Wall Street Breakfast: Elon Musk's Favorite Day

Apr. 20, 2022 7:26 AM ETTSLA, NFLX, IBM, KD, TWTR, GS, WBD, SPY, QQQ100 Comments11 Likes
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Elon Musk’s favorite day

Elon Musk has made no secret of his affinity for “420” references and today is April 20, or 4/20, with Tesla (TSLA) set to report earnings after the bell.

The numbers are a cannabis culture reference to the supposed best time to get high and Musk had Wall Street Googling the term again recently as he bid $54.20 per share for Twitter.

Tesla shares were up about 2% in the first quarter, but down more than 14% year to date. And the stock could see a big earnings-day move based on positioning data compiled by Goldman Sachs. Tesla stock has a 55.6% probability of an up move today, with an implied move of 12.6%, according to John Marshall, Goldman’s head of derivatives strategy.

What to watch: The dominant focus is expected to be on what the outlook is for Shanghai production in Q2 amid the lockdowns. The electric vehicle leader just started production back up at its Shanghai factory after an extended COVID-19 lockdown in the region kept the plant effectively closed since March 28. Reports have indicated employees will be living onsite at the Gigafactory, where they will get catered meals, a small daily stipend, access to showers, and entertainment options.

That leads to the main question around the TSLA earnings report being clarity on the current and expected pace of China production, as well as the overall view on the impact of zero-tolerance COVID policies in China. Any surprises could reset expectations across Wall Street. China has been the biggest topic with analyst comments into the report.

What the analysts say: Wedbush Securities analyst Dan Ives (Buy rating): "We estimate that roughly 50k units are now reduced for the June quarter for starters given the last three weeks of shutdown and depending on how aggressively Tesla can ramp back production could be impacted further over the next month. Musk & Co. are in a tough spot, as there are so many variables around 2Q China production that will certainly weigh on guidance for the rest of the year and thus has been a clear overhang on the stock over the past month."

Evercore ISI analyst Chris McNally (In Line rating): Keep "in mind that every week of closure (3+ so far), is 16-18k units of production lost, $80- $100MM of Rev, $24-$35MM of lost EBIT and 18-23c of lost EPS. Potential new catalysts now include hard data on extent of China production setbacks or restart (a major exporter for TSLA to EU) as well as any legislation loosely related to the former ‘Build Back Better’ US reconciliation bill which increases manufacturer caps for federal tax credits on consumer."

Morgan Stanley thinks investors might start looking at the stock as a play on renewable energy onshore infrastructure. "We believe recent geopolitical events are working to accelerate the market for stationary storage at the grid/industrial/household level," noted analyst Adam Jonas. (1 comment)

Twitter tender?

Musk is also stoking “420” excitement among his supporters with another cryptic tweet that could indicate he will make a tender offer for Twitter.

Musk tweeted "_______ is the Night." The fill-in-the-blank could be a reference to "Tender Is the Night," the 1934 novel by F. Scott Fitzgerald. Musk already created speculation that he may make a tender offer directly to TWTR investors when he tweeted out "Love me Tender."

Twitter has adopted a poison pill to thwart Musk's hostile bid of $43B for the company. There is also speculation that Musk's tweet could be "Tonight is the Night" since there are seven character spaces in the blank, although he sent the tweet out at 11:32 p.m. ET on Tuesday. (12 comments)

Nuclear plant bailout

The Biden administration is launching a $6B program to rescue nuclear power plants at risk of closing, opening a certification and bidding process for a civil nuclear credit program to aid financially distressed owners or operators of nuclear power reactors.

The U.S. Department of Energy said it will take applications for the first round of funding in its program until May 19, prioritizing reactors that have already announced plans to close. (63 comments)

Netflix with ads

Netflix (NFLX) stock is losing nearly a quarter of its value in premarket trading after it lost 200,000 subscribers on a net basis, well short of its scaled-back guidance for additions of 2.5 million subscribers. And the earnings call set the stage for a lower-cost, ad-supported service.

Netflix's first subscriber loss in a decade left the company down to 221.64 million global subscribers compared to 221.84 million at the end of 2021. And the streaming service is also forecasting a drop of 2 million net subscribers for the second quarter of this year.

Netflix acknowledged on the call that growth wasn't what it wanted and pegged the decline to four "inter-related" factors: Pace of growth into broadband homes is partly dependent on factors out of its control; competition has ramped up heavily in the past three years; macro factors (economy, inflation, Russia's invasion of Ukraine); and notably, unpaid password sharing - a concern that execs used to blow off as not especially relevant.

As far as increasing the "pipe spread" with advertising on lower-priced plans, CEO Reed Hastings noted people know he's been against it. "I'm a big fan of the simplicity of subscription. But as much as I'm a fan of that, I'm a bigger fan of consumer choice, and allowing consumers who would like to have a lower price and are advertising-tolerant, to get what they want, makes a lot of sense." The company will try to figure that out over the next year or two, he says, but "think of us as quite open to offering even lower prices with advertising." (138 comments)

IBM earnings impress

IBM (IBM) reported better-than-expected first-quarter results led by strong performance in its software and consulting services businesses. IBM said that for the first three months of the year it earned $1.40 a share, excluding one-time items, on $14.2B in revenue. The results topped the estimates of Wall Street analysts, who had forecast the company to earn $1.39 a share, on sales of $13.84B.

IBM CEO Arvind Krishna said demand for hybrid cloud artificial intelligence led the growth in the company's software and consulting services, and showed that IBM has become "a more focused business." Late last year, it spun off its Kyndryl (KD) managed services business as part of a strategy aimed at putting more emphasis on software and consulting. (22 comments)

Today's Market

In Asia, Japan +0.86%. Hong Kong -0.40%. China -1.35%. India +1.10%.
In Europe, at midday, London +0.37%. Paris +1.19%. Frankfurt +0.86%.
Futures at 6:20, Dow -0.01%. S&P -0.10%. Nasdaq -0.22%. Crude +0.84% to $102.84. Gold -0.41% to $1950.50. Bitcoin +2.22% to $41,566.
Ten-year Treasury Yield -1.7 bps to 2.898%

Today's Economic Calendar

7:00 MBA Mortgage Applications
10:00 Existing Home Sales
10:30 EIA Petroleum Inventories
10:30 Fed's Daly Speech
11:30 Fed's Evans: Monetary Policy
1:00 PM Fed's Bostic Speech
1:00 PM Results of $16B, 20-Year Bond Auction
2:00 PM Fed's Beige Book

Companies reporting earnings today »

What else is happening...

Florida's DeSantis threatens to punish Twitter (TWTR) for thwarting Musk takeover.

Bulls are an 'endangered species,' which is bullish.

Atlanta Fed's Bostic says central bank should be careful with fast rate hikes.

Precious metals, miners mauled amid talk of more aggressive Fed rate hikes.

Goldman Sachs (GS) CEO, deputies said to get private-equity-like compensation.

U.S. junk bond spreads widen as debt market prices in slower economic growth.

CNN parent (WBD) suspends marketing spending on CNN+, lays off finance chief.

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