All Eyes on Tesla Earnings, and Is There Any Stopping Netflix? 1/24/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square this is fast money. Here's what's on tap tonight. Tesla tumbles. The company's seeing shares drop after posting a revenue miss in the latest quarter. Will Elon Musk be able to get things back on track or has the EV pioneer losses gripped on the market? And later, a semi surge. Shares of chip equipment maker ASML closing in on all-time highs after its latest report. It's taking the rest of the semi space with it. So is this breakout for real and how much longer should you ride that? We'll debate that. Plus, fit financials.

0:31While the S &P set another record close, the XLF is breaking out to nearly two-year highs. One top analyst says banks are a coiled spring, ready to bounce higher. Do the traders agree? We will find out. I'm Melissa Lee coming to you live from Studio B at the NASDAQ on The Death Tonight. Tim Seymour, Karen Feinerman, Steve Grasso, and Katie Stockton, founder of Fairlead Strategies. And we start off with Tesla trading at levels not seen since early November, close to losing the$200 level. The EV maker saying EV sales grew just 1 % in the latest quarter. The call kicks off later this hour. CNBC's Phil LeBeau joins us now.

1:04Now on the numbers, Phil. The numbers are not encouraging. If you are a Tesla investor, A, they missed on the top and the bottom line. We'll go over those first of all. The company earning 71 cents a share. The street was expecting 74 cents a share. Revenue coming in a little shy of expectations at$25.17 billion. Street expecting$25.61 billion. There is some encouraging news in terms of gross auto margins, excluding zero emission vehicle credits. The expectation was for 15.7 % as that gross margin figure. They came in at 17.1%. So better than expected, actually better sequentially than the third quarter.

1:46So why are people perhaps wringing their hands a little bit and wondering what the future holds for Tesla? It's because the company is not giving guidance in terms of 2024 deliveries. In fact, the company did say in its release, and we'll get more from Elon Musk in about a half hour, hopefully, that deliveries this year will be notably lower than the rate of delivery growth in 2023. The words notably lower, those are Tesla's words. Just for a point of reference, the company's delivery rate increased by 24 % in 2023. That was down from 40 % in 2022. So the question becomes, how much will they grow this year, Melissa?

2:26That's what people will be focused on, especially when the call starts at 5.30 from Elon Musk. Are we talking about a 10 percent delivery increase that would get them up to two million for 2024? Are we talking about something a little more than that? The estimate on the street was for two point one million. It is that open ended nature of notably lower. That is certainly going to be front and center during the conference call, which begins in a half hour. And if they can quantify notably lower, I feel like this is sort of, you know, the automotive gross margins, X credits was much better than expected.

2:58And a lot of people went into this quarter thinking that's what it was going to be all about. And for 2%, 1 plus percent beat, that seemed significant. Also, free cash flow for the quarter, that was also significantly higher than expected. So you had sort of puts and takes in this quarter. Absolutely. But everybody also went into this quarter, Melissa, assuming there would be guidance in terms of delivery growth rate for 2024. Nothing and just the words notably lower. It leaves it open for interpretation. And right now, the bears are interpreting that as bad news. Yep. Phil, keep us posted. We appreciate it.

3:34Phil LeBeau. By the way, they say it will be notably lower because the team is going to transition to the next-gen vehicle platform. So that's the reasoning behind that for what that's worth. What do you make of the quarter? Well, first of all, just in terms of the stock's performance after hours, I'm kind of surprised it's doing as well as it is. I mean, that type of unclear outlook but a negative outlook on top of, you know, you can make what you want. You can twist the numbers. You're right. There's a lot to read into. But when you look at operating profit falling year over year, you look at two straight quarters where it's been under some pressure.

4:05You have some dynamics where they're saying, you know, we are going to spend more on A.I. and robotics. And so the spend goes up at a time when earlier this week or last week when Elon Musk sent a bunch of strange tweets out there talking about how maybe he wasn't comfortable having A.I. and robotics as part of the structure if he doesn't have 25 percent control. All of this adds up to some uncertainty around some part of the business that I think was what we were willing to pay a lot extra for on the multiple. And so it's at a time when the growth part of the story, which every Tesla bull will talk about that, is in question at a time when people are there's some bigger issues.

