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For American investors, there are a few can’t-miss events during any earnings season. Apple’s (AAPL) release, for example, gives us all a handle on global consumer sentiment, while the big banks can help us to understand the situation here at home. There is one earnings report, however, that is a can’t-miss not because it has broader implications for the economy, but because it has entertainment value. That is why yesterday, after the market closed, I got my popcorn ready and sat down for Tesla’s (TSLA) earnings and analyst call. They did not disappoint.
The earnings themselves were interesting, but the real fun started when Elon Musk spoke after the release.
From an earnings perspective, Tesla beat expectations on EPS but fell a little short on revenue. For a growth company, which, despite its size, Tesla is still seen as by the market, that is not good news. Growth is defined as increasing sales, so disappointment on that front is obviously bad for a “growth” stock. Adding to the bad news from a growth perspective was the company’s warning that supply issues could result in deliveries at a slower than anticipated rate in Q4.
All of that is presumably why TSLA reacted as it did, dropping around five percent in the aftermath of the release. Amongst the Teslarati, who have been buying on dips for years, that will be seen as just another opportunity to buy at a discount, something they have been doing very profitably for years. They may be right. The supply issues that are expected to restrict supply this quarter are short-term by nature, whereas the facts that EV sales are still only a small percentage of overall vehicle sales globally and that Tesla supplies a massive percentage of those vehicles point to massive long-term growth still to come.
In that context, beating on EPS while missing on revenue is a good thing. It shows increased profitability in tough conditions and a leaner, more efficient operation, ready for the massive growth ahead.
Which brings us to the popcorn-worthy part of yesterday’s earnings. Elon Musk said on the earnings call that he envisions a time when Tesla is bigger than Apple and Aramco combined. Apple has a market cap of $2.3 trillion, and Aramco is valued at right around $2 trillion. Musk’s “forecast” implies growth of over 500% for Tesla, which is currently worth around $700 billion. That would take the stock to over $1200 based on today’s prices.
Nor was Musk concerned with just Tesla on the call. He also said that he was excited about the Twitter (TWTR) deal, even though he overpaid for the company. This is the kind of thing that makes his comments on Tesla earnings so entertaining. Pure, unfiltered opinion and views that are not spoken with an eye only on the bottom line. What other CEO would say that he overpaid for a takeover before the deal was even closed?
Musk says what he feels at any given moment, which leads some controversy over his remarks and for some to discount what he is saying as noise. The problem with that view is that his “boasts” have usually turned out to look more like accurate predictions over time, and he has never let his ego get in the way of success. He didn’t, for example, take over the airwaves with massive ad campaigns for Tesla, which might have massaged his ego. He believes that the quality of the product and a relentless shift towards EVs will sell Teslas, not ads with a memorable tag line, a catchy jingle, or an abundance of American flags.
That kicks back against conventional business wisdom, and he and his team are also different in that they saw the dangers of a global supply chain early and invested billions in securing their own. Building battery giga factories and signing long-term deals for huge amounts of raw materials looked crazy to a lot of people in the pre-Covid world, and many said then that said they overpaid for those things. Savvy investors, however, took the long-term view and bought on dips at times like that. They will do so this time, too, and history suggests that they will have the last laugh.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Image and article originally from www.nasdaq.com. Read the original article here.