By Paul R. La Monica, CNN Business
Elon Musk now wants to buy Twitter after all. While this is good news for long-suffering Twitter shareholders, Tesla investors are hoping there is still time for them. They also need a little help.
Of course, Musk still has plenty of fans on Wall Street and behind the wheel. But some are fed up with how the richest person in the world can’t focus more on the business that provided them with the bulk of their wealth.
Tesla reports results after Wednesday’s close. Shares are down more than 35% this year on concerns that Tesla recently announced weaker-than-expected third-quarter production and delivery numbers.
Wall Street still expects extremely strong sales and earnings growth, with consensus forecasts calling for a more than 60% increase in revenue and earnings. But analysts have cut those estimates in recent weeks.
That’s partly because Tesla faces increasing competition in the United States from GM, Ford, Volkswagen and other EV newcomers such as Rivian and Lucid.
There are also big challenges in China, with Tesla taking on local rivals like Nio, Xpeng and Li Auto. There’s also BYD, a Chinese auto company backed by Warren Buffett’s Berkshire Hathaway.
To be fair, the entire automotive sector is struggling this year due to growing concerns about a global recession, soaring energy prices and, of course, tough competition.
All major US, European and Japanese automaker stocks are down about 20% to 45% this year. And shares of pure play electric vehicle companies (in the US and China) have each fallen by around 60% to 80% in 2022.
too many distractions
Gary Black, managing partner of the Future Fund and Tesla shareholder, was Tweeter For the past few weeks, concerns about Twitter have been a headache for Tesla investors.
In a tweet, Black said there are several problems for Tesla due to Twitter. Two of the biggest? The overhang of a potential Tesla stock sale by Musk to fund the deal and distraction for Musk, especially since “Elon’s main skill is engineering/tech” and Twitter is more of a media company focused on advertising.
Tesla also doesn’t have a chief operating officer. That means Musk has to take a hands-on approach at Tesla while being distracted by his many other businesses, such as SpaceX, The Boring Company, Neuralink and potentially Twitter.
The disappointing shipments and production numbers also underscore how a slowing global economy (and possible recession) could hurt Tesla.
“Are we sure that the problem is only related to supply and not (partially) to demand? Morgan Stanley analyst Adam Jonas asked in a recent report.
Jonas added that it “would be unreasonable to assume” that the company can continue to raise prices without demand suffering, especially if the economy slows.
Demand could also suffer as Tesla faces even more competition in the United States.
“To improve its competitive position, Tesla will need to expand its product lineup to accommodate a significantly larger number of models from established global automakers and start-ups by the end of 2025,” S&P analysts said. Global Ratings in a recent report. .
S&P analysts are confident Musk can do just that. They even recently upgraded their credit rating on Tesla. But they conceded it won’t be easy. The margin of error is slim. S&P estimates that the number of electric vehicle models available in North America will exceed 100 by 2026, more than four times current levels.
“Over the next 3-5 years, a few of them could become formidable competitors for Tesla,” the analysts said.
Netflix investors know a thing or two about what can happen when a market you were once the undisputed leader of goes mainstream. Shares of the streaming giant have plunged more than 60% in 2022, making it one of the worst performers in the S&P 500.
The company will release its third-quarter results on Tuesday and investors will be watching whether Netflix is able to stem the bleeding after losing subscribers in each of the first two quarters.
Netflix’s woes led the company to do what was previously unthinkable: announce plans last Thursday for a cheaper ad-supported subscription plan. Netflix will launch the ad-based version (also known as old-school TV) in November. It’s a bold move that may not materialize.
“We see the decision to offer an ad-supported tier by the global incumbent streaming player as defensive and not offensive and fraught with… risk that continues to be underestimated,” said Jeffrey Wlodarczak, analyst at Pivotal. Research Group which has a “sell” rating. on the stock market.
Recession worries are causing many consumers to cut back on the amount they plan to spend on streaming services, of which there are now plenty. This is bad news especially for Netflix.
Goldman Sachs analyst Eric Sheridan, who also has a ‘sell’ on Netflix, said in a report that he remains ‘concerned that additional subscriber offerings could lead to a ‘drop’ in the most popular packages. cheaper by users in any potential consumer recession over the next 6-12 months.In other words, users are dropping the most expensive plans for less profitable and cheaper subscriptions.
Plus, Netflix isn’t the only struggling streaming game anymore. Shares of Disney, which also offers an ad-based version for Disney+, are down nearly 40% this year.
In addition to Netflix and Disney+, there’s also Disney-controlled Hulu, Amazon’s Prime Video, Apple TV+, Peacock, Paramount+, and HBO Max. (CNN’s parent company, Warner Bros. Discovery, owns HBO Max.)
The nervousness of the economic downturn has hit the entire media sector hard, as investors fear consumers will balk at paying more monthly subscriptions and corporate advertising budgets may also dry up.
The owner’s shares of Peacock, Comcast, Paramount and Warner Bros. Discovery have all fallen by around 40% to 50% this year.
Monday: Earnings from Bank of America, Charles Schwab and BNY Mellon
Tuesday: US industrial production; China’s GDP; revenues from Johnson & Johnson, Goldman Sachs, Albertsons, Lockheed Martin, Truist, State Street, Hasbro, United and Netflix
Wednesday: housing starts in the United States; inflation in the UK and Europe; revenues from Procter & Gamble, Abbott Labs, Travelers, Baker Hughes, M&T Bank, Ally Financial, Citizens Financial, Northern Trust, Comerica, Winnebago, Tesla, IBM and Alcoa
Thursday: weekly jobless claims in the United States; sales of existing homes in the United States; revenues from Ericsson, AT&T, American Airlines, Dow, Philip Morris, Union Pacific, Alaska Air, Nokia, Whirlpool, CSX, Snap and Boston Beer
Friday: inflation in Japan; revenues from Verizon, American Express, HCA and Schlumberger
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