Stocks have been struggling for direction, getting pulled downward by fears about the economy and then seeing big jumps when investors get a little less pessimistic. Thursday appeared to be a somewhat more upbeat day, as markets opened slightly higher, defying early declines in stock index futures in the premarket session.
Two of the most anticipated earnings releases of the week both came out late Wednesday, and shareholders have had a chance to digest what Tesla (TSLA 0.01%) and Netflix (NFLX 2.44%) said about their respective results. The news wasn't all good, though, and market participants have to weigh both positive and negative factors in figuring out what the two companies' reports say about the broader economy.
Tesla hits a roadblock
Shares of Tesla were down 6% early Thursday, adding to Wednesday's 5% loss. Even though investors had an inkling that the EV pioneer's third-quarter financial results would show some challenges because of the production and delivery figures that it had reported at the beginning of October, Tesla's final numbers were nevertheless disappointing to some.
Tesla's numbers showed that even it is subject to the challenges of the macroeconomic environment. Total revenue still managed to rise 9% year over year to $23.35 billion, with auto-related sales climbing at a more modest 5% pace to $19.63 billion. However, a whopping 43% jump in operating expenses hit the bottom line hard, as adjusted net income of $2.32 billion was down 37% from year-ago levels. That worked out to adjusted earnings of $0.66 per share.
Tesla pointed to several factors that affected revenue growth, most notably reduced average selling prices of its vehicles compared to year-ago levels. That's been reflected in pricing decisions that Tesla has made, and the company also pointed to research and development expenses related to the Cybertruck rollout and various artificial intelligence (AI) initiatives in boosting expenses. Factory upgrades also increased idle time, which weighed on levels of business activity and in turn hurt profits.
Even with the slowdown, Tesla still has more than $26 billion in cash and investments on its balance sheet. That gives it plenty of flexibility to pursue projects like AI without worrying about having to tap capital markets, and Tesla therefore has a huge advantage over rivals that aren't nearly as well capitalized to take advantage of opportunities in the industry.
Netflix boosts prices
Meanwhile, shares of Netflix soared 15% early Thursday. The video streaming giant reported its third-quarter financial results, and it also made a big business move that shows its confidence in having the pricing power to force customers to pay more for its service.
Netflix had a strong quarter. Revenue climbed nearly 8% year over year to $8.54 billion. Net income saw even faster growth, rising 20% to $1.68 billion, with earnings coming in at $3.73 per share.
Netflix's business metrics were also encouraging. Subscription growth accelerated to nearly 11%, as the company's crackdown on password sharing apparently kept gaining momentum. Netflix now has more than 247 million subscribers worldwide, up by more than 24 million over the past 12 months, and added 8.76 million in just the past three months.
Perhaps most encouragingly, Netflix announced another price increase, boosting the price of its premium package by $3 per month to $22.99. Those who are grandfathered in to the basic plan will see a $2 rise to $11.99 per month, while the standard plan will stay the same at $15.49 per month. The ad-supported tier at $6.99 per month is also unchanged. Similar price increases will also happen in the U.K. and France.
With so much competition in streaming, it says a lot that Netflix has the confidence to boost prices. So far, past price increases haven't led to huge levels of churn, so if customers stand pat this time around as well, it will really show the value of what Netflix has built.
