Tesla, Netflix Weigh on Nasdaq
Lately, the Nasdaq Composite (NASDAQINDEX: ^IXIC) has played a key role in determining the direction of the overall market. Yet on Thursday morning, the Nasdaq posted a much more significant decline than other major market benchmarks right after the opening bell. The Nasdaq's move lower of about half a percent stood in contrast to a higher open for the Dow Jones Industrials and a flattish performance for the S&P 500.
One reason the Nasdaq dropped so hard was that shares of both Tesla (NASDAQ: TSLA) and Netflix (NASDAQ: NFLX) fell after those companies reported their respective quarterly results. Both had positive things to say about their businesses, but expectations have been high, particularly after the two stocks rose so far in 2023. Below, you'll learn more about what was pushing both stocks lower early Thursday.
Has Tesla gotten ahead of itself?
Shares of Tesla dropped 4% shortly after the open Thursday morning. The electric vehicle maker's second-quarter financial results showed significant sales growth but raised some questions about what future profit margins could look like.
Tesla stayed in solid growth mode. Revenue of $24.93 billion was up 47% year over year. Adjusted net income was also higher, weighing in at $3.15 billion, but that was only 20% higher than in the year-ago quarter.
As many had anticipated, Tesla's margins fell during the period, but the declines were even sharper than many had expected. Gross margin was down almost 7 percentage points to 18.2%, while operating margin fell nearly 5 percentage points to 9.6%. Tesla's preferred adjusted pre-tax operating profit margin weighed in at 18.7%, down from 22.4% in the year-earlier period. The EV automaker attributed much of the pressure to reduced average sales price for vehicles amid competitive pressures in the industry.
Even as shareholders seemed to focus on short-term issues, Tesla kept its eyes squarely on the long-term future. The company touted the coming beginning of production of its Cybertruck EV pickup along with AI enhancements related to self-driving vehicles, and it saw a big jump in its energy storage business. Combined with early signs of revenue from Supercharger sharing arrangements with other automakers, Tesla has a lot of growth drivers that could boost its value over the long run. Yet that doesn't mean its share price can't go down in the short run, particularly after such a huge move higher this year.
Netflix falls despite big subscriber count gains
Shares of Netflix fared even worse, dropping 7% at the open on Thursday. Mixed second-quarter financial results were the culprit, even though the video streaming service provider said several encouraging things.
Netflix's financial numbers for the quarter were mixed. Revenue of $8.19 billion was up just 2.7% year over year and fell short of expectations. Net income weighed in at $1.49 billion, higher by 3.3% from year-ago levels, while earnings of $3.29 per share did slightly better than anticipated by most of those following the stock.
On the subscriber front, though, Netflix had solid performance. Net additions of 5.9 million included a gain of 1.17 million subscribers in the U.S. and Canada, rising from much more sluggish growth figures over the preceding year. International performance perked back up as well, although revenue per subscriber kept trending lower across the network. Most investors attributed the rise in counts to Netflix's crackdown on password sharing.
The big question facing Netflix is the extent to which its ad-supported tier will generate more revenue than it loses because of its lower price point. With the company having eliminated its basic ad-free tier, a rising number of viewers will likely start watching ads -- and that's when that portion of Netflix's business could start to surge.
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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Tesla. The Motley Fool has a disclosure policy.
