Tech companies have taken a massive hit this year due to the changing interest rate environment. As rates rise, the future earnings of tech companies are worth less in the eyes of investors, leading to downward pressure on their valuations.
Several US tech companies have announced hiring freezes and reduced budgets to tighten things up - a signal that next quarters performance may bring some disappointment1.
As well as Netflix and Tesla, the coming weeks bring results from Meta (formerly Facebook), Alphabet (formerly Google) and Twitter which may add to market jitters.
Netflix hopes to steady the ship
Netflix has had a tumultuous year, with the worlds largest streaming service reporting its first subscriber loss since 2011, losing nearly 1 million subscribers between April and July. The US, Canada and Europe saw the highest number of cancellations.
Between April and June total revenue was $7.9bn, up 8.6% year-on-year but, such is the expectations of todays tech giants, this figure still disappointed the market.
There has been intense competition in the streaming sector with the likes of Netflix, Amazon Prime, Disney+ all battling for viewers.
Netflixs plan to boost profits includes the introduction of an ad-supported service that will be launched in 2023 with Microsoft as well as a crackdown on password sharing, which one survey estimates costs Netflix a whopping $6 billion.
Tesla revenue boost despite supply chain issues
Like Netflix, Tesla has also experienced a downturn. The electric vehicle makers global deliveries fell 18% in the second quarter, compared to the first period2. Tesla said the fall stems from Covid-19 lockdowns at the companys Gigafactory in Shanghai.
However, its latest quarter brings some optimism. Tesla reported a 57% increase in adjusted earnings per share in its latest quarter3.
Analysts expected the company to report second-quarter revenues of $17.23 billion, an 8% decline compared to the previous quarter, according to Refinitiv data. Earnings per share were expected to reach $1.86 per share, a 42% fall from a year ago.
Teslas second quarter revenue reached $16.9bn, up 42% compared to the year before.
In April, Elon Musk said Tesla could raise deliveries by 60% this year, equivalent to nearly 1.5 million vehicles4.
Tesla is the fourth largest holding in the Scottish Mortgage Investment Trust, along with other tech firms including Amazon and Alibaba.
Results from both Tesla and Netflix demonstrate how specific factors can affect individual companies - a supply chain disrupted by lockdown in the case of Tesla and fierce competition in streaming for Netflix.
The market will now be watching the rest of the tech earnings season for any sign that companies are also being affected by a more general economic slowdown.
If they can defy the current negative mood with strong numbers, the market may begin to see beyond the current turbulence. Any disappointments are likely to lead to yet further volatility.
Source:
1The Guardian, 17 July 20222Tech Crunch. 2 July 20223Financial Times, 20 July 20224Yahoo News, 19 July 2022
Originally posted here:
Will the tech giants help turn the market around? - Fidelity International
