Some better-than-expected second quarter earnings releases, notably from the tech sector, helped US stocks to eke out gains this past week.
One exception was social media and advertising technology firms which came under pressure thanks to weak updates from Twitter (TWTR:NYSE) and Snapchat-owner Snap (SNAP:NYSE). These reflect a weaker consumer backdrop which is depressing demand for advertising.
Etsy was the very best performer on the S&P 500 over the past week as a bombed out share price attracted bargain hunters.
SNAP
Companies being tighter with their advertising budgets and growing competition from rival social media platform TikTok saw the owner of Snapchat disappoint the market with its second quarter earnings. This triggered a 29% slump in its share price, meaning Snap has lost approximately three quarters of its value year-to-date.
Second quarter revenue missed forecasts by 3% at $1.11 billion and the company refused to give any guidance for third quarter sales or earnings. Average revenue per user stalled at $3.20 in Q2, matching Q1's figure and well below the $4.06 achieved in the fourth quarter of 2021.
Snap plans to focus more on innovation with advertising systems including better measurement and more personalisation. Yet the market seems to be rapidly losing faith in the business, judging by the direction of the share price.
NETFLIX
It's the sign of the times when Netflix (NFLX:NASDAQ) stock rallies despite losing nearly a million subscribers in its second quarter. Being not as bad as expected has its merits yet there is still plenty for sceptics to get their teeth into - this is, after all, the first time ever that subscriber numbers have declined for two quarters in a row, having lost 200,000 in Q1.
The big worry is that the streaming market has quickly become saturated and household budgets are buckling under the strain of soaring monthly bills for food, energy and much else.
Netflix has a three-pronged plan; crackdown on password sharing, launching a cheaper, ad-supported tier, and spend less recklessly on content. Quality over quantity is what's needed to stand out in the crowded streaming space and the fact that some of its biggest hits; ‘Stranger Things’, ‘Queen's Gambit’, ‘Squid Games’, didn't needn't few blockbuster Tinseltown names to garner huge fan bases shows that there's hope.
TESLA
China factory shutdowns and supply chain woes are putting pressure on Tesla's (TSLA:NASDAQ) profitability but investors were positive on the latest quarterly release as the company posted 42% revenue growth and reported earnings ahead of expectations.
Earnings per share came in at $2.27 compared with the $1.81 which had been pencilled in by analysts while revenue at $16.93 billion was just shy of the $17.1 billion which had been expected.
The gross margin in the automotive business was down from 32.9% in the previous quarter to 27.9% as inflation took its toll - with the company facing significant competition for electric vehicle components.
The company cashed out a big chunk (around 75%) of its position in cryptocurrency bitcoin and gave reassuring guidance on performance for the second half of 2022, sticking with its aim of delivering ‘50% average annual growth in vehicle deliveries' over a multi-year horizon’.
DISCLAIMER: AJ Bell is the owner and publisher of Shares. Tom Sieber owns shares in AJ Bell.
