😨 Tesla unveils its robotaxi ride-hailing service

Good morning Investor. “It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.”

— Terry Smith, Founder of Fundsmith

MARKET UPDATE

TODAY’S BIG HEADLINES

• Tesla Earnings Disaster

• Short sellers had their most profitable week ever

• Meta shares its VR technology

• Spotify is becoming the Netflix of music

MEGA CAPS

Tesla unveils its robotaxi ride-hailing service😨

Fall From Grace: Drama seems to be Tesla’s (TSLA) middle name, and this time it’s no different. The company unveiled its first-quarter earnings after market close, and let’s just say, it was a bit of a bumpy ride. But wait, there’s a twist! Despite the turbulence, shares managed to soar over 11% in after-hours trading. Buckle up, let’s dive into the details.

Financial Fiasco: Kicking off with the numbers, Tesla reported a revenue of $21.3 billion, a 9% YoY dip. Net income clocked in at $1.13 billion, a jaw-dropping 55% YoY plunge, resulting in an EPS of $0.45, falling short of the expected $0.49 per share. To add salt to the wound, the company’s gross margin continued to shrink, settling at 17.4%. Additionally, the company reported negative free cash flow for the first time since Q1 of 2020. In a somber note to shareholders, management hinted that this year’s vehicle sales growth “may be notably lower”.

The Unexpected Rally: So, why did the shares rally? It seems the market might have been a tad overzealous, bracing for a storm that turned out to be a drizzle. Potentially, it was the live preview the company provided of its ride-hailing app for its upcoming robot taxi network. Given the reaction of ride-hailing stocks Uber (UBER) and Lyft (LYFT) after hours, down 2% and 3.6% respectively, this is the most plausible explanation. However, it might be helpful to retrace our steps in order to figure out how we ended up here, let’s take a stroll down memory lane.

Trip Down Memory Lane: Tesla recently hit the brakes on roughly 3,900 Cybertruck vehicles due to a faulty accelerator pedal. Last week, the company announced a massive layoff of 14,000 employees, about 10% of its workforce, including 40 members of a marketing team that was as fresh as this year’s January snow. Meanwhile, senior VP of powertrain and energy technology, Andrew Baglino, decided to call it quits after an 18-year stint at Tesla. In a Hail Mary attempt to stem the share price hemorrhage, Elon Musk took to Twitter to announce Tesla’s plan to unveil their Robo taxi on August 8th. Shortly after, Tesla slashed the price tag of the Full Self-Driving package from $12,000 to a more palatable $8,000. The company also announced a $2,000 price cut for the Models Y, S, and X in the US, along with various other cuts in other global markets, including China. And for the grand finale, Tesla announced the Model 3 Performance edition, boasting more horsepower, faster acceleration, and a hefty $52,990 price tag to match. Now, isn’t that a ride!

sources: (Fortune), (The Verge), (CampaignLive), (Engadget)

SHORT SELLING

Short sellers had their most profitable week ever💰

Back in Black: Last week’s market downturn wasn’t all rain clouds and sad trombones. In fact, short sellers, those Wall Street daredevils, seized the day, making profits that broke records like a clumsy museum visitor. They set their sights on the “Magnificent 7”, who collectively shed $1 trillion in market capitalization last week alone. The biggest winners in this high-stakes game were those who shorted the AI royalty Nvidia (NVDA) and the drama magnet Tesla, pocketing a staggering weekly profit north of $10 billion. It’s like they hit the jackpot, with $6 billion coming from Tesla and Nvidia alone.

Patterns: Both the tech-stuffed Nasdaq and the S&P 500 painted the town red for six consecutive days, resulting in the worst losing streak for the market since the infamous October 2022. This decline has now officially entered what Wall Street folks call ‘correction territory’, with both indices breaching their support levels. The culprits? Escalation in the Middle-East and robust US economic data, leading to an increased chance of a “higher for longer” scenario playing out. It’s like a bad movie sequel nobody asked for.

Week of Destiny: This week is like the Oscars for the market, with many companies, including the likes of Spotify (SPOT), Visa (V), Tesla (TSLA), Meta (META), Alphabet (GOOG), PepsiCo (PEP) and Cadence Design (CDNS), set to report earnings. These key earnings results could sway the market direction like a hypnotist’s pendulum in the coming days and weeks.

