drive membership and revenue growth in the second half of 2023.”

The TD Cowen analyst forecasts net subscriber growth of 2.37 million during the second quarter, compared with a consensus estimate of around 1.70 million, and “revenue re-acceleration” in the second half of 2023. John Blackledge reiterated his “outperform” rating and $500 stock price target.

Also, UBS analyst John Hodulik increased his stock price target from $390 to $525 while maintaining his Buy rating.

Hodulik stated, “We continue to believe paid sharing will drive 5 percent-plus uplift to revenue and see the roll-out as key to driving scale in advertising with the growth in the ad-tier mix and better targeting. Netflix eliminated its basic ad-free tier in Canada (and de-emphasized in the U.S.), which we estimate could provide a 10 percent uplift to average revenue per user over time and should help scale the ad base faster than prior expectations.”

The UBS analyst raised his estimates and predicted second-quarter financials would surpass management’s guidance, adding that he and his team “still expect accelerating second-half growth.” Hodulik expects 3.60 million net subscriber gains in the about-to-be-reported quarter and 6.50 million in the third quarter.

Bottom Line

EV giant TSLA’s better-than-expected delivery and production figures for the second quarter will likely boost the company’s second-quarter earnings. However, concerns still revolve around the impact on margins due to discounts Tesla offered on its new vehicles across different regions. But vehicle prices stabilized in the second quarter after substantial reductions announced earlier in the year.

While streaming company NFLX took a hit after reporting its first subscriber loss in a decade last year and mixed financials in the first quarter of 2023, there are higher chances of beating analysts’ estimates for the second quarter, with rising expectations of positive updates on the company’s progress on the password-sharing crackdown and advertising tier rollout.