4:42BYD, we know the headlines there in terms of which they overtook them as the largest. I don't think that's a big deal. And I think obviously the BYD cost structure and and ASP structure very different than Tesla. But it's not an easy time. Stocks already had a lot of bad news priced into it. I actually think the price action here is better than I would have expected. Questions around the growth part of the business for Tesla, but also the growth part of the business for the market in general. Yes, writ large, right. And so I kind of look at that. I agree to your point about them talking about we're going to be transitioning to newer models.

5:12That's a big difference than notably slower for no other reason. Right. Right. So we don't know exactly when or how. Sometimes they delay. Things take longer than they think. But I don't know, the more I've been thinking about Tesla and the EV slowdown, the more that I think they should be cutting prices. They should just be putting as much pressure as they possibly can on the GMs and Fords. You know how, you know, whenever my husband and I watch one of those, you know, action movies, they always leave the villain almost dead, but they kick the gun to the side. Right. He can't get it there. He can get it.

5:46Of course he comes back. You have to kill him again. And I'm just wondering, are they really going to try to just step on the throat? By the way, this is a family show. You're talking about stepping on throats and guns. Well, I'm kind of worked up. I really think that's sort of what's going on here. And they're saying we can take the pain. We can afford it. Right? The balance sheet's in good shape. We do have cash flow. And we ought to just, you know, crush them if we can. But if they do step on the throat, then they give up the margins. And everyone was so— But they're not giving up the margins, really.

6:15Well, I mean— Automotive gross margins, X credit, it's better than expected. It's better than expected. But if they if they if they go next level, step on throat, Karen streaming Netflix movie, then you're going to have a problem on the margin some sometime in the future. What if you have fewer competitors? Then you have then you have room to price. I don't disagree with you. I'm just saying the price action was nervous about margins coming in when they when they dip below 20. So if now they pop to 17 and they dip again and then you say more share, still going to be a problem. I think Tim touched on the valuation we've been paying for AI.

6:51If AI leaves the story, what is Tesla worth without that? And is that full self-drive? Does he go do it somewhere else and sell it back to Tesla? How can he do that, though? I don't understand how he would be allowed to take the assets. Well, the share structure, it includes one class of shares, which can't be retroactively changed. But I just think it introduces, as someone I felt biggest risks for Tesla over the years have been corporate governance related. I think it just introduces a lot more that at a time when the valuation is tough. What do you think, Katie? You know, the stock has been a real underperformer.

7:25So I think people were anticipating something like this. And maybe that's why it's not down as much as you'd think. But there's a key support level, 208, on the chart. Now it's below currently. But as long as that holds on a consecutive weekly closing basis to us, that's actually a positive or sort of an incremental positive for a chart that already has lower highs in place. Neutral long-term bias. And, of course, the other mega caps look much better on their charts from a momentum perspective. So it's hardly the best of the best. But if it does hold that 208 area, it becomes somewhat compelling to us for sort of a counter trend entry point.

8:01And when you saw the price action right off of the earnings print, it traded down to the mid-190s. And that area is the October 30th level, 194 and change. That's probably real support in the name. I like it above Katie's Safer, 208. But you'd be willing to take a shot here against a 195 or so low. The main issue that I have is if they're introducing new models, you force people to wait for those new models. And if they price cut, you force people to wait for a price cut. They were having enormous price cuts. So you went out and bought a car and then they were$15 ,000 cheaper in three days, three weeks.

8:40That just forces people to wait. All right. For more, let's bring in Fast Money friend Gene Munster. He's a managing partner of Deepwater Asset Management. Gene, great to have you with us. What is your take on the quarter and your reaction to the stock move? Melissa, this was the most sobering outlook that I have seen from Tesla when they talk about a step down, a notable step down in growth rates. I just want to put that in perspective. The Street was looking for 19 % revenue growth in 2024 for this year, and they said it'll be notably lower than that. So it probably comes in at 10%. When I see that, I think stock's down 5%, 10%.