Stock Market Whispers: Shares of Nvidia traded down roughly 14% last week, its worst weekly decline in over 19 months! Meanwhile, shares of Tesla sank faster than an ice cream in a heatwave, losing 12% in value in the same time. It’s like a high-stakes game of limbo – how low can they go?

sources: (Reuters), (MarketScreener)

MEGA CAPS

Meta shares its VR technology🤗

The Microsoft Of VR?: Meta (META) is now trying to pull a Microsoft (MSFT), licensing its virtual reality headset operating system “Horizon OS” to Lenovo, Asus, and others. It’s like they’re throwing a VR party and everyone’s invited.

Big Tech Bromance: Meta has now announced a partnership with Microsoft, which will see the social media behemoth create “limited edition” Quest headsets for the Xbox with the Xbox branding. Basically, Meta will be making a skinned Meta Quest 3 which will come included in Xbox bundles. It’s like tech’s version of a Marvel superhero crossover episode.

Trend Alert: Meta is making a habit of sharing its toys, after they recently launched their latest AI-Model Llama 3, set to be the most powerful LLM on the market currently, and it’s entirely open-source. Mark Zuckerberg was recently on a podcast where he discussed the open-source philosophy, and how it not only benefits everyone else, but also benefits Meta, as their designs become the industry standard. Its as if they’re handing out free candy to everyone!

Ecosystem Expansion: Meta has also layered inside the Meta Quest headset, a new virtual reality social media platform known as “Horizon” which comes included in all headsets. This could be a cunning method of getting this platform into the hands of millions of gamers. Meta has the intention of monetizing this social media platform with ads and commerce further down the road. They’re in effect, planting seeds for a virtual money tree.

sources: (The Verge), (The Verge)

EARNINGS RESULTS

Spotify is becoming the Netflix of music😎

Spotify’s Symphony: Spotify’s first-quarter earnings report was like a chart-topping hit, exceeding expectations across the board and causing the stock to rally over 12%. The stock is now up 62% year-to-date, dancing to its own beat.

Eck’s Encore: Over the past twelve months, CEO Daniel Eck has been conducting a symphony of change, including multiple rounds of layoffs, price increases, and other initiatives to boost top-line growth and improve margins. It seems his baton-waving is hitting the right notes.

Earnings Results: Spotify reported:

• Revenue of €3.64 billion (up 20% YoY) vs €3.61 billion expected.

• Net Income of €197 million, EPS of €0.97 vs Analyst estimates of €0.65. This is a significant improvement from last year’s off-key loss of €1.16 per share.

• Gross Margins of 27.6%, beating previous guidance of 26.4%. The streamer also expects Gross Margins to reach 28.1% in Q2, with a long term ambition of between 30%-35%. It seems they’re tuning their financial instruments to perfection.

• Operating income of €168 million up significantly from a loss of €156 million in the year prior but still below the company guidance of €180 million.

• Monthly active users (MAU) were up 19% YoY to 615 million, while paying subscribers were up 14% to 239 million, growing faster than a viral TikTok dance.

• Provided strong Q2 guidance of €250 million in operating income. It seems that they’re predicting a hit single!

• Q2 revenue guidance of €3.8 billion vs €3.76 billion expected.

• Spotify announced another price increase of about $1 to $2 a month in five markets, including the UK, Australia, and Pakistan. Its as if they’re selling VIP concert tickets.

The Turnaround: Spotify now seems to have both feet firmly planted at the “Profitability” table. This is likely going to serve as an additional catalyst on top of subscriber growth for the share price moving forward. If Daniel Eck can continue to grow both the subscriber numbers, the average revenue per user (ARPU), while further improving profitability and bringing down stock-based compensation, this could be a long term compounder. It’s like they’re planning a world tour that never ends.

sources: (Yahoo), (The Verge)

MORE NEWS

Additional market-moving events🌎

• Currency Collapse: Japan’s finance minister has issued the strongest warning to date on the chance of intervention after the Yen reaches its lowest point in over 34 years against the Dollar. (TheJapanTimes)

• Britain Returns: The UK's FTSE 100 has soared to a new ATH, thanks to US rate fears. (The Telegraph)

• Matterport Acquistion: Real estate information provider CoStar Group will acquire Matterport, a provider of 3D virtual tours of properties, in a $1.6B cash-and-stock deal. (Yahoo)

• You Shall Not Pass: The FTC is suing to block Tapestry’s $8.5 billion acquisition of Capri who own the Michael Kors brand, in yet another anticompetitive lawsuit. (BBC)

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EARNINGS

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