Tesla’s in the Hole
It’s been a bad quarter for the polarizing EV-maker. Profit dropped 45% YOY in Q2, largely because Tesla shaved prices and offered great financing deals to move cars. That boosted sales to 440,000, but cut margins to 6.3% from 9.6%. Profits were $1.5 billion on revenue of $25.5 billion, down from a $2.7 billion profit on revenue of $24.9 billion a year ago. And Tesla’s market share fell below 50% for the first time, to 49.7% of U.S. electric vehicle sales, down from 59.3 percent a year earlier, according to industry publication Cox Automotive.
RJ Scaringe, CEO of rival EV-maker Rivian, says part of Tesla’s problem may be that it’s still only got two models, the 3 and the Y, and buyers are bored. (The Cybertruck somehow doesn’t count.) At close on Thursday, shares in Tesla were down 10% since that earnings report, but Elon Musk still seems intent on turning Tesla into an A.I.-powered $30 trillion company with $1 trillion a year in sales. On Tuesday he posted a poll on X asking if Tesla should invest $5 billion in his xAI venture, pending shareholder and board approval, and Musk pushed out the start date of the Tesla robotaxi service from August to October.
Meanwhile, the competition is heating up: Google announced a $5 billion investment in its driverless tech, Waymo; GM announced it is restarting its Cruise self-driving project; and Masayoshi Son, the founder of gazillion-dollar VC fund SoftBank (the one that lost its shirt on Uber and WeWork), thinks the only future for self-driving cars is if all the carmakers work together and use AI to somehow create a perfect self-driving car. But the perfect car doesn’t ex—
The Usual Suspects
- ABC, 123: Google parent Alphabet says profits rose 29% in Q2, as A.I. efforts begin to pay off, and revenue and profit just exceeded analysts’ forecasts. But despite the gains from search engine ads and cloud computing, the market put more weight on the colossal size of its investments in A.I. and cloud computing, sending the stock down 5% on Wednesday. Meanwhile a plan to buy online security firm Wiz for $23 billion fell apart as Wiz shareholders failed to see the upside. Some commentators blamed an expected ruling in a federal antitrust lawsuit that could break up Google.
- Are noncompetes a nonstarter? A federal judge in Pennsylvania has let stand a federal ban on those pesky noncompete agreements, saying the Federal Trade Commission is likely to win in a lawsuit brought by a libertarian group that wants to block the new federal rule. The FTC notes that noncompete agreements, which block workers from switching jobs within an industry, affect about 20% of U.S. workers. The rule is set to take effect on Sept. 4. Some employers say the rule unfairly limits their ability to protect trade secrets.
Odds and Ends
KO’d
Police arrested the founder of South Korean tech giant Kakao on Tuesday, saying he manipulated the stock of local talent agency SM Entertainment in a bid to buy the firm, which manages some of Korea’s largest K-pop bands. In 2010, Brian Kim, 58, created KakaoTalk, a messaging service that’s grown into a suite of apps covering banking, payments, ride-hailing, maps and games, and is installed on over 90 percent of phones in the country.
K-Veeped
- Streams of HBO’s Veep quadrupled after President Biden dropped out of the race for president and endorsed his own veep, Kamala Harris.
- Harris and her husband, former corporate lawyer Doug Emhoff, invest their money carefully and keep most of their wealth in retirement funds. The Wall Street Journal deconstructed the couple’s finances based on federal regulatory filings. Their income was around a half-million dollars last year, a big drop from 2020, when Emhoff earned $1.2 million a year as a corporate lawyer. Last year he made $174,994 as a visiting law professor at Georgetown University. Harris was paid $218,784 as vice president. They have assets worth between $3.6 million and $7.36 million, plus real estate. They also have a mortgage at 2.625%. Now that’s the stuff of dreams.
Nasdaq nosedive
Has the spark gone out of our tech-stock bromance? Judging by the tech-led dive in major stock indexes this week, investors and market players may be looking for a more serious relationship. The tech-heavy Nasdaq Composite is down 3.86% in the last five days. The S&P 500 fell 2.62%, and the Dow Jones Industrial Average was down 1.8% as well. The big driver: disappointing tech stock results (see above). It’s not that the companies are failing—they all appear solid, but are just going through the usual adjustments to pricing and investment that ultimately hit reports of quarterly revenue and profit, all of this suggesting that we might be experiencing a sea-change in how the market values these stocks.
The Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla) have accounted for around a third of the S&P 500′s 14% gain in 2024, making their trajectories a key factor in how broader markets will perform, but as share prices soared, concerns grew over companies’ stretched valuations and comparisons to the dotcom bubble of the late 90s and early oughts.
Referring to the unexpected earnings results, Thomas Martin, senior portfolio manager at GLOBALT, told Reuters: “This was the hair trigger for people saying, ‘Wow, I’ve got way too much exposure to information technology and growthier type companies.’” The “trade,” Martin said, “is to get more diversified.”
That sounds like good advice, especially as the markets expect the Fed to soon agree inflation is reined in at around Fed chair Jerome Powell’s preferred 2%, paving the way for cuts in the Fed’s lending rate, which could fuel more spending and investment, boosting the economy and the broader stock market. And don’t worry about tech stocks. They’ll be doing fine by the time Elon Musk replaces us all with robots.
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Mogul misery
These are bad days for David Zaslav, the cable magnate turned Hollywood mogul wannabe. Just two years ago, Zaslav’s Discovery cable business bought the famed Warner Bros. film studio from AT&T in one of the many rounds of media musical chairs that’s marked the last quarter-century. But the WB magic hasn’t stuck to Zaslav, who himself seems trapped in the past, over-invested in linear programming. WBD shares have lost two-thirds of their value since the tie-up, and as Bank of America media analyst Jessica Reif Ehrlich said in a recent note, investors are running out of patience with Zaslav. She said WBD has effectively failed.
“The current composition as a consolidated public company is not working,” Ehrlich wrote in a July 16 note. She went on to say: “Staying the course appears to be untenable given the persistent secular headwinds within the linear ecosystem, coupled with the overwhelming debt load and lackluster share performance.”
Ehrlich says Zaslav might do better buying a big network to air all his programming—they still bring in lots of ad dollars, and CBS’s future is in play with the planned sale of its parent, Paramount Global, to David Ellison’s Skydance Studios.
But the company doesn’t appear to be in a strong financial position, reducing its ability to find a new path: WBD reported full-year 2023 revenue of $41.3 billion, down 4%, and a net loss of $3.13 billion (versus a net loss of $5.36 billion in 2022). And it ended Q1 with $43.2 billion in debt.
Zaslav’s actions this year haven’t boosted investor confidence: The stock is down 30% year-to-date, and this week the NBA gave Zaslav a stiff middle finger, awarding an 11-year, $77 billion contract to stream basketball games to a combo of NBC, ESPN, and Amazon. WBD will end its hoop dreams when its current streaming rights terminate this year.
“Warner Bros. Discovery’s most recent proposal did not match the terms of Amazon Prime Video’s offer and, therefore, we have entered into a long-term arrangement with Amazon,” the NBA said in a statement Wednesday.
CrowdStrike’s strikeout
Just how bad was the botched code upgrade the Internet security company unleashed on users of Microsoft’s Azure platform last week? Worse than you might have thought: An analysis by cyber insurance firm Parametrix estimated the CrowdStrike foulup cost Fortune 500 firms $5.4 billion, but only 10% to 20% of that was insured.
In just one example, New York’s Fordham University had techs working flat-out for 72 hours to delete the bad code on 1,600 PC’s. Multiply that by the tens of thousands of businesses running Azure and you begin to get an idea of the scope of the failure. Meanwhile, the market has turned its back on CrowdStrike, which has lost 25% of its market cap since the glitch.
On Wednesday, CrowdStrike said a bug in its quality-control system and inadequate testing systems caused the crash of some 8 million PCs worldwide.The bad data triggered a memory problem that “could not be gracefully handled,” causing some Windows operating systems to crash and display the light-blue, full-screen warning known as the Blue Screen of Death, according to CrowdStrike’s report.
An annual award from expert hackers for “most epic fail,” set to be presented at the DefCon hacking conference next month, was instead announced Wednesday and given to CrowdStrike, The Washington Post reports.
CrowdStrike’s contract with users says all they get back is not having to pay CrowdStrike licence fees for the days they can’t use their systems. That may prompt some changes in the way software firms are held accountable, and some analysts are predicting a mass cancellation when current contracts with CloudStrike expire.
And the company’s not doing much to build client confidence: CrowdStrike sent its partners each a $10 UberEats gift card for their help rebooting customer systems, but Uber flagged the gift cards as fraud because of high user rates.
Peter S. Green is a veteran reporter and editor who has spent more than two decades covering business and finance from Eastern Europe to New York City, and has worked for Bloomberg News, The New York Post, The New York Times and The Messenger. He lives in New York City and is always looking for the next big story.