9:19That was my initial reaction. I'm surprised to see where it is. The reason why I believe it's holding in is twofold. You highlighted the importance of the gross margin X credits. I would just add to that. That's the first time in a year that we've seen that improve. And so that is a surprise on the positive side, especially given the ramp of Cybertruck, some of that investment. And second, I think the stock reaction speaks to the conviction of shareholder investment base. And effectively, this comes down to a very simple question. Is do you believe that EVs are the future? And if the answer is no, that you think that this is going to take 20 years to get to electrification and autonomy, then you believe the stock should be down measurably, meaningfully, 10 % more on this news.

10:06But if you do believe in the future, then this punky soft guidance that they're giving for this year is going to ultimately prove to be noise because everything that Tesla is doing, building out this next generation vehicle platform, everything that they've done in their investments in autonomy, all of that is coming at a time where traditional auto is stepping back from these. And so that's the question. If you believe in electrification and autonomy, Tesla is actually in a better position longer term. And I think that the reaction to shares speaks to the conviction, long-term conviction that Tesla shareholders have.

10:44Can you help us understand, Gene, what this next-gen vehicle platform is and what that gives Tesla in the long term? I mean, we may see that step down in volume growth this year, but on the other side of that, if we see increased efficiencies, if we see increased output, this could just, you know, you could smooth this year over and see the trajectory higher. You'd see an acceleration back potentially. I mentioned the 10 percent for this year, but next year could be 30 % plus growth. And this specifically is that this is a lower price vehicle, likely around a Honda Accord, a typical Honda Accord in the U.S.

11:20starts at$30 ,000. That's below the average selling price of a car in the U.S. at$48 ,000. And it's likely going to be a couple vehicles. One is a lower price car with a steering wheel, and then followed by a robo-taxi. And so that's what they're talking about. They need to build enough of a gap between the Model 3 in this lower-priced vehicle, not to create some confusion. So this is going to be, again, a measurably lower-priced vehicle and compete with where the sweet spot of the growth in the automotive market is today. AMY GOODMAN, Hey, Gene, it's Karen. Thanks for being on with us today. So I've always had trouble with how do you value Tesla then?

11:57Put it all together, how do you come out with a valuation for Tesla? KERRY HENRY, So what I look at is where revenues are going to be in three to five years. I want to revisit it after the call here, but think about what that revenue growth is going to be. I mentioned a step back up to 30%. And then I go and look at what other companies are trading at. The best comp is Apple. When it comes to hardware, software, services, I think that's most representative Tesla. And so that's a six or seven times multiple. And so when I put those two together, I can comfortably get to above a trillion dollar market cap for kind of that five-year period.

12:32Again, I want to see what's going on with their commentary on kind of long-term growth. But that's how I get there, as I think about this as a revenue multiple relative to where the revenue is going to be in three to five years. All right. Gene, we'll check in with you later. Thank you. Keep us posted. Thank you. Gene Munster, conference call again. Gets underway in just about 18 minutes' time or so. That next-gen vehicle, at one point in time, we thought the mass market would unlock all sorts of value. Mass market cars. That's what it was. It's going to be amazing. And here we are. When we hear about transitioning to that new platform, that's a negative on Tesla in the after hours.

13:07Why do you think that is? If you thought that the Model 3 was kind of this Volkswagen for the electric vehicle masses, you know, then then, yeah, you're disappointed. But if you're an investor, you're thinking about higher margin. You think about the cars that they can actually build for a price that they can sell them for. So it's a fascinating time. Margin stability was what I think investors wanted to hear. Forget some of the unclear outlook in terms of in terms of deliveries and whatnot. But I think back to the stock relative to the market. It's great having Katie here tonight to talk about some of those dynamics.

