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Tesla, Twitter, Microsoft shares over and under-react

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.

AMAZON NEXT

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.


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