Facebook & Tesla Q4 19 – Mixed bag.

Tesla Q4 19 – Own two feet

• Tesla’s results have already divided opinion, but while the valuation remains unjustifiable, I think my very long-term view that Tesla won’t survive needs a revisit.
• Tesla’s Q4 results demonstrated that it is becoming a proper car company and demonstrating the fact that high margins in vehicles are impossible.
• Q4 revenues / EPS were $7.38bn / $0.58 which beat revenue expectations of $7.08bn but missed GAAP EPS expectations of $0.32.
• This being called an earnings beat as adjusted-EPS of $2.14 was $0.38 ahead of expectations.
• However, the difference between these two numbers is stock-based compensation meaning that in reality, Tesla missed its EPS as this cost should be included when looking at Tesla’s ongoing business.
• However, Tesla genuinely fared better than expected on the top line and crucially, continued to generate cash.
• This is essential as it is positive cash flow that will enable Tesla to avoid being swallowed by one of its far larger rivals once they begin shipping EVs in earnest.
• Tesla is still a maker of premium vehicles and its brand is dependent on its digital differentiation that may come under serious pressure of the other OEMs get their act together.
• On the digital front, I see very little from the OEMs that leads me to believe that they are on this trajectory meaning that Tesla’s differentiation will stand for now.
• The valuation of Tesla continues to defy gravity meaning that I would still avoid it like the plague, but it is showing signs of being able to stand on its own two feet.

Facebook Q4 19 – Privacy pain.

• Facebook reported good results that beat expectations but the spectre of slowing growth took the edge off what has been an excellent run for the shares during 2019.
• Q4 19 revenues / EPS were $21.08bn / $2.56 which was ahead of forecasts of $20.97bn / $2.53 but guidance was muted as privacy has finally started to have an impact on the financials.
• Facebook continues to increase its user base which now stands at 2.9bn with 2.3bn interacting with one of Facebook’s services at least once per day.
• Despite the seemingly endless series of leaks and scandals, growth had remained strong, but some cracks are finally beginning to show.
• Revenue growth in Q4 was 24% YoY and Facebook expects this to slow in Q1 to around 18%-20% YoY.
• This is partially due to the law of large numbers but also regulation and changes made by Apple and Google in their browsers and operating systems that make the use of signals from user activity for targeting more difficult.
• Hence the value of Facebook’s ad inventory will come under pressure reducing the amount of money that it can charge for campaigns.