13:38But it's underperformed the S &P by 35 percent in four or five months, like massively. Here we are. We talk about the mag sevens. And this is a stock that I think is being treated. And I think based upon the headlines, I also think all of these headlines are good for Ford and GM. And I'm long both. So, of course, I want to believe that. So you mentioned 208 as a level. What happens if it's able to hold that on a weekly basis? So it would show a reaction to the oversold condition. And that oversold is actually more extreme in the ratio of Tesla versus the S &P 500, which is kind of intriguing, right?

14:10It suggests that this underperformance is overdone. So you would at least, at a very minimum, expect relative performance to improve and probably to a pretty strong degree. Just maybe sort of the release of that news, right? People anticipating it, worrying about it. now there's less uncertainty and the market tends to like that. But that 208 level to us preserves the range. So if it breaks down, then we're looking probably much worse than the October lows, I would imagine. Wow. All right. Let's get a check in the markets now. The S &P 500 notching another record close today. The benchmark index topping 4 ,900 for the first time ever.

14:46The Nasdaq also higher while the Dow shed about 100 points. Meantime, Bank of America with a bullish bank call today saying the stocks may be this year's coiled spring. The firm noting Wall Street's exposure to bank stocks is lower now than going into the last year and that the group may be due for a re-rating. The S &P Bank and regional bank ETFs both gaining about a percent today. The KRE up almost 6 percent over the past week, while the KBE is up almost 5 percent. So could we be seeing, you know, a new leadership group being born here, Karen? What do you hope? I hope so. I'm all in. on the, I, she called it a coiled spring, right?

15:23I guess they're levered. So there's that. They don't, they don't generally have this sort of pop like anything we've seen in the semi-space or anything like that. But I think that if the economy is okay, then banks at this valuation, I mean, so JP Morgan, my biggest position by a lot in the space, under 11 times earnings, a dividend of, I don't know, high twos. And then Citibank, that is somewhat of a coiled spring relative. I mean, the potential for massive cuts in spending. And then you put a multiple on that right now. The street doesn't give them a lot of credit at all. They trade well, well under tangible book value.

15:59So those are my two names in the space. I hope she's right. The question is, like, why re-rating? I understand where stocks can be underloved and there can be reallocation, there can be underweights. And I'm not disputing it. I'm Long City, Bank of America, JP Morgan. and I've stayed away from the regionals. Part of that re-rating is coming from a more benign credit outlook. Part of the re-rating is also coming from a world where the asset flight has slowed down dramatically. If anything, obviously lower rates are also slowing down the asset flight. So, I mean, ultimately, the question is, did Citibank deserve to be at 0.55 price to tangible book?

16:33No way. The fact is that the KRE is up 40 percent and has outperformed the S &P on a relative basis since the entire market took off on that October 26, 27 level. That's encouraging until, as they say, until we stop seeing that follow-through from banks, which had underperformed, I think you're staying there. Coil spring sounds like a technical term to me, Katie. I don't know if coil spring comes to mind when you think of banks. Not really, but a base breakout has definitely been completed by that space. We added XLF to our own portfolio just this month to take advantage of what looks like this basing phase.

17:06And those can have very long-term implications for both absolute and relative performance. So it's XLE, KRE, KBE. You almost don't have to be picky because it is such a macro-oriented group or space. And we tend to think that yields will have a corrective year, meaning that they'll come into perhaps even the low threes from a technical perspective, strictly from a technical perspective. So that could make an environment much more conducive. Low three sounds like that's conducive to the stock market going much higher, too. Right. We are very bullish. And, you know, we want to sort of temper that because we don't want to get too excited after such a huge move.

17:44But quite frankly, the momentum gauges are positive across time frames. We have very widespread breakouts. And by widespread, that means breath has improved. So we have sector breath now expanding to financials and then individual stock breath, too. Coming up, we are dialed into Tesla's conference call. We'll bring you all the headlines that gets underway in 12 minutes. But it's not only the after-hours movers we are watching. Shares of IBM and Las Vegas Sands also on the move. We'll bring you the details from the quarters next. And speaking of results, chip firm ASML surging after reporting results this morning.

