Big tech earnings preview: Netflix and Tesla

The S&P 500 in the US made a fresh record high at the end of last week, largely driven by big tech names like Nvidia and Microsoft.

This week we see the start of Q4 earnings season for big tech, which could be a make-or-break moment for the stock market, and traders don’t want to miss these earnings reports.

This week, the key reports to watch include Netflix who kick things off on Tuesday night, and Tesla, it will report earnings later this week. Next week we will get Microsoft, Meta, Apple, Amazon and Alphabet.

Netflix in focus

Netflix could set the tone for tech earnings later on Tuesday, the market is expecting earnings per share of $2.21. Earnings per share is a key metric to watch, as it tells you how much money a company makes per share of all its stock. Usually, the higher the number, the more profitable the company.

Analysts are expecting decent revenue and earnings growth for Netflix. Revenue is expected to be $8.69bn, which is an 11% gain vs. a year ago.

There are some trends that we will be watching in its earnings report. Firstly, are the restrictions on password sharing still boosting subscriber growth? In Q3, subscriber growth was more than 8.7mn, as more people signed up. Also, the market will be watching to see how well consumers absorbed the price increase that was implemented back in October.

Lastly, we’ll be looking to see if more people are choosing the cheaper ad-supported platform. In Q3, growth was 70%, can this be maintained or even improved upon in Q4?

Netflix: risks on the horizon

However, there are some risk factors for Netflix in the coming year. Firstly, streaming wars are heating up and mounting competition could hurt Netflix in the medium term. Also, broader macro concerns could be a problem for Netflix as it is reliant on  a strong consumer.

Its share price performance has been mixed recently. It is up more than 10% in the last 6 months, but its share price has fallen by more than 3.5% recently. If this report misses analyst expectations, or it paints a disappointing picture of future growth, then we could see Netflix’s stock price come under further downward pressure.

Can Tesla’s earnings lift its share price?

Tesla is also worth watching this week. The market is expecting earnings per share of 76 cents, which is roughly $26bn. In Q3 earnings were weak due to a round of price cuts for some Tesla models that hit the companies’ profits. But there could be some better news in this report. There were record vehicle deliveries in Q4, Tesla delivered 484,507 vehicles, which is up nearly 20% on the year before.  

Will Musk stay at the helm?

Some analysts are worried that further steep discounts on vehicles sold outside the US could keep the lid on profits, and margins are expected to shrink to 18% from 25% a year ago. Analysts will also want to know if Elon Musk has won the battle with the board to boost his stake in the company. If it looks like he hasn’t then he has threatened to walk. It will be interesting to see if Musk’s future is discussed on this earnings call, if it is it could have an impact on the share price.

Tesla’s share price outlook is mixed. It has been one of the laggards in the Nasdaq and is down 15% so far in 2024. Even if it beats earnings estimates, it is hard to tell if the stock price will rally on the back of this report, due to the concerns lingering in the background about competition in the EV space, and leadership worries.

A tech disappointment could hurt US stocks

Overall, whether or not the recent rally in US blue chip stocks can continue could depend on the outcome of these tech earnings in the next couple of weeks. Earnings growth for the magnificent 7 – the 7 biggest tech firms in the US stock market – are expected to grow by 46% for Q4. This is lower than the 53% growth rate in Q3, but it still dwarves most other S&P 500 sectors. The dominant profit growth is coming from these tech companies, and if they disappoint then there’s a real risk to the US market.