Thursday was another up-and-down session for major benchmarks, with investors picking through earnings results to get clues on the direction of the global economy. The Dow Jones Industrial Average (DJINDICES: ^DJI) posted a small loss while the S&P 500 (SNPINDEX: ^GSPC) closed higher. The technology sector made strong gains.
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As for individual stocks, Tesla (NASDAQ: TSLA) and Twitter (NYSE: TWTR) had surprises for investors in their earnings reports, and shares of both growth stocks made huge moves -- in opposite directions.
An unexpected profit from Tesla
Shares of Tesla soared 17.7% after the electric-vehicle specialist reported surprising profit in the third quarter. Revenue was down 8% from last year to $6.3 billion, somewhat below expectations. Analyst earnings estimates were all over the map, but on average they were projecting a loss of $0.42 per share. Tesla posted GAAP earnings of $0.80 per share and adjusted EPS of $1.91.
Easing investor concerns about the company's ability to generate profit as it ramps the Model 3, Tesla reported that automotive gross margin expanded after several quarters of moving in the wrong direction, growing to 22.8% compared with 18.9% last quarter. Executives on the conference call said that Model 3 average selling prices (ASPs) declined slightly after some price cuts, but ASPs for Models S and X increased. Operating expenses fell 16% to the lowest level since Model 3 production started.
CEO Elon Musk said that the company was ahead of schedule on the Shanghai Gigafactory, which is producing full vehicles on a trial basis, and also on preparations for producing the Model Y, with expectations for a launch next summer. The company said that it was "highly confident" in exceeding vehicles deliveries of 360,000 this year, the low end of its earlier guidance.
Software glitches hit Twitter
Investors took flight from Twitter after some software missteps led to badly missed expectations for the third quarter, sending shares down 20.8%. Revenue grew 9% to $824 million and adjusted earnings per share fell to $0.05 from $0.14 a year ago. Analysts were expecting the company to earn $0.20 per share on revenue growth of 15%.
Twitter said it discovered bugs that affected its ability to target ads and share data with its advertisers, and that "certain personalization and data settings were not operating as expected." The company believes that the issues reduced revenue growth by 3 or more points, accounting for only some of the miss. Twitter also said it had slower-than-expected ad business in July and August, which it attributed to a lighter slate of events and product launches compared with 2018.
It wasn't all bad news; the company added 6 million monetizable daily users in the quarter, representing year-over-year growth of 17%. But Wall Street didn't like the surprise blunder, and Twitter said the product issues will be "lingering headwinds" in the fourth quarter.
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