Somewhere between "numbers don't lie" and "there are lies, damn lies, and statistics" sits the truth that earnings reports, while a marvelous chance to peek under the hood of companies, don't entirely give the whole story.

Take, for example, Facebook (NASDAQ:FB). Its headline results were just the sort of thing Wall Street likes to see, with beats on both profit and revenue. Same at American Airlines (NASDAQ:AAL), where profit was higher than expected, passenger traffic was up, and management raised the full-year guidance range.

But as MarketFoolery host Chris Hill and senior analyst Jim Mueller note, there are reasons to be concerned about both. And as for Tesla (NASDAQ:TSLA), which underperformed, the warning signs are more ominous than even its weak numbers would indicate. In this podcast, the guys will dig into all three of those reports, and also discuss how they see the streaming video market evolving over the next few years.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on July 25, 2019.

Chris Hill: It's Thursday, July 25. Welcome to MarketFoolery! I'm Chris Hill. Joining me in studio, Jim Mueller, investor at large. Thanks for being here!

Jim Mueller: Hey, Chris! How are you doing? 

Hill: I'm good! We've got airlines, we've got automotive, we've got video streaming. We're going to start with the social network. Facebook's second quarter profits came in higher than expected. Daily active users are closing in on 1.6 billion. There are always so many numbers with Facebook. What stood out to you in this quarter?

Mueller: What stood out to me was the announced settlement with the FCC, actually --

Hill: FCC or FTC?

Mueller: FTC. Always get those U.S. department --

Hill: It's understandable. There are a few regulatory bodies that are sniffing around Facebook.

Mueller: Yeah. So, expectations for revenue about $16.5 billion, Facebook reported $16.9. Up about 28% year over year. They beat adjusted earnings guidance estimates by $0.12, reporting $1.99; 2.7 billion monthly users across its suite of apps. U.S. and Canada daily users up slightly. Europe was flat, about 290 million. But what surprised me was the revenue per user. The average revenue per user was up 18% to over $7 per user. There's a lot of incentive to get a lot of users on Facebook's platform, and that's part of the issue.

Hill: As we've talked about before, all you have to do is go to any advertising trade publication, do a Google search, a news search for chief marketing officers of major brands, major corporations. Facebook is delivering for advertisers. When that changes -- I don't want to discount across the river, where there's a number of regulatory bodies that are looking into Facebook. That is something that is going to have a real cost, not in terms of fines, but in terms of lawyers and staff hours and all of that. I don't want to discount that. But I think that as long as the advertisers are happy with the way Facebook is delivering for them, then this is not a business in trouble.

Mueller: No, not really. A lot of this is Facebook's own fault. The $5 billion settlement, which sounds like a lot of money, and it is, but Facebook brought in $16 billion in revenue in just three months, $5 billion payout, they've already set aside $3 billion and have almost $50 billion on the books. It's not going to hurt them. It's 3.3 months of free cash flow, for goodness' sake. But the whole thing was over Facebook breaking previous promises about not doing bad things. They've long been turning users into product. They had promised to stop sharing user data, but they didn't. They had promised to stop using phone numbers for advertising purposes. They didn't. And all this other stuff. They're shooting themselves in the foot. 

But as that $7 per user number points out, there's a lot of money driving that kind of behavior. Whether Facebook can pivot to where they can satisfy regulators, satisfy their users about privacy concerns, and still make an equally large amount of money, is a big issue for the company. We're going to have to see how that plays out.

Hill: Over the last two years, they've done a better job of monetizing Instagram.

Mueller: Right. Instagram and WhatsApp. I don't know what all they have, Messenger, is that the name of it? The messaging app?

Hill: Yeah.

Mueller: They're gung ho on stories. There's more people turning to stories, and they'll figure out how to monetize that. 

I don't have a Facebook account, partly because I don't trust the company. I think that is a potential issue for the company, if they continue to say one thing and do another. I don't think that'll destroy the company, but it might make advertisers start looking elsewhere if the company's reputation gets damaged badly enough.

