Week Ahead: Tesla and Netflix top Q3 earnings season bill

Earnings season on Wall Street revs up this week with Tesla due to report its Q3 results after delivering a record number of vehicles during the quarter. Meanwhile Covid top pick Netflix will update the market on its quarterly earnings performance and subscriber additions. Elsewhere the data is quite light this week with the focus on the flash PMIs on Friday.

Tesla

Tesla shares have soared around 450% this year as the company has driven sales and profits higher whilst also allaying concerns about its balance sheet. The company reports Q3 numbers on Wednesday, with investors expecting strong earnings off the back of a record quarterly delivery number. Tesla delivered 139,300 vehicles in the third quarter and produced 145,036. This marked a significant uptick from the roughly 90,000 delivered in Q2.

Baird analyst Ben Kallo recently raised his price target on TSLA by 25%. In a note reiterating a neutral rating that he’s had on the stock since January, the analyst raised the price target to $450 from $360. He thinks the company can start to refocus on investment in growth following the stock’s rally.

“We have experienced increased inbound interest in TSLA, particularly deciphering the bull/bear case from here,” Kallo wrote. “Interestingly, we have found investors increasingly focused on 2025+ blue-sky scenarios, in stark contrast to a few months ago when the primary focus was on the upcoming quarter.” Analysts remain split on Tesla, with 7 Buy, 10 Sell and 13 Hold/Neutral ratings.

Netflix

A big focus for the market will be the number of subscribers Netflix managed to add in the third quarter. Lockdowns around the world delivered a huge boost in the first half of 2020, with paid net subscriber additions soaring to 26m from 12m during the same period a year before. The company has forecast 2.5m paid net adds for Q3 versus 6.8m in the prior year quarter as the surge in H1 likely pulled forward some demand from the second half of the year. However, this could be a very conservative estimate and Netflix could beat this number handsomely.

Investors will also be looking at the cash burn as production schedules fill up again; the investment in content is both a cost but also seen as an important lever for Netflix in overcoming rivals in an increasingly competitive space. “Netflix’s content library investment allowed the company to evolve from a platform to watch re-runs to a quality source of original content, and now a destination for some of the biggest movie premieres, which makes the service an essential part of any consumer entertainment bundle,” analysts at Cannacord said earlier this year.

Goldman Sachs, which has previously noted that the company’s “massive content investments, global distribution ecosystem and improving competitive position will further drive financial results significantly above consensus expectations”, recently raised its price target on the stock to $670 from $600, citing better-than-expected Q3 results as a likely bull catalyst.

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Economic data

Global economic data is rather thin on the ground. The focus will be on earnings season on Wall Street to provide a steer for markets. As just about the only country expected to growth this year, China’s GDP, industrial production and fixed asset investment numbers due on Monday will help gie the markets some direction early in the week. UK retail sales and inflation numbers will be parsed for any clues as to whether the Bank of England might take interest rates negative, after it sent a letter to banks asking for their readiness for taking rates below the zero-lower bound. Friday sees the release of the flash manufacturing and services PMIs for the US, UK, Eurozone, Japan and Australia. These will help show whether the reopening momentum is fading as quickly as bears fear.

US Election Watch

Finally, investors will need to keep a close watch on the US elections, with the narrative of late focusing on a Blue-wave victory for Democrats that could unleash a flood of fiscal stimulus on to the market. Polling data has shown Joe Biden with a healthy lead over Donald Trump in the polls, however his lead in the key battleground states that will decide the election is a lot narrower. Moreover, Trump was actually doing worse at this stage four years ago when we look at the most important swing states. The race for the Senate is taking on extra interest given the assumption that Biden will triumph – a Republican Senate could seriously hamper reform efforts. Expect volatility to increase as the election nears, but as our friends at BlondeMoney pointed out last week, fears of a disputed result may be overblown.

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