Happy Sunday, everyone.
As you’ll read below, giants like Netflix (NFLX) and Tesla (TSLA) dampened the outlook of the tech sector last week. Partly due to the massive interest around AI — the tech-heavy Nasdaq 100 has climbed +42% this year and is trading at 29 times forward earnings.
The five biggest companies in the S&P 500 are currently trading at a combined 30 times forward earnings. This is the highest level since March of 2022 and nearly twice the trading multiple for the rest of the S&P 500.
The index will have over 170 companies report earnings this week, or about 40% of the market capitalization of the S&P 500. Be sure to open up tomorrow’s Investing Week Ahead post to hear all about it.
For now… let’s jump into updates to my portfolio!
Portfolio Updates:
Not too much to share here — we’re still around the same spot as we were last week. However, I’ve been thinking about increasing my position in Crocs (CROX) — their search volume has gone through the roof and I’ve seen a ton more videos about their platform sandals on TikTok.
As you all might remember, I exited my PayPal position about a month ago and used that money to open a position in Crocs. Since then, their stock price has increased by +15%. With their earnings slated to be reported next week, I’m very excited!
As I shared last week, I’m actively increasing my cryptocurrency position. This is primarily made up of Bitcoin, Ethereum, and Chainlink. I’m eager to see what this section of my overall portfolio is worth in the coming 12-24 months given all of the momentum the industry is seeing right now.
Finally, I wanted to give a major shoutout to my friends over at DumbMoneyTV (Chris, Dave, and Jordan) for covering the Oddity Technology IPO so well. It’s certainly going to be a company I’ll be analyzing further in the coming days.
If you’d like to watch their analysis, click here.
If you’d like to use the same portfolio analysis tool that I use (StockUnlock), click here.
Week in Review — Too Long, Didn’t Read:
Netflix increases free cash flow expectations for 2023, Tesla’s margins are likely to remain compressed, ASML Holdings guides to +30% growth for the year, Spotify could benefit from the Hollywood drama with actors & writers, Apple tests its own ‘GPT’, Kim Kardashian’s Skims hits $4 billion, The Conference Board’s LEI looks horrible, Retail Sales are still relatively strong, and Existing Home Sales tank.
Key Earnings Announcements:
Netflix is focused on FCF, Tesla’s margins will continue to compress, and ASML guides to +30% growth for 2023.
Netflix (NFLX)
Key Metrics
Revenue: $8.2 billion, an increase of +3% YoY
Operating Income: $1.8 billion, an increase of +16% YoY
Profits: $1.5 billion, an increase of +1% YoY
Earnings Release Callout
In May, we successfully launched paid sharing in 100+ countries, representing more than 80% of our revenue base. Revenue in each region is now higher than pre-launch, with sign-ups already exceeding cancellations. Paid net additions were 5.9M in Q2, and today we’re rolling out paid sharing to almost all of the remaining countries.
My Takeaway
After reading this quarter’s earnings report, I’m bullish on Netflix. My positive thesis on Netflix relies largely in part on their password sharing crackdown both to 1) drive new subscribers higher and 2) drive average revenue per user higher — which should begin during the second half of this year.
The sharing crackdown and ad-tier has literally just begun to positively impact their results. Revenue came at $8.2B, about $100M below consensus, while having also added 6 million net paid subscribers vs. 2M expectations.
Data tells us that former subscription “piggybackers” are signing up for their own accounts post-sharing crackdown, with many of them opting for the ad-based tier. This tier also has the lowest churn.
With that being said, Wall Street is estimating their ad-based tier reaches parity in Q3, generating more revenue per user vs. paid subscribers in the US.
Another massive takeaway I saw this quarter is the company’s immense focus now on profitability and generating free cash flow. The company guided to $3.5B in FCF for the year of 2023 back in January, and now they’re increasing that guidance to $5B for 2023 — just 6 months later.
I think if Netflix is about to reach the right formula for its global content and is able to balance the costs of generating that content — they’ll be positioning themselves in a great place come 2024.
Tesla (TSLA)
Key Metrics
Revenue: $24.9 billion, an increase of +47% YoY
Operating Income: $2.4 billion, compared to $2.4 billion last year
Profits: $2.7 billion, an increase of +20% YoY
Earnings Release Callout
Q2-2023 was a record quarter on many levels with our best-ever production and deliveries and revenue approaching $25B in a single quarter.
Our operating margin remained healthy at approximately 10%, even with price reductions in Q1 and early Q2. This reflects our ongoing cost reduction efforts, the continued production ramp success in Berlin and Texas and the strong performance of our Energy and Services & Other businesses.
My Takeaway
At the end of the day, this quarterly report didn’t change anything. Tesla’s fundamentals are still in-tact, and they’re still trending to become a multi-trillion dollar company in the coming decade.
You all probably remember my analysis on Tesla’s Q1 earnings — specifically their new theme around software vs. hardware. They’re trying their best to sell their cars as cheaply as possible, then monetizing the software after the fact. This will certainly negatively impact their margins over the coming quarters, but I’d imagine will work itself out by mid-2024 — allowing us to see improved operating margins.
Tesla is on track to generate $100B in revenue during 2023, and $140B throughout 2024. However, to accomplish this +30-50% growth in 2024, they’ll really need to lean in on that “lower price” growth lever mentioned above.
Near term, the price of Tesla stock will do whatever the headlines are insinuating. Long term, continues to be one of the most exciting stories in both artificial intelligence and automotive.
Here’s a link to a great Twitter thread that highlights a few wild statements made by Elon Musk during the earnings call. I’ll continue to dollar cost average into this stock over the long-term.
ASML Holdings (ASML)