Hill: Shares of Tesla are down 13% this morning after Tesla's second quarter loss was bigger than expected. Their revenue was also a little bit light. This has long been one of those businesses that you feel like, if the revenue number was higher, maybe the stock isn't dropping the way it is. But there just seemed like a lot of challenges on a lot of fronts. As has been the case for a couple of years now with Tesla, the clock is ticking.

Mueller: Definitely ticking. I'll say up front, I'm actually short Tesla the company via options. I'm not short because I hate Tesla or I hate Musk and I want them to fail and I'm cheering all their troubles. No. I think the company is fundamentally in trouble. For example, they were ballyhoo-ing the $614 million of free cash flow they generated this quarter. But where did that free cash flow come from? Well, they spent capex, capital expenditures, investments in equipment in such, less than half of what they depreciated. They're not even spending enough to maintain what they have. And they drew down inventory by some $450 million. That's also not sustainable. It's not what a growing company needs to do. They need to invest not only to maintain the equipment, but to buy more equipment to keep on growing. And if you're not doing that, you're not going to be a growing company. 

In addition, they lowered the price of their Model 3s, which is supposed to be the car that is going to drive them forward, pun intended. But the question is, have they lowered it too much? Have they lowered the cost of making those things at the same rate percentage-wise as they've lowered the selling price? Probably not, because the margin's gone down. Once you lower the price, it's really hard to raise it back up. Are you selling cars for less than they cost to make? If you are, that's totally not sustainable.

Hill: Thank you for going into that level of depth because I think it's important that, look, name me a CEO out there who's more of a hot button leader than Elon Musk. I don't think there's anyone else out there who people have strong opinions about. When you essentially back Musk out of the equation -- and we'll get back to him in a second -- and just look at, where is the money going with this business? Put aside whatever you think about Elon Musk and look at, what are they doing in terms of spending money? What direction are their margins going in? All that sort of thing. And you pull back from that, and you just see a lot of things that you don't want to see. I forget which analyst said it -- there were a bunch of analyst notes that came out this morning. I'm paraphrasing here. I think it might have been Morgan Stanley. But it was essentially, "There's just not a lot to like in this quarter," referring to a lot of the things that you just referred to.

Mueller: Right. They want to launch the Model Y, which is the next generation of their car. But that requires production spending ahead of the actual building of the cars, because they have to get the plant build the Y. If the Model 3 is using up all their capacity already, and it is, where they're going to build the Y? If you lower your capital expenditure spending, you're not building plant to build this new Y. Then how can you rely upon the Y coming in and helping the company grow further? Yeah, there's a lot of questions aside from management and aside from electric cars saving the world and everything else. Aside from all that emotional stuff, just looking at the numbers raises a lot of questions.

Hill: And yet, and we'll wrap up with this, because it's Elon Musk leading the company, and his ability in the past to raise money, to pull a rabbit out of a hat, that sort of thing, this is why I wouldn't short the stock. That's just me. You're a more experienced investor than I am.

Mueller: [laughs] Well, maybe I'm a stupider investor than you. 

Hill: [laughs] No, you're a better investor than I am, and you're certainly more experienced with options. But it is going to be interesting to see. As I said, the clock is ticking. I think in the next three months, one thing to watch is what conversation is there, if any, about raising money? Whether it's another round, or --

Mueller: They did say they felt they were self-sustaining now, without having to raise money. But they've said that before, too. One last point I'd like to raise is, Elon Musk has lost another one of his long-term lieutenants. Chief technology officer J. B. Straubel, it was announced that he was leaving the company, to become an advisor, whatever that means. But he's been there since 2003. He's one of the longest-term C-level officers to leave. That can't help Musk.

Hill: Yeah, that's another narrative working against this business. 

