Online Trading is a gateway to financial markets, and few opportunities are as big as quarterly earnings from major companies.
Quarterly reports from major corporations often serve as vital barometers for market health, yet occasionally they diverge from expectations, leaving investors puzzled.
Fred Razak, Chief Trading Strategist at CMTrading, looks at some of the most unexpected recent outcomes from industry giants, shedding some light on the factors driving these results.
Online Trading – State of the Market
Following a robust year in 2023, the S&P 500 has extended its upward trajectory into January, reaching new all-time highs for the first time in over two years, buoyed by positive economic indicators and hopes for Federal Reserve interest rate cuts.
By the end of January 2024, the index celebrated new record closing highs on six trading days, adding a 1.68% gain to the previous year’s 26.28% increase despite a subdued beginning to the fourth-quarter earnings season.
While recent inflation figures indicate the Fed’s ongoing battle to stabilize prices, strong GDP and labor market data suggest the US economy remains stable.
Despite historically underperforming in February, investor sentiment remains high for the S&P 500’s continued growth.
However, the fourth-quarter earnings season, which began in mid-January, has so far delivered underwhelming results.
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The S&P 500 has seen a 1.4% decrease in earnings per share year-over-year for the quarter, marking a potential fourth consecutive quarter of annual earnings decline out of the last five.
The communication services sector of the S&P 500 stands out with a significant earnings increase of 40.4% from the previous year, while the energy sector’s earnings have fallen by 31.4%, negatively affecting the overall earnings growth.
Online Trading – Challenges in the Market
Despite these challenges, Wall Street analysts are optimistic about a turnaround in earnings, forecasting a 4.6% earnings increase for the S&P 500 in the first quarter of 2024 and a 9.4% growth in the second quarter.
Investors are looking past the stagnant earnings of the fourth quarter, anticipating a strong rebound in earnings growth throughout 2024.
1 Samsung: Navigating Turbulent Waters
“Samsung’s recent announcement of a 35% decline in operating profits sent waves through the market, hinting at deeper-rooted challenges,” remarks Razak. “Notably, we’ve witnessed slumps in crucial revenue streams, including chip manufacturing and smartphone sales.”
Razak attributes Samsung’s woes to a combination of factors, citing increased competition and a lag in innovation.
“While Samsung boasts a reputation for operational excellence, the organisation’s failure to pioneer disruptive technologies akin to Silicon Valley innovators has left it vulnerable in an increasingly competitive market.”
Despite the downturn, Razak remains cautiously optimistic about Samsung’s resilience. “Given that Samsung is in a good position as far as its cash position, the company retains the capacity to weather storms.
“However, recalibrating market expectations to align with evolving industry landscapes is imperative.”
Samsung performance – 2024
Samsung Electronics announced its financial outcomes for the fourth quarter and the entire fiscal year of 2023.
The corporation reported consolidated revenues of approximately $50.16 billion and an operating profit of about $2.09 billion for the quarter ending December 31, 2023.
Over the full year, Samsung recorded around $191.62 billion in total revenue and approximately $4.86 billion in operating profits.
Revenue and operating profit for the fourth quarter saw an increase from the previous quarter, driven by enhanced performance in Memory production due to rising prices, and the sustained robustness in sales of premium display products.
In the first quarter of 2024, Samsung aims to enhance profitability by boosting sales of high-value-added products.
The component sectors will strive to fulfill the demand for advanced products and those designed for generative AI, while the Device eXperience (DX) Division plans to amplify AI features in smartphones and other consumer electronics.
The expectation is for the memory market and IT demand to persist in recovering throughout 2024, despite the looming macroeconomic uncertainties.
Samsung intends to satisfy the semiconductor needs for AI applications and venture further into markets for AI-enabled consumer products, concurrently fortifying its leadership in premium items and competitive edge in advanced-node semiconductors.
