Earnings This Week: Tesla, Netflix & TSMC

Corporate earnings calendar: October 16 - 20

The third quarter earnings season has kicked-off and starts to ramp-up this week. The headline results to watch are due out from electric vehicle maker Tesla and streaming giant Netflix.

US banks will also remain in play as Bank of America, Morgan Stanley, Goldman Sachs and others report this week. We have already had results out from JPMorgan, Wells Fargo and Citigroup and saw they all beat expectations while issuing more cautious commentary on the economic outlook, helping set the tone.

Other big names to watch include defence giant Lockheed Martin, telecoms behemoth AT&T, pharma firm J&J and consumer goods company P&G, as well as United Airlines and American Airlines.

In Asia, Taiwanese chip firm TSMC and the Hong Kong Stock Exchange Group are both pencilled-in.

In the UK, mining firms Rio Tinto, BHP and Antofagasta will release production figures and there are updates scheduled-in from housebuilder Bellway, gold miner Centamin, food delivery outfit Deliveroo, homeware retailer Dunelm, pest control expert Rentokil and hospitality play Whitbread.

In Europe, eyes are on chipmaking equipment maker ASML and Germany’s Deutsche Boerse.

Below is a calendar outlining all the top earnings to watch this week:

US bank stocks: Q3 earnings preview

We have had initial results from the first group of big US banks and attention will turn to Bank of America and investment banking specialists Morgan Stanley and Goldman Sachs this week. Initial results out from the industry have shown better than expected earnings twinned with more cautious commentary on the economic outlook.

Bank of America is forecast to report a 0.5% year-on-year rise in adjusted EPS in the third quarter of $0.81. While tepid, it is expected to be the only major US bank apart from leader JPMorgan to report higher earnings this quarter. That will be driven by higher net interest income and an ongoing outperformance in trading. Still, the boost from higher interest rates is waning after 18 months of hikes and all eyes are on the outlook as we approach 2024. Loan demand, deposits, unrealised losses and the potential impact from Basel III endgame rules will all be topics on the conference call.

Meanwhile, Morgan Stanley is forecast to report a 14.9% year-on-year drop in adjusted EPS to $1.30 while Goldman Sachs is seen reporting a sharper 31.3% drop in adjusted EPS to $5.67. Investment banking remains challenging, but markets are hoping we may see some green shoots emerge after M&A activity and IPOs both picked up in the quarter. Trading arms are expected to struggle at both companies.

Tesla stock: Q3 earnings preview

We already know that Tesla delivered far fewer cars in the third quarter than expected. It sold 435,059 electric vehicles in the period, over 20,000 below the Wall Street forecast! That was blamed on factory downtime, although there are signs that demand is weakening. Tesla sold more cars than it produced for the first time in 18 months during the quarter, but only just. That means inventory levels remain elevated, which may rightly raise questions about why Tesla didn’t make more sales even if production was disrupted.

With that in mind, Wall Street analysts have understandably become more cautious ahead of the financial results, not only because of the big delivery miss but also over fears that more price cuts will be needed to keep demand growing. That is weakening earnings estimates in both the near-term and for 2024.

Although deliveries dropped sequentially, they were still higher than last year. That should see revenue climb 13.6% year-on-year to $24.37 billion, based on a Bloomberg-compiled consensus. However, the series of price cuts has hammered its profitability. Its operating margin is seen coming in at just 9.5% this quarter compared to over 17% the year before, which is forecast to see operating income plunge 37% to $2.31 billion. Adjusted EPS at the bottom-line is seen plummeting almost 29% to $0.75.

Tesla is aiming to deliver at least 1.8 million vehicles this year and Wall Street remains confident it can achieve that despite the big miss in the most recent quarter. However, that leaves little room for error in the final quarter, when analysts believe it can sell over 492,000 vehicles. Still, Tesla is set to fail to grow deliveries by an annual rate of 50% for yet another year. It last achieved that goal in 2021, and analysts are becoming less and less convinced that it will ever hit that level of annual growth again.

The update on the long-awaited Cybertruck, which is expected to enter full production before the end of 2023, will also be key as investors hope they will finally see the pickup truck hit the market following years of delays.

Netflix stock: Q3 earnings preview

This is a big quarter for Netflix as it will be the first true test of its strategy designed to stop households from the around the world from using its service for free by cracking down on password sharing and introducing new paid sharing options and its cheaper ad-supported tier.

Netflix has said this new strategy should accelerate revenue growth in the second half of 2023. Netflix is forecast to report a 7.7% year-on-year rise in revenue to $8.536 billion, in-line with its guidance. Netflix has said the strategy is working but has also warned it will take time for it to iron out, highlighting there is a risk markets get more optimistic about how quickly the strategy pays off. The new ad-supported tier that has got markets excited won’t start to really take-off until 2024.

The outlook for the fourth quarter should see Netflix guide toward a faster pace of growth in the fourth quarter. Wall Street is looking for Netflix to target $8.8 billion in revenue (up 12% YoY) and operating profit of $1.23 billion. Any disappointment here would suggest its new strategy isn’t progressing as fast as hoped.

Netflix is up 26% in 2023 and has outperformed other streaming stocks. This is because Netflix is not only the most popular platform, but the only one that is profitable. The risk this season is that markets are expecting too much too quickly from the new strategy. With that in mind, there is room for disappointment if Netflix’s new plan doesn’t pay-off as quickly as investors hope, and Netflix may have to over-deliver in order to impress.

You can read more in our Netflix Q3 Earnings Preview.

TSMC stock: Q3 earnings preview

We already know that TSMC delivered quarterly revenue of NT546,732 million based on its monthly sales reports. That was ahead of forecasts, but still down about 10.8% from what we saw the year before. EPS is seen dropping at a sharper pace of over 32% to NT7.34 as margins come under pressure amid lower sales and higher costs.

Sales are under pressure as demand for consumer electronics has waned since booming during the pandemic, leaving TSMC’s customers with excess inventory that is still being worked through. Production of its new 3-nanometer chips is ramping-up, with demand for its most advanced tech helping counter softer conditions for its older options. Investors will be keen to discover how quickly major customers are moving to the more advanced chips. Demand for its advanced packaging solutions needed for AI chips is also robust.

American Airlines stock: Q3 earnings preview

American Airlines, like its rivals, has already lowered its guidance to reflect rising fuel costs ahead of the results, which should lower the odds that we get any nasty surprises this week. However, markets will be laser-focused on what this will mean for its full year outlook after Delta Air Lines adjusted its view to take higher costs into account.

American Airlines has said adjusted EPS will be between $0.20 and $0.30 in the third quarter, just a fraction of its original target range of $0.85 to $0.95. That will be sharply lower than the $0.69 delivered the year before as its operating margin takes a beating. It isn’t only fuel costs that are rising, but also labour.

The airline has so far left its guidance for annual adjusted EPS of $3.00 to $3.75 unchanged. However, there is a good chance that this is narrowed toward the lower-end, or in the worse case below the bottom-end of that range, this week.

Revenue is forecast to be up just 0.3% from last year in the third quarter to $13.5 billion. Demand for travel remains strong, but American Airlines will be coming up against some tough comparatives from last year, when sales jumped over 50%! Still, that suggests American Airlines may have a job to do in convince investors that travel spending remains buoyant as fears about a slowdown in consumer spending weigh on markets.

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