American Airlines' second quarter profits came in higher than expected. They raised guidance for the full fiscal year. That is the one-two punch we like to see. And yet the shares of American Airlines are down about 3%. That's not falling through the floor, but I'm only slightly surprised at this.

Mueller: It was a good quarter. Passenger traffic was up. That's what drove all of this. And American Airlines raised the bottom end of their guidance. It was a $4-6 range, and now it's $4.50-$6.50 range per share for the full year. They reported about $12 billion in revenue. Basically matching expectations. That's up a little less than 3%. They beat EPS expectations by $0.03. Their net income level of $662 million was up almost 19% year over year. Traffic was higher. The term is passenger load factor, it's basically, how many people are in the seats of all possible seats that they have. That's 86.6%. That's up 3.8% year over year. That's really what was driving this. And then they have another metric -- well, I won't go into that. It's a little too far into the weeds. But basically, they've seen 11 straight quarters of improvement for this metric. That's pretty good. That doesn't happen very often. 

But what's hurting the company, and still has a lot of uncertainty, and which might be playing into the share price drop this morning, is that 737 Max continues to be sitting on the tarmac, not doing its job of flying people around the country and around the world. The airline has 24 in its fleet, and as was supposed to get seven more this quarter. About 10% or 9% of their order book of 76. But, not being able to fly them hurt them to the tune of about $175 million in pre-tax income this quarter. That is about 17% of what they would have earned if the Max was flying. For the full year, $400 million they're not getting. And that hurts. 

Hill: The story of the airline industry in 2019, I think at the end of the year, when we do our look-back show, this is going to be one of the dominant storylines of 2019, is the Boeing 737 Max. I was watching an interview this morning, Southwest Airlines also reported this morning, Southwest has more 737 Max planes in their fleet, which means they have more grounded. It's a greater impact. Gary Kelly, the CEO at Southwest, was doing a very nice job, a very polite job, of holding in his frustration, but he is clearly very frustrated. If you read a transcript, he's saying things like, "We're not happy about this," and it's been interesting to watch over the last six months CEOs like Gary Kelly and others go from, in the immediate aftermath of the second 737 Max crash, statements of support of Boeing, trust in Boeing, and they are all starting to back away. Very slowly, they're all starting to back away. And there's no reason for them to publicly negotiate with Boeing, but you have to believe that behind closed doors --

Mueller: Oh, there's loud voices, I'm sure.

Hill: [laughs] Loud voices, possibly some profanity. Essentially, as we've said for a while now, the longer this drags on, the greater the ability of airlines in the United States to say to Boeing some version of, "What are you going to do to make me stop from going over to Airbus and taking my business there?"

Mueller: Yeah, exactly. And it's going to continue for a few more months, at least. I looked up what Boeing was saying. They released earlier this week. They're saying, "We're still working with the FAA and other regulators," I got that one right. FAA. "We're still working with FAA and other regulators around the world to make sure all the certifications and the software upgrades and everything meets what everyone's asking for," and they expect to submit their final package sometime in September. Which could slip if the regulators say, "No, you need to fix this, you need to look at that," and so on. It just pushes it further out in the year. And they're saying they might be able to get the grounding lifted as early as early calendar Q4 this year, which puts it in October, November range. That means many more months -- three, four, five more months -- of airlines losing money by not being able to fly those planes.

Hill: The good news for airlines, I guess, is that not a lot of people travel in November and December.

Mueller: [laughs] Yeah. Right.

Hill: Quick shout out to our man Willie down in Norfolk, Virginia. Hang in there, Willie!

Also, shout out to our man behind the glass -- well, our man behind the glass is producer Dan Boyd, producer extraordinaire. But joining him today also, one of our members, Desmond Walker, hanging out with us. [claps] Desmond, thank you so much for being here! 