Online Trading – Samsung Surge
Given the anticipated impact of ongoing macroeconomic uncertainties on the business climate in the short term, Samsung forecasts a modest earnings improvement in the first half of 2024, with a more significant enhancement anticipated in the latter half.
The company’s total capital expenditures for 2023 amounted to about $39.29 billion, including approximately $35.82 billion spent in the Device Solutions (DS) Division and about $1.78 billion in the Samsung Display Corporation (SDC).
In the fourth quarter alone, the total expenditure was around $12.14 billion, with about $11.03 billion allocated to the DS Division and roughly $592 million to SDC.
Investments in memory were primarily allocated to infrastructure development at the Pyeongtaek facility in Korea and the expansion of production capacity for HBM, DDR5, and other advanced nodes.
Foundry investments were focused on increasing the production capacity for advanced EUV nodes of 5 nanometers and below, as well as infrastructure at the companyโs factory in Taylor, Texas.
Display investments were chiefly directed towards IT OLED products and flexible displays.
2 Tesla: Steering the Road to Innovation
“Tesla’s recent earnings report fell short of expectations, primarily attributable to stagnant product evolution and unforeseen delays in the Cybertruck launch,” explains Razak.
“The company’s inability to introduce groundbreaking innovations and production setbacks have significantly impacted their performance.
Tesla has transcended the traditional automaker archetype, positioning itself as a trailblazer in tech-centric mobility solutions.
However, with rivals swiftly closing the innovation gap, the pivotal question emerges: Can Tesla reclaim its position as an industry disruptor amidst escalating competition?”
Razak underscores the need to reassess Tesla’s identity within the automotive landscape. “Moving forward, we should compare Tesla to a high-tech company.
It is a high-tech company offering cars, whereas many competitors are traditional vehicle manufacturers now venturing into electric vehicles.”
This paradigm shift signifies Tesla’s evolution into a pivotal player in the broader tech industry, facing off against formidable contenders from China and the United States.
The crux of the matter lies in Tesla’s ability to sustain innovation and maintain a competitive edge.
As competitors converge, investors must scrutinise Tesla’s capacity to innovate and propel itself to the forefront of the competitive market.
Tesla Performance in 2024
Tesla’s (TSLA) projected earnings for 2024 have dipped below the levels seen in 2023, indicating another year of negative growth for the company known for its growth story. Concurrently, the electric vehicle (EV) giant raised the U.S. price of its Model 3 Long Range variant on Sunday.
On February 5, TSLA stock experienced a significant decline, reaching a new eight-month low.
According to FactSet, analysts now anticipate Tesla’s earnings per share to be $3.08 in 2024, reflecting a 1% decrease compared to the previous year’s $3.12 and a substantial 23% drop from 2022.
Projections for 2025 show a modest increase to $4.24 per share, a reduction from the figures of $5.27 at the close of the previous year and $6.90 at the end of February 2023.
Tesla’s actual earnings peaked in 2022 at $4.07 per share.
Reports suggest that German software giant SAP (SAP) will no longer utilize Tesla for company cars due to issues like delayed deliveries and price fluctuations.
This development adds to the challenges faced by Tesla in Germany, where EV demand is declining after the removal of subsidies and economic struggles.
It also marks another setback for Tesla in fleet sales, following Hertz (HTZ) and Germany’s Sixt removing Tesla EVs from their rental fleets.
As of February 5, Tesla stock had dropped 3.7% to $181.02, reaching an intraday low of $175.01โits lowest point in eight months.
It currently stands as the worst-performing stock in the S&P 500 for the year 2024, with a 27% decline.
In the previous week, Tesla shares rose by 2.5% to $187.91, breaking a six-week losing streak.
Tesla maintains a lofty forward price-to-earnings ratio of 58.
3 Netflix: Surfing the Content Wave
“Netflix defied market expectations with a surge in subscriber numbers, bolstering revenues significantly. Their crackdown on password sharing and judicious price adjustments have undoubtedly contributed to their bottom line,” states Razak.
