Thursday September 24, 2020
Tesla Drives Profits
The company reported revenue of $6.04 billion for the second quarter, down from $6.35 billion during the same quarter last year. However, the revenue exceeded analysts' expectations of $5.40 billion.
"Our business has shown strong resilience during these unprecedented times," said Tesla executives in the report. "Despite the closure of our main factory in Fremont for nearly half the quarter, we posted our fourth sequential GAAP profit in Q2 2020, while generating positive free cash flow of $418 million. We believe the progress we made in the first half of this year has positioned us for a successful second half of 2020."
Tesla reported net income of $104 million for the quarter. This was up from a net loss of $408 million in the same quarter in 2019.
During the second quarter earnings webcast, the company announced it will build its next factory near Austin, Texas. Tesla's Fremont, California factory will be dedicated to manufacturing vehicles in the western half of the United States, while the Austin factory will primarily manufacture for the eastern half. Despite Tesla's recent success, the company declined to offer guidance for the third-quarter due to the uncertainties caused by the COVID-19 pandemic.
Tesla (TSLA) shares ended the week at $1,417.00, down 6.7% for the week.
IBM Reports Earnings
International Business Machines Corp. (IBM) released its second quarter earnings report on Monday, July 20. The technology company reported revenue and earnings that exceeded Wall Street's expectations, causing shares to jump 6% in response.
IBM reported revenue of $18.12 billion, a 5.4% decrease from $19.16 billion in revenue the same quarter last year. However, this exceeded analysts' expected revenue of $17.72 billion.
"Our clients see the value of IBM's hybrid cloud platform, based on open technologies, at a time of unprecedented business disruption," said Arvind Krishna, IBM's CEO. "We are committed to building, with a growing ecosystem of partners, an enduring hybrid cloud platform that will serve as a powerful catalyst for innovation for our clients and the world."
The company reported second quarter net income of $1.36 billion or $1.52 per share. This is compared to $2.50 billion or $2.81 per share in the same quarter last year.
The company's revenue from all cloud related services was $6.30 billion, up 30% and cloud revenue more than doubled. IBM's global business services segment, which includes consulting, application management and global process, was down 7% with revenues of $3.90 billion. The company's global financing section, which includes financing and used equipment sales, had $265 million in revenue, which was down 25% and reflects the reduction of original equipment manufacturer commercial financing. Earlier this year, IBM withdrew its full-year guidance due to the COVID-19 crisis.
International Business Machines Corp. (IBM) shares ended at $125.79 virtually unchanged for the week.
Snap's Shares Slump
Snap Inc. (SNAP) released its quarterly earnings report on Tuesday, July 21. The social media company's shares dropped 6% following the report's release although revenue surpassed analysts' estimates.
Snap's revenue for the second quarter reached $454.12 million, a 17% increase from revenue of $388.02 million reported during the same quarter last year. Revenue exceeded analysts' estimates of $441.60 million.
"We continued to grow our community and business in a challenging and uncertain environment," said Evan Speigel, Snap's CEO. "I am proud of our team for innovating on new experiences for our community and driving value for our partners, demonstrating the importance of our service in people's lives. We are grateful that the resilience of our business has allowed us to remain focused on our future growth and opportunity."
The company reported a net loss for the quarter of $325.95 million or $0.09 per share. At the same time last year, the company reported a loss of $255.17 million or $0.06 per share.
Snap's number of daily active users of the Snapchat application rose 17% for the quarter reaching 238 million users. This was a slight decrease from the 20% growth of new users in the first quarter and missed analysts' estimates of 239.1 million daily active users. During the quarter, Snap launched Happening Now, a feed that provides real time news from media partners such as The Washington Post, ESPN and BuzzFeed. The company also announced multi-year content partnerships with Disney, ESPN, NBC, Viacom CBS, the NBA and the NFL. Snap has declined to offer guidance for the third quarter due to the COVID-19 pandemic.
Snap Inc. (SNAP) shares ended the week at $22.15, down 10.9% for the week.
The Dow started the week at 26,660 and closed at 26,470 on 7/24. The S&P started the week at 3,224 and closed at 3,216. The NASDAQ started the week at 10,526 and closed at 10,363.
Geo-Political Tensions Push U.S. Treasury Yields Down
On Wednesday, the U.S. State Department ordered the Chinese consulate in Houston, Texas to close abruptly citing violations of U.S. sovereignty and other allegations. On Friday, China ordered the closure of the American consulate in Chengdu.
"Geopolitical risk tends to hang out there like a shadowy character in a movie, just waiting to make its appearance," said Kevin Giddis, chief fixed-income strategist at Raymond James. "But, there may be something bigger actually 'hanging in the shadows,' and this could be the reason why yields are falling."
On Thursday, the U.S. Department of Labor released its unemployment report, revealing higher claims than expected. Initial unemployment claims for the week ending July 18 came in at 1.4 million. Economists expected claims of 1.3 million. This was the 18th consecutive week with over 1 million claims filed.
The benchmark 10-year Treasury note yield hit a low of 0.568% on Thursday after opening the week at 0.634%. The 30-year Treasury bond yield dropped to 1.229% on Thursday after opening the week at 1.330%. Bond yields move inversely to prices; yields fall as prices rise, signaling increased demand for safe haven assets.
"At this stage, you're seeing all the wrong elements for recovery," said Gregory Daco, chief U.S. economist at Oxford Economics. "A deteriorating health situation, a weakening labor market and a softening path for demand."
The 10-year Treasury note yield closed at 0.59% on 7/24, while the 30-year Treasury bond yield was 1.24%.
Thirty Year Mortgage Rates Rise Back Over 3%
The 30-year fixed rate mortgage averaged 3.01%, up from 2.98% last week. Last year at this time, the 30-year fixed rate mortgage averaged 3.75%.
This week, the 15-year fixed rate mortgage averaged 2.54%, up from last week's average of 2.48%. During the same time last year, the 15-year fixed rate mortgage averaged 3.18%.
"While housing demand continues to rebound, the month-long swoon in economic activity has caused the 10-year Treasury benchmark to drop," said Sam Khater, Freddie Mac's Chief Economist. "In the short-term, this means the demand will continue on the back of near record low mortgage rates. However, the most recent consumer spending data has been pointing to slow growth since mid-June. The concern is that the pause in economic activity will cause unemployment to remain elevated which will lead to long-term market distress."
Based on published national averages, the savings rate was 0.06% for the week of 7/20. The one-year CD averaged 0.23%.