News & Analysis

Tesla and Microsoft Corporate Earnings Results

July 23, 2020

By Deepta Bolaky
 @DeeptaGOMarkets

Microsoft and Tesla, the two leaders in their respective industries reported their quarterly earnings results on Wednesday after the market closed. Both tech companies reported earnings exceeding expectations but the reaction in the after-hours trading was different altogether.

Tesla Inc (TSLA)

Tesla, the electric vehicle and alternative energy company reported a surprising profit for the second quarter. The Company reported a net income of $104 million and a positive free cash flow of $418 million. It earned $2.18 per share compared to a negative earnings per share of $1.12 a year ago. Tesla was able to offset its costs associated with the factory shutdowns by reducing expenses.

The Company reported positive quarterly earnings for the fourth consecutive times which may pave the way for the electric car maker to join the S&P500 index.

Earlier this month, the Company’s share price reached an all-time intraday high at $1,794.99 when the electric car pioneer decided to ramp up production of its semi-truck. The Company’s share price rose more than 5% in the after-hours trading after the release of the Q2 corporate earnings report.

Microsoft Corporation (MSFT)

The multinational software company has moved quickly to assist businesses, governments and non-profit organisations as the COVID-19 pandemic swept the world:

“The last five months have made it clear that tech intensity is the key to business resilience. Organizations that build their own digital capability will recover faster and emerge from this crisis stronger,” said Satya Nadella, chief executive officer of Microsoft.

The Company reported strong earnings driven by the outperformance of its cloud platform. As compared to the corresponding period of last fiscal year:

  • Revenue was $38.0 billion and increased 13%
  • Operating income was $13.4 billion and increased 8%
  • Net income was $11.2 billion and decreased 15% GAAP (up 5% non-GAAP)
  • Diluted earnings per share was $1.46 and decreased 15% GAAP (up 7% non-GAAP)

Just like Tesla, the Company’s share price hit an all-time closing price of $214.32 earlier this month.


Source: Bloomberg

Despite promising Q4 earnings report, its share price fell in after-trading hours. Azure grew by 47% compared to a growth of 64% in the corresponding period of last fiscal year which was the area of concern.

By Deepta Bolaky
 @DeeptaGOMarkets


Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice. 

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By Deepta Bolaky
 @DeeptaGOMarket

EU Recovery Fund

After a standoff between the EU and Germany, following a critical ruling on ECB’s quantitative easing program by Germany’s constitutional court, the gradual reopening of economies of member states within the Eurozone has brought some optimism.

The downside risks for the Eurozone and its shared currency have somewhat eased on the fact that Europe, which was the epicentre of COVID-19 after China, might have gone through the worst phase of the pandemic. The sentiment for the Euro was also buoyed by the EU Recovery fund proposed by Chancellor Angela Merkel and President Emmanuel Macron to help Europe’s mostly hit countries.

Unfortunately, the optimism over the coronavirus fund proposal, which aims to show unity in overcoming the crisis and to achieve quicker economic recovery, was short-lived.

Europe’s Frugal Four 

Amid an unprecedented crisis, the Franco-German proposal was to provide support and reinforce EU financial relations and show that Europe is standing together. Austria, Denmark, the Netherlands and Sweden, dumbed as the “frugal four” put forward a counter-proposal that highlights the diversion of opinions in helping the Southern members states.

Grants or Loans

The Franco-German proposal is about “overcoming the crisis united and emerging from it stronger”. Both leaders proposed to make outright grants to help countries in need. They want to launch a temporary fund of 500 billion euro for EU budget expenditure:

“This would not provide loans, but rather budget funding for the sectors and regions hit hardest by the crisis. We firmly believe that it is both justified and necessary to now provide funding for this from the European side that we will gradually deploy across several European budgets in the future.”

In contrast, the frugal four wishes to provide loans rather than grants to southern European countries and expect the recipients of loans to comply with the fundamental principles of the EU and commit to strong reforms in repaying the loans. Their two-year and “one-off” proposal appears to also outline how those countries should use the funds and target sectors that are mostly hit based on an assessment.

The coronavirus pandemic is testing the solidarity of European members and is threatening to reawaken a euro crisis. Southern countries like Greece, Italy and Spain lacked the fiscal space they need to put forward an economic stimulus package to support their economies, compared to Northern countries. 

Disparity? Compromise?

Both proposals are saying “yes” to emergency aids to assist with recovery, but the disparity lies on how the funds will be financed to respond to the economic wreckage. The size of the emergency fund, the conditions of the funds or whether it will be grants or loans will be a compromise the markets are expecting to see. However, the type of compromise might be a key factor in determining the relationships of EU members.

Unprecedented times probably need unprecedented Unity.

Euro – The Shared Currency

The fact that Europe may have gone through the worst phase of the coronavirus has somewhat eased the downside risks of the shared currency. But the current geopolitical tensions with China and uncertainties on the EU Recovery plan are putting a lid on the upside momentum of the Euro.

After the sharp plunge in March, the EURUSD pair has been trading within the 1.08 to 1.09 range. Yesterday, the better-than-expected IFO Surveys in Germany has helped the pair to hold ground and hover around the 1.09 level. The recovery plan could mitigate the selling pressure and allow a probable move above 1.10 level if there is a compromise that satisfies the frugal four.

EURUSD

Source: Bloomberg Terminal

The immediate attention turns to the European Commission which is supposed to unveil a draft recovery plan on May 27th, 2020.

By Deepta Bolaky
 @DeeptaGOMarkets

Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.

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