“Expanding their subscriber base while concurrently tightening operational efficiency underscores their robust growth trajectory.”
Looking ahead, Razak emphasises the paramount importance of content sustainability for Netflix’s continued success. “The bedrock of Netflix’s prosperity lies in its ability to curate a compelling content library and tap into previously untapped markets.”
Netflix performance 2024:
Netflix (NASDAQ: NFLX) experienced a significant downturn in 2022 with a 51% drop in shares due to slowing revenue and subscriber growth.
However, the company rebounded impressively in 2023, with shares surging 91% by February 2, thanks to strong business momentum.
The fourth quarter results were particularly striking, with Netflix adding a record 13.1 million new subscribers and a 12.5% increase in revenue to $8.8 billion.
This surge in subscribers, totaling 29.5 million in 2023, marked a return to its usual growth rate of 25 to 30 million per year.
A crackdown on password sharing and the popularity of the cheaper ad-supported subscription tier contributed significantly to this growth.
Netflix’s dominance in the streaming industry is clear, with a subscriber base of 260.3 million and an annual revenue of $33.7 billion.
The company plans to invest $17 billion in content this year, outspending rivals and expecting a significant increase in operating margin to 24% in 2024, up from 13% in 2019.
Despite a high current price-to-earnings ratio of 47, Netflix’s strong industry position, growth potential, and increasing profitability make it an attractive option for long-term investors.
Considering the company’s ongoing success and potential for further earnings growth, Netflix could well outperform the market in the coming years.
4 IBM: Anchored in Tradition
“IBM’s quarterly results surpassed projections, propelled by strong AI and cloud services performances. However, their enduring success isn’t merely a product of trend-chasing but rather a testament to their steadfast adherence to traditional business models,” elucidates Razak.
Razak underscores IBM’s stability amidst technological disruptions.
“Unlike their trend-driven counterparts, IBM’s longevity stems from their unwavering commitment to core competencies and client-centric strategies. Rather than chasing fleeting innovations, IBM remains anchored in reliability.”
In conclusion, Razak advises against hasty judgments based solely on short-term financial gains. “IBM’s sustained profitability underscores their resilience in the face of market fluctuations.
Investors should recognise their unique market position and adopt a long-term outlook, steering clear of transient market trends.”
IBM performance 2024:
IBM shares have hit their highest point in over a decade, primarily driven by growing interest in artificial intelligence (AI). The company saw its stock jump by more than 9% last Thursday following impressive fourth-quarter earnings and an optimistic outlook for 2024.
CEO Arvind Krishna attributed this success to a spike in AI demand, a field where IBM has deep roots, notably with its Watson supercomputer’s victory on Jeopardy! over ten years ago.
Despite Watson’s subsequent decline in visibility, IBM’s stock struggled to keep pace in the AI buzz dominated by OpenAI’s ChatGPT, Microsoft (MSFT), and Nvidia (NVDA) until the latter part of 2022.
Nevertheless, IBM shares have surged nearly 40% since October, buoyed by a tech rally and a growing perception of IBM as an AI contender.
However, there’s an ongoing debate about whether this surge reflects IBM’s real business achievements. In its recent earnings report, IBM announced an 8% increase in adjusted earnings per share to $3.87, surpassing expectations, and a 4% rise in revenue to $17.4 billion.
Following these results, IBM’s stock reached its peak since June 2013 at $190.43, though it slightly receded afterward.
Looking ahead to 2024, IBM forecasts mid-single-digit revenue growth and expects to generate $12 billion in free cash flow, drawing positive reactions from analysts.
During a call with analysts, CEO Krishna highlighted that IBM’s AI business and WatsonX product bookings doubled from the third to the fourth quarter, signaling approximately $400 million in bookings.
IBM has recently shifted focus towards expanding its hybrid cloud and AI services, with CFO Jim Kavanaugh noting that software and consulting now make up 75% of IBM’s revenue, up from 55% in 2020.
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