Harriet Lefton

About the Author Harriet Lefton

Harriet originates from the UK where she worked as a journalist specializing in the metal markets. She graduated from the University of Cambridge before becoming a qualified UK lawyer.

Thursday’s Market Movers: Tesla Inc (TSLA) Sinks, Facebook Inc (FB) Dips, Fitbit Inc (FIT) Spikes

Tesla Sinks on Heavy Loss

Tesla Inc (NASDAQ:TSLA) shares are trading down by close to 2.5% after the controversial automaker announced surprisingly poor results for the first quarter. Adjusted losses came in at $1.33 EPS, substantially undercutting the expected adjusted loss of just $0.83 EPS. This translates into a loss of about $330 million for the quarter. However, revenue of $2.7 billion beat the forecast $2.6 billion, largely due to automotive revenue more than doubling from the previous year.

The loss comes as Tesla ramps up spending ahead of the much-hyped Model 3 sedan, which still appears to be on track for its ambitious July launch date. “I don’t know anything that would prevent us from starting production in July,” Musk said, when pressed by analysts during TSLA’s conference call Q&A. “There may be something that pops up, but I don’t know what it is today.” In fact, the $35,000 Model 3 is already being road tested now to refine driving dynamics and ensure durability, according to Musk.

Crucially, Tesla’s previous guidance of 47,000 to 50,000 vehicle deliveries for the first half of this year remains unchanged. In Q1 TSLA made a new record when it delivered just over 25,000 of its Model S and Model X luxury vehicles.

However forecast delivery figures for the second half of the year have yet to be released: “We will provide guidance on vehicle deliveries for the second half of this year after we have started Model 3 production in July,” Musk and Ahuja said. “Given that we will be ramping Model 3 production so quickly, as we’ve noted before, even a couple-week shift in timing can have a meaningful impact on total deliveries.”

Encouragingly, investors can take comfort from gross margins (GM) which have improved to 27.4% from 22.6% last year- which is good news for Tesla according to top Oppenheimer analyst Colin Rusch. Pre-announcement, the four-star analyst declared that “with a robust quarter of shipments at ~25,000 vehicles, we are watching GM closely… manufacturing efficiency is critical for long-term earnings power and execution on Tesla’s plans to become the world’s leading manufacturing company.” Indeed, the results have not dented the confidence of Elon Musk, Tesla’s CEO who still believes the company could be worth $700 billion in the next 10 years. The company is already valued above Ford and General Motors.

Going forward Tesla revealed plans to increase retail, delivery and service locations by 30%, and open its first company-owned body repair shops this year. The company is also working on doubling the charging stations where the Tesla batteries can be recharged with plans to take Superchargers and Destination Charging connectors to over 10,000 and 15,000 respectively by the end of the year.

Largely due to the uncertainty surrounding the upcoming Model 3, the stock has a Hold analyst consensus rating according to financial accountability engine TipRanks with 5 buy, 6 hold and 6 sell ratings published on the stock in the last three months. With an analyst average price target of $274 we can see that analysts are predicting substantial further downside for the stock of -11.7% from its current price.

Facebook Smashes Earnings But Stock Dips

Facebook Inc (NASDAQ:FB) stock is trading down by 0.64% in today’s trading session despite the release of very robust earnings results for Q1. The social media giant announced EPS of $1.04 on revenue of $8.03 billion. Both EPS and revenue easily beat the expected EPS of $0.87 on revenue of $7.83 billion. Similarly positive results came in for user numbers with monthly active users (MAU) reaching 1.94 billion and daily active users (DAU) approaching the 1.3 billion mark. Again, these figures surpassed the expected 1.9 billion and 1.26 billion, respectively. However reported expenses are now at $4.7 billion, versus $3.3 billion a year ago.

Facebook also announced that mobile ad revenue is up 82% y-o-y to about 85% of total ad revenue- effectively alleviating previous concerns that Facebook had moved to mobile monetization too late. And to analysts who had expected slowing ad revenue- Facebook announced that ad revenue had in fact increased 51% over last year to $7.86 billion. However, ad revenue growth will come down “meaningfully” this year as the company approaches its ad load maximum- although fast-growing photo app Instagram and the introduction of video ads could help offset this reduction.

The results impressed five-star RBC Capital analyst Mark Mahaney who reiterated his buy rating on the stock with a very bullish price target of $185 (22% upside from the current price). He lists five reasons why he is so optimistic about the stock: very large growing user base, consistently high engagement, one of the most undervalued internet companies, increasing mobile monetization and very high margins due to continued investment in FB’s future.  Ultimately Mahaney concludes that “unprecedented” ad growth consistency combined with “FB’s current low market shares – approximately 15% of Global Online Advertising & 5% of Global Total Advertising – will help it maintain premium growth for a long time.”

CEO Mark Zuckerberg who called it a “good quarter” also addressed concerns over the use of Facebook live videos for filming live violence and suicide with the addition of 3,000 human content monitors to find and delete inappropriate content (as well as other users and artificial intelligence). So far initial reactions to the initiative seem to be muted with users unconvinced about the effectiveness of such an approach. Indeed Zuckerberg has already conceded: “No matter how many people we have on the team, we are never going to be able to look at everything.”

The overall market outlook for the social media giant is very bullish; the stock has a strong buy analyst consensus rating on TipRanks. In the last three months 23 out of 24 analysts have published buy ratings on FB while the average analyst price target of $165.10 suggests a respectable 9% upside from the current share price.

Fitbit Spikes on Unexpected Earnings Beat, but for How Long?

Fitbit Inc (NYSE:FIT) shares soared over 7% after the troubled wearable device maker reported a surprise earnings beat for the first quarter. Fitbit reported a loss of $0.15 EPS on revenue of $299 million, an improvement on the expected loss of $0.18 EPS and revenue of $280.8 million. However, revenue is still about $200 million down from the $505 million revenue made in the same period last year.

“Investors are positive right now as they did beat at the high end of their revenue guidance, in terms of how they were performing relative to their initial targets, revenue was above,” said Wedbush Securities analyst Nick McKay.

Following a very disappointing end to 2016 as holiday demand failed to meet expectations, CEO James Park said the company is successfully executing its restructuring plan and attributed the earnings beat to underlying consumer demand which “has been better than our reported results in North America as we work down channel inventory levels.” As a result of this 30% inventory cut, the CEO has “increased confidence that we will enter the second half of 2017 with a relatively clean channel.”

Fitbit has now expanded its products from wristbands to smartwatches. “As we enter the smartwatch category, I think that will be a catalyst for growth,” Park said on the earnings call. The first images of Fitbit’s new smartwatch- codenamed ‘Project Higgs’ leaked a couple of days ago and it appears to be a more streamlined version of the Fitbit Blaze. The watch, which costs around $300, will include music streaming, wireless payments, and a display that will match the resolution of the latest Apple Watch. The company has maintained its full year 2017 revenue guidance of $1.5 billion and $1.7 billion, with second quarter revenue forecast at $330 million to $350 million.

TipRanks reveals that the stock has a moderate buy analyst consensus rating. Most recently, Benchmark Co analyst Scott Searle initiated the stock with a buy rating and an incredible $10 price target, which translates into a whopping 76% upside from the current price levels. He called Fitbit the number one wearables supplier based on his hope that the company can transition to being a successful digital health company. Fitbit recently launched the Alta HR wristband to track heart rate and sleep as well as calories.


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