Another week, another Market Update!
A bit of a short one this week. Largely my fault – had a surprise phone call from my consultant, who said I’d be having a surgery (which I’ve waited over 2 years for) in just three weeks… A lot of chaos ensued as I tried to reorganise my life! Haha. But, as it turns out, I likely have until June now. Phew. More time to plan!
Anyway. Here’s a rundown of this week’s main events, and how it might impact your portfolio.
Key Events
UK CPI (Inflation) Data For March 2023
On Wednesday, UK inflation data came in for March.
Year-over-year, headline CPI (i.e., the overall inflation rate) came in at 10.1%, above consensus estimates of 9.8%. March became the seventh consecutive month where CPI remained higher than 10.0%. Month-over-month, CPI came in at 0.8% (9.6% annualised), above the 0.5% expected.
Core CPI (inflation, excluding energy and food) came in hot as well, at 6.2%, compared to the consensus of 6.0%. Month-over-month, Core CPI rose 0.3%, slightly above the expected 0.2%.
This raises big concerns for the UK economy, and signals that the Bank of England will be forced to continue raising interest rates. Though, it’s worth noting that the BoE believe inflation will fall to around 2.9% by the end of 2023, which seems overly optimistic to me.
SpaceX Succesfully Launches Starship (Kind Of)
On Monday, the launch of Starship was scrubbed due to a pressurisation issue. While fans of the space company were disappointed, they knew it wouldn’t be long before the next launch attempt.
That launch attempt occurred on Thursday, and what a launch it was!
The utterly humungous spacecraft left the launchpad, applying so much force into the concrete below, from its 33 Raptor engines, that the concrete shattered. The vehicle made it to max q, and reached the height in which the two portions (the booster and Starship) were due to separate.
However, stage separation seems to have failed, and the ship begun to spin uncontrollably. Eventually, SpaceX had to call for the ship’s termination, resulting in two explosions. This marked the end of the test flight.
While it’s disappointing that separation failed, this was simply a test flight. In fact, SpaceX openly said they’ll be happy as long as Starship leaves the launchpad, and that said launch doesn’t damage too much of the landing site. Anything outside of this was considered bonus data.
Stock Market News
Alphabet (GOOGL) – Samsung Considers Ditching Google Search
This week, it came to light that Samsung are considering replacing Google as its default search engine across its smartphones.
Its replacement? Bing.
This would be a devastating blow to Alphabet, should the idea become reality. However, it does have a caveat. Almost 85% of the world’s online searches are through Google. Bing holds less than a 10% share of the search market.
As such, this could result in some very frustrated customers. Believe it or not, the majority of people do not mess with the settings in their smartphones. A large majority of users grow accustomed to what they get out of the box. Thus, having to learn how to go into the settings to revert their search engine back to Google may be seen as a nuisance.
Netflix (NFLX) – Q1 2023 Earnings
As one of the first mega-cap tech companies to report earnings each quarter, the performance of Netflix often dictates expectations and sentiment for the rest of earnings. This quarter is no different. In Q1, Netflix reported very mixed earnings, narrowly beating expectations on adjusted earnings, and narrowly missing on revenue. The company also announced delays in its password-sharing crackdown. Subscriber growth also came in roughly as expected.
Key Points:
- Revenue of $8,162m, up from $7,868m (+3.7%) a year ago
- Gross profit of $3,358, down from $3,583m (-6.3%) a year ago
- Operating profit of $1,714m, down from $1,972m (-13.1%) a year ago
- Profit before tax of $1,469m, compared to $1,980m a year ago
- Profit after tax of $1,305m, compared to $1,597m a year ago
- Basic earnings per share of $2.93
- Guidance for Q2 revenues of $8.200m, net subscriber growth similar to Q1 (~1.75m users), and operating margin to remain roughly flat at between 18%-20%
- Subscriber count rose to 232.50, up 1.75 million from the previous quarter
- The wider release of Netflix’s paid-sharing initiative (which prevents users freely sharing their password with those outside of their home at no cost) has been pushed back to Q2. This was initially expected in Q1
Tesla (TSLA) – Q1 2023 Earnings
Tesla also reported mixed earnings this week, barely beating on revenue, and meeting expectations on adjusted earnings. The real concerns come from lower gross profit margins than expected, along with rapidly declining free cash flow (though, I’m personally not surprised by this due to ambitious expansion plans).
Key Points:
- Revenue of $23,329m, up from $18,756m (+24.4%) a year ago
- Automotive revenue rose to $19,963m, up 18.4% year-over-year, but declined by 6.3% quarter-over-quarter
- Energy revenue rose to $1,529m, up 148.2% year-over-year, while also increasing 16.7% quarter-over-quarter
- Services and other revenue rose to $1,837m, up 43.6% year-over-year, while also increasing 8.0% quarter-over-quarter
- Gross profit of $4,511m, down from $5,460m (-17.4%) a year ago, with gross profit margin falling from 29.1% to 19.3%
- This is largely due to recent price cuts across the company’s range of vehicles. It’s expected that gross margin will increase to above 20% again in future quarters, once supply chain cost reductions are baked in
- Operating profit of $2,664m, down from $3,603m (-26.1%) a year ago
- Profit before tax of $2,800m, compared to $3,626m a year ago
- Profit after tax of $2,513m, compared to $3,318m a year ago
- Basic earnings per share of $0.73
- Free cash flow of $441m, compared to $1,420m in the prior quarter. This is due to a combination of factors. First, the lower gross profit mentioned above. Secondly, because of higher capital expenditure costs while Tesla build and expand multiple factories simultaneously
- Vehicle inventory rose to 15 days, up from 13 days in Q4 2022 and just 3 days in Q1 2022. While this is a trend that concerns some analysts, it’s still a very low inventory level when compared to competitors. GM, for example, have had a minimum of 30 days inventory over the past 12 months, reaching over 40 days at points
Next Week
Company Earnings
Here’s a list of the company earnings I’ll be covering next week (subject to change):
- Alphabet (GOOGL) – 25th April
- Microsoft (MSFT) – 25th April
- GlaxoSmithKline (GSK) – 26th April
- Amazon (AMZN) – 27th April
- Snapchat (SNAP) – 27th April
Let me know your thoughts on this week’s events, in the comments below!
