US stocks deliver positive performance led by Apple and Tesla; Market negates coronavirus fear

Impressive financial results from the companies led to the better-than-expected performance of the US market. The positive results offset the threat from the coronavirus outbreak. Also, the Federal Reserve kept the benchmark interest rate steady, adding to the improved sentiment.

The strong corporate earnings were led by Apple Inc., maker of one of the best smartphones, iPhone - the iPhone. Industrial behemoth General Electric and fast-food chain McDonald's Corporation also exceeded analysts’ expectations. Further, companies such as Tesla, Inc. also contributed to the index performance.

In this article, we will review the latest financial results of Apple Inc. and electric vehicles (EV) manufacturer, Tesla, Inc. and their respective outlook.

Apple achieves unprecedented revenue and earnings in Q1 FY2020

On 28 January 2020, Apple Inc. announced its first-quarter FY2020, ended 28 December 2019. The company reported its highest-ever revenue and earnings lead by strong sales in its flagship product, the iPhone.

Below are the key highlights of Apple’s quarterly results for the period closed 28 December last year:

• Revenue of US$ 91.8 billion was noted, with a growth of 9% compared to Q1 FY2019. Revenue from product sales stood at US$79.1 billion while services contributed US$12.7 billion to the revenues;
• Net income for the period stood at US$22.2 billion, with an increase of 11% year on year;
• Diluted earnings per share were reported at US$4.99, significantly higher compared to US$4.18 in Q1 FY2019;
• iPhone was the most significant contributor to the revenue with a 61% share while the Americas were the largest markets with a contribution of 45% to the total revenue;
• iPhones, wearables and services categories registered growth in revenue, while iPad and Mac’s revenue declined year on year.

Q2 Outlook: Apple predicts revenue of up to US$67 billion

The company has provided its guidance for the 2^nd quarter as follows:

• Expected revenue in the range US$63 billion – US$67 billion
• Gross margin between 38% and 39%
• Operating expenses in the range US$9.6 billion - US$9.7 billion
• The tax rate is estimated at ~16.5%

Share price reflects the positive sentiments generated by the results

Apple’s stock was at US$324.24 at the close of the market on 29 January 2020, indicating an increase of 2.09% from its previous close. The company had a market capitalisation of ~US$1.4 trillion. The share volume stood at 54.15 million, significantly higher than the 50-day average of 28.7 million.

California Jury fines Apple to the tune of US$270.2 million for Wi-Fi patent infringement

On 29 January 2020, Apple Inc. was fined by a California jury for infringing the Wi-Fi technology patents of The California Institute of Technology. Apple has been ordered to pay ~US$270 million to CalTech for the infringement. The company, however, has said that it will appeal against the decision highlighting that it only utilised the Wi-Fi chips provided by Broadcom (also fined for patent infringement) and did not do anything wrong.

Outlook for 2020

Apart from the iPhone, Apple reported growth in revenue from the Wearables, Home and Accessories and Services categories as well. This indicates that the company is not dependent on the iPhone even though it’s the largest contributor to the revenue.

Industry experts have highlighted that in addition to the robust performance from wearables and services, the emergence of 5G wireless technology, and the company’s plans to launch multiple models of iPhone are expected to drive the performance of the company in 2020.

Q4 FY2019 Results: Tesla generates profit for the 2^nd quarter in a row

Tesla, Inc., the US-based EV manufacturer, announced robust results for Q4 2019 on 29 January 2020. The company, for the first time in its history, reported profits for consecutive quarters. While the company didn’t generate profits on year on year basis, the performance was significantly better than FY2018 when it posted a loss of ~US$1 billion.

The results beat consensus estimates, validated by a substantial increase of 7% in the share price during after-hours trading. Following are the key highlights:

• Tesla generated revenue of US$7.38 billion, a growth of 2% year on year
• Operating expenses of US$1.03 billion were in line with Q4 FY2018 figures
• Adjusted EBITDA grew 13% to reach US$1.18 billion
• Net income (non-GAAP) increased by 12% to reach US$ 386 million
• The company delivered 92,620 units of Model 3, its most affordable car. The number of units delivered increased by 46% year on year while the production grew 42% to reach 86,958 units.

Q4 FY2019 Performance (Source: Tesla’s Q4 and FY2019 Update)

Unexpected results drive share price of the company

The record-setting Q4 results led to a sharp rise in Tesla’s share price. The company’s stock was at US$580.99 at the close of the market on 29 January 2020, reflecting an increase of 2.49% from its previous close. The company had a market capitalisation of ~US$104.7 billion. The share volume stood at 18.22 million, significantly higher than the 50-day average of 12.66 million.

Outlook for 2020

Tesla, Inc. announced its outlook for 2020 on 29 January 2020, highlighting that the vehicle deliveries are expected to cross the mark reached in 2019. Following are the key points:

• Vehicle deliveries to cross 500,000 units easily
• Production of vehicles to exceed deliveries due to improved production of Model 3 and Model Y in Shanghai and Freemont, respectively
• Estimates positive free cash flow every quarter
• Tesla aims for positive net income (GAAP) in the coming quarters

Q4 FY2019 was the first time that Tesla delivered profits in consecutive quarters. Since investors look for companies that make profits and thus generate returns on investments, Tesla’s performance is expected to garner attention from the various stakeholders.

The stock price for the company increased by over 100% post Q3 FY2019 results announcement, in the three months period following the release of Q3 FY2019 results period. While a similar reaction is unlikely, the strong performance in Q4 FY2019 coupled with a favourable outlook will likely attract new investors.