Real quick, before we wrap up. I said that the other day, this is my favorite week of the year and it happens four times a year because so many companies are reporting. Comcast (NASDAQ:CMCSA) came out with their second quarter report and I was struck not necessarily by their results, but by the fact that Comcast, which owns NBC Universal, they said April 2020, that's when the NBC streaming service is going to launch. They provided virtually no other details beyond that. I don't blame them. But I'm curious. You're someone who keeps a close eye on the streaming video industry. I said this to you this morning, it's really turning into a rock fight right now. There are more companies coming out there. What do you see when you look at streaming right now?

Mueller: I don't think the rocks being thrown around are very big. [laughs] At least against the three giants. Last month I went up to New York overnight to attend the Kagan Media Summit for 2019. They presented a really interesting chart of the streamers. If you put out a bar chart of the streaming channels out there -- Netflix, Amazon, WWE, all of them -- you've got three big ones for the U.S. Amazon, about 63 million. Bar about two feet wide, for our non-visually --

Hill: [laughs] I was going to say, you know it's an audio podcast, right?

Mueller: Yes, I know. I just remembered that. [laughs] Netflix, pretty close at 58 million in the U.S. Hulu, about 23 million, so about half the other two. And then you have to squint to see everything else. HBO NOW is the biggest at a little over six million, one-tenth of what Amazon has. And then it goes down from there. Showtime, four million. CBS All Access, four million. Starz, three million and a half. Crunchyroll, an anime one, a favorite of mine and my wife's, one million and a half.

Hill: I'm sorry, Crunchyroll?

Mueller: Crunchyroll, yeah. Anime, it's good stuff!

Hill: I know what anime is, I've just never heard of Crunchyroll. Go on!

Mueller: Now you have. WWE Network, one million. And they have even smaller ones. So, there's a lot of little ones out there and a few big giants. NBC Universal, yeah, they're going to get The Office when the deal with Netflix expires at the end of 2020, which means, dozens of listeners, you have another 18 months to binge it on Netflix. But that's the story in the news. "The Office is leaving, Netflix is going down in flames!"

Hill: Friends, too.

Mueller: Friends, too. Big deal! That's Reed Hastings' response, pretty much. They have a lot of other content they feel is good enough to keep people coming in. That is what's driving everything, who has content you want to watch. NBC Universal will have The Office, of course. But they also said that they're going to have to get a lot of third party content, at least at the start, to fill the streaming pipes.

Hill: Promise me you're going to go to this same event in a year. Because in a year, they will presumably present data that includes Disney+, Apple TV+, we will by then know what NBC's plan is for their streaming service, they will have launched by then, or at least that's their plan. Good luck to them if they haven't launched by then. We'll have more information. And I agree with you. I think the concerns for Netflix in the short term are being overblown. I think that if you look out over the next five to 10 years, that's where the greater risk lies.

Mueller: There's going to be several winners, big winners, quite a handful of smaller winners, and quite possibly a fair amount of consolidation once it all shakes out and the costs of running a streaming service and paying for all the content and not being able to make it up on the revenue -- Disney expects to lose money on Disney+ for several years. But they have everything else Disney does to support that. That's what Netflix did when they did the streaming. They had the DVD by mail business. Remember that? That was a big cash cow for them. And they used that to support their streaming. And once they got the streaming going, and it's now profitable in the U.S. and Canada, and they would use that profitability to support the next launch. NBC Universal, Comcast is going to have to support whatever they're calling it. Did they give a name?

Hill: I want to say it's NBC Universal+, but I could be wrong about that. I just assume everyone's adding a plus. I assume there's a plus in there somewhere.

Mueller: [laughs] Sounds good! But, they're going to have to suffer through one, two, three years of not making money before they can make money off of just the streaming service. And if you don't have the backing of something else to support you, you're not going to make it very far and you'll be gobbled up by somebody else. And even if you do, if it's really small and you only have a million members, you still might be gobbled up. 

Hill: It'll be fun to watch!

Mueller: Oh, yeah!

Hill: Jim Mueller, thanks for being here!

As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal record recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery! The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you on Monday!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.