Netflix Pops on Earnings Beat, Tesla’s Results Next. What Now for the S&P 500?

NETFLIX EARNINGS KEY POINTS:

• Netflix reported better-than-expected bottom-line results on Tuesday
• Third-quarter EPS stood at $3.10 versus a forecast of $2.12. Revenue came in at $7.78 billion, slightly below expectations of $7.98 billion
• Tesla’s numbers will steal the limelight on Wednesday

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Netflix soared in the extended session after announcing strong quarterly numbers and offering constructive forward-looking projections. At the time of writing, NFXL shares were up about 15% to $278.00 after a tepid performance during regular trading hours.

According to Tuesday’s financial disclosure, third-quarter revenue stood at $7.78 billion, slightly below analysts’ estimates of $7.98 billion, representing a 5.9% increase compared to the same period last year. With this result, normalized EPS clocked in at $3.10, blowing past expectations of a gain of $2.11 per share.

In terms of membership growth, management said that 2.41 million subscribers were brought onboard, beating the forecast of 1.0 million and reversing all losses during the first half of the year. In addition, the streamer said it expects to add 4.5 million paying users for the last three months of the year, slightly above estimates of 3.9 million.

NETFLIX RESULTS AT A GLANCE

Normalized EPS: $3.10 vs $2.12 per share, according to Bloomberg

Revenue: $7.78 billion, vs. $7.98 billion, according to Bloomberg

Global Paid Net Subscribers: 2.41 million new subscribers versus expectations of a gain of 1 million

NETFLIX (NFLX) 5-MINUTE CHART

Netflix Chart Prepared Using TradingView

While the results were largely positive, investors placed less importance on past performance and chose to focus on profitability. In this regard, Netflix said the worst of the slowdown is over and that it is on a path to reaccelerate growth, but noted that the upcoming ad-supported tier will not have a material contribution to fourth-quarter performance (results may take longer to play out).

The release of Netflix’s earnings follows a somewhat positive day on Wall Street. Stocks surged at the cash open, but retraced their advance throughout the day on cautious sentiment and unconfirmed reports that Apple will cut iPhone 14 production amid weak consumer demand. After all the twists and turns in the day, the S&P 500 climbed 01.14%% to 3,719, while the Nasdaq 100 edged up 0.7% to 11,147.

Looking ahead, there is no relevant data on the U.S. economic calendar on Wednesday, so the ongoing earnings season will continue to command all the attention. Several firms will announce their numbers tomorrow, but Tesla’s quarterly report (TSLA) will undoubtedly be the most important one to watch, considering that the electric car maker has one of the largest market capitalizations in the world.

In terms of expectations, Tesla’s third-quarter EPS is seen at $1.01 on revenue of $22.52 billion, a 63% year-over-year increase. Guidance, however, is likely to matter more for investors, including comments on customer demand, production, and deliveries. Traders should also pay attention to the sales outlook in China, a top market for the company.

If TSLA manages to deliver outstanding results and offer strong guidance, its shares could extend their recent rebound, setting a positive tone for tech stocks. This may give oxygen to the S&P 500 and Nasdaq 100 for further recovery in the coming sessions, although any upside is likely to be limited by rising recession risks and tightening financial conditions.

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—Written by Diego Colman, Market Strategist for DailyFX