Squid Fame, PayPal Numbers Released Today, Tesla Third-Quarter Numbers

  • Market Overview

Market Scorecard

After spending most of the day in negative territory, the JSE All-share turned positive near the close of trading yesterday, taking its lead from US markets. The S&P 500 ended at a new record-high. Strong company earnings are the main tailwind, but will it carry us all the way through to Christmas?

In company news, PayPal (NASDAQ: PYPL ) is rumoured to be in talks to buy social media/marketplace company Pinterest for around $45 billion. The Pinterest share price shot higher by 13%, to give it a market cap of $40 billion. The PayPal share price dropped 5% on the news. PayPal was spun off from eBay (NASDAQ: EBAY ) in 2015, and now it seems they want to join forces with a similar company. By absorbing Pinterest, they would become the preferred payment provider for both the merchants and the consumers on the platform. We will probably hear more from management when they report their latest numbers today.

Yesterday the JSE All-share closed up 0.18%, the S&P 500 closed up 0.37%, and the Nasdaq is down a fraction, by 0.05%.

Byron's Beats

Tuesday night's Netflix (NASDAQ: NFLX ) results were more interesting than usual. Squid Game is all the craze at the moment, driving new subscribers to the service. Would subscriber growth be enough for Netflix to make it to the next round or would they be eliminated? If that comment doesn't make sense to you, then you still need to watch the mega-hit Korean series.

Subscribers grew by 4.4 million, beating forecasts of 3.8 million. Management forecasts a whopping 8.5 million new subscribers next quarter, as the Squid Game 'FOMO' really kicks in. The show, which cost only $21.4 million to create, is estimated to be worth $890 million. Around 132 million people have started watching the show. That is a massive chunk of their 214 million subscribers.

Making hit shows in foreign countries is a huge win for Netflix. They are cheaper to create and they open up their service appeal to a new audience. The pressure is on to keep on producing them, which is why Netflix spends billions each year on content creation.

The share price has had a wonderful run, up 24% in 2 months, but dropped slightly when the results were released. I would say it survived the most daunting Squid Game of them all, the stock market.

Michael's Musings

Last night Tesla (NASDAQ: TSLA ) reported their much-anticipated third-quarter numbers. As expected, they beat expectations, but the share price slipped back a little in after-hours trading. The market always has high hopes for Tesla, meaning the expectation is for their numbers to beat expectations, and in this case, the expectation was for them to beat expectations by even more. Does that make sense? Yes.

Tesla racked up $13.8 billion in revenue for the last three months, with $12 billion coming from car sales. Management says they expect to "achieve 50% average annual growth in vehicle deliveries" over a multi-year horizon. The good news is that as they sell more cars, they also grow profit margins, because of economies of scale and by increasing selling prices. Tesla reported a gross profit margin of 30% for the quarter, their best to date.

To justify the company valuation they need to increase the speed at which they produce new vehicles. The good news is that management say the first cars will roll off their new Texas and Berlin gigafactories before the end of the year.

The rest of their revenue is $800 million from the energy division and $900 million in services and other sales. There is massive growth potential in their energy business, and Musk thinks it will be as big as the vehicle division in time. The services division also has good prospects as Tesla launches dynamic pricing insurance, similar to Discovery (JO: DSBPp ) Insure, and they can sell downloadable upgrades to their cars.

The sky is the limit when it comes to Tesla at the moment. We've been accumulating these shares for clients.

One Thing, From Paul

Traders and investors are always worrying about something. The list of current worries includes the following: China's new "philosophy", rising inflation, oil prices, shortages of workers (especially lorry drivers in England), the Fed tapering, the Port of Los Angeles being constipated, the Russians, and bum politicians everywhere. Did I leave anything out?

Some people are perennially negative, fixated with the worries of the day, and imagine that they should be "short" stocks, or that they might profit by trading the dips. That's madness. The market might take a downturn every now and then, but you never know when, and over time, it goes up.

As legendary investor Bill Miller said recently, "one thing I am pretty confident of is that twelve months from now those worries will have been replaced by a new set of worries".

If you hear someone say "I'm worried about X and this market is too high" please note that this is not an analysis, it's just a personality type. Stop worrying, it's a waste of time. Stay invested.

Signing Off

Asian markets and US equity futures are mostly in the red this morning. China's Evergrande Group sank after its shares were unsuspended.

As mentioned above, PayPal is reporting its latest numbers today. There will probably be some volatility in the share price as they address the Pinterest rumours.

The Rand continues to make daily gains against the US Dollar, and is currently trading at $/R 14.43. Ok, that's it. On we go.

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