After mixed results from the FANG stock during this earnings season, tech stocks got a big boost Thursday from good news and big rallies in the shares of Apple (AAPL - Free Report) and Tesla (TSLA - Free Report) .
It appears that the “short burn of the century” is back on as electric car innovator Tesla reported earnings results, guidance and production numbers that delighted investors and the shares subsequently rallied $49 - or 16% - on the day. In the investor conference call, a contrite and polite Elon Musk reassured the markets that Tesla was effectively ramping up production of the Model 3 and on track to profitability.
Tesla reported Q2 revenues of $3.35B, a 23% increase over Q1 and 47% higher than Q2 in 2017. A combination of improved gross margins and a significant cost cutting initiative contributed to cash outflows from operating activities of just $130M, down from $398M in Q1 and alleviating fears that the company would have to turn to the capital markets to raise cash. Tesla ended the quarter with $2.2 billion is cash and equivalents and forecast that that number would acyually increase in Q3 and Q4.
Tesla also reported that they have now achieved the steady production of 5,000 Model 3s per week and had actually produced 7,000 in the last week of June. They anticipate that they will soon be producing 6,000 model 3s per week regularly and that after clearing up a few more manufacturing and supply bottlenecks, expect to be producing 10,000 per week early in 2019.
In another positive development for the company, they announced that the 200,000th Model 3 was not delivered until July, which means that the $7,500 federal tax credit would be available to all buyers in 2018. With deliveries expected to be 55,000 or more of the cars per quarter, that represents a savings to customers in Q4 of over $260M more than if the tax credit had expired after Q3.
With approximately 35 million shares in short interest, Thursday’s rally represents losses for the bears of $1.75 billion.
It’s certainly starting to look like Musk’s prediction of extreme pain for the shorts is truly materializing.
Also reporting on Wednesday, Apple beat the Zacks Consensus Earnings estimate, posting $1.67/share in earnings, along with a significant increases in iPhone selling prices and a 31% increase in revenues in the lucrative services division. Apple shares finished up $5.89 on the day at $207.39, making Apple the first American company ever to reach $1 trillion in market capitalization.
Apple reported unit and revenue growth in all product categories, including $7.2B in the services segment, a year over year increase of 22%. Investors had feared a reduction in the average iPhone sales price if buyers chose less-expensive models, but an average selling price of $724 – an almost 20% increase over last year - indicated that consumers still have a healthy appetite for the high-end versions that sell for up to $1000.
The combination of strong hardware demand at premium prices and impressive growth in services revenue seemed to reassure investors that Apple is successfully diversifying it’s business and is no longer dependent on a single product or product cycle.
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