18:14The revenue jump that had investors piling in ahead. Don't go anywhere. Fast Money is back in two. This is Fast Money with Melissa Lee right here on CNBC.

18:33Welcome back to Fast Money. IBM shares jumping after Big Blue reported a big beat on the top and the bottom lines. A conference call kicking off at the top of the hour. Christina Parts-Nevilis has been listening in. Christina, what's the latest? Well, they're just going through all the numbers right now. The Q &A hasn't really started, but the key word they're using quite a bit is solid, solid growth, solid results. But as usual, revenue was driven by software in the consulting business since it contributes 75 percent of total revenue. CFO Jim Cavanaugh telling me just in the last hour, we chat on the phone, that their AI business doubled sequentially.

19:04However, we didn't get any actual numbers. And if I looked at the fact set estimates, there was, though, a slight miss in software. I noticed Red Hat segment decelerated, and there was a slight miss to estimates in consulting, which was partially offset by strength in infrastructure, particularly their mainframes. There were some concerns going into this report that they couldn't grow their free cash flow to$10.5 billion, and they did. They actually surpassed that yearly level to$11.2 billion for the full year. I asked what the driver was to the CFO. He told me it was a mix of cost, rationalization, and demand.

19:37He just said it on the call right now that it was about real estate optimization as well. I just emailed to find out what does that mean. Did they cut office space? I'll find out. As for guidance, they expect 2024 revenue in the mid-single digits and$12 billion in free cash flow. And there should be commentary momentarily about software guidance going up a little bit higher than their previous four to six percent range for the year. Details still waiting for that since we're 22 minutes into the call. Christina, do they actually break out AI as a segment or is it one of these things that sort of crosses into many different segments that it currently reports?

20:11No, no, because I made that mistake early this morning when I said that we would be getting details on their Watson X business and was corrected on that. They do call it a book of business for Watson X and generative AI. Last quarter, they said there was low hundreds of billions of dollars, and now that's more than doubled. That's why I use the terminology doubled sequentially. But in terms of the actual numbers, how many digits? I don't know. They just told me there was thousands of customers that have engaged with these platforms. Sounds promising. Christina, thank you. Christina Parts Nevelis on IBM.

20:46Do you own it? I don't own it. And look, I've been scared away by the head fakes we've seen multiple times,$12 billion in free cash flow. So you're at about an 8 % free cash flow yield. Their gross margin up 140 basis points. It's moving in the right direction at a time when people are looking across mega cap tech and they're looking at valuations. This one, you know, you can find an argument in favor and certainly in terms of our performance relative to the market. I mean, you know, would you rather have had relative to the S &P back in July, Apple or IBM? Got excited. It is a would you rather.

21:17It's a would you rather. As we watch IBM. I try not to do that. They're at their highs in the after hour session. They're now up by 7.2 percent after hours. This one, I think you're I think we're past the head fakes. Right. If you look at consulting, you'll get software. If they're going the right way and infrastructure is going down, that's what you want to do. You want to turn the Titanic around. And it's been a Titanic. It's been it was my secular short in 2013 on the on the desk downstairs. And just a testament to what Tim said. So many head fakes along the way. They were the originator of AI.

21:51It was Watson. They were the first people there. They should have been monetizing this a long time ago. Maybe they're correcting the ship at this point. They were too early. I think they were too early. They didn't know it was Pet Rock back then. There was no monetization of it. Let's get to the land research higher after its earnings report. The semiconductor equipment maker, handily beating earnings and revenue expectations, issued strong EPS guidance for the current quarter. The move comes after ASML posted its best day since November 2022. The Dutch company reporting better than expected earnings and revenue this morning.

22:21But it issued tepid revenue guidance and said potential restrictions. China exports could cut sales to that region by as much as 15 percent. But new highs really across many parts of the semi-sector today. The whole sector, I mean, very strong momentum, very strong relative performance trends. And with these breakouts, these earnings driven breakouts that are spreading across the industry, those tend to exhibit or sort of generate more momentum just by the nature of resistance being removed from the charts. And when we look at price objectives, they're usually aligned with like the 2021 highs.