Premarket: Why Tesla’s stock is still defying gravity

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Investors have quickly turned on companies like Netflix (NFLX) that were growing fast during the recovery from the pandemic but are now sputtering. Yet Tesla (TSLA), which skeptics have long said is overvalued based on rosy projections for the future, is experiencing a much softer landing.

What’s happening: Tesla shares have dropped 7.5% year-to-date, just a bit worse than the S&P 500. They fell 5% on Wednesday as Wall Street worried that its first quarter earnings, like Netflix’s, would be much worse than expected.

That did not happen. Tesla posted a record quarterly profit of $ 3.3 billion in the first three months of the year, handily beating Wall Street’s forecasts. Its shares are up 7% in premarket trading on Thursday.

Tesla’s stock has come under some pressure in recent months. Investors are pulling back from riskier wagers as interest rates start to rise, and Tesla is not immune to supply chain problems.

But it’s been more resilient than some may have predicted, given the broader climate for stocks. Here are a few reasons why.

1. Its performance: Tesla’s earnings for the start of 2022 were strong. And despite plenty of challenges, its outlook is solid.

CEO Elon Musk said Wednesday that Tesla should be able to produce 1.5 million vehicles this year, beating 2021 by 60%. Production at the company’s factory in Shanghai, which had been halted by coronavirus lockdowns, “is coming back with a vengeance,” he added.

2. Stock split: The company is planning to split its stock for the second time in two years, a move that could make it more accessible for everyday investors by reducing the price of each share.

When Tesla announced that it would ask shareholders to approve a split late last month, its stock shot up 8%.

3. Pricing power: Like all automakers, Tesla is grappling with rising costs and supply chain snarls. The price of metals it uses in batteries, like nickel and lithium, jumped following Russia’s invasion of Ukraine. Shipping, energy and labor have also gotten more expensive. But Tesla has been able to offset higher costs by raising prices for its vehicles.

“It may seem like maybe we’re being unreasonable about increasing the prices of our vehicles given that we had record profitability this quarter, but the wait list for our vehicles is quite long,” Musk said.

He added that the company wants to make electric vehicles as “affordable as possible,” but that decades-high inflation is making that more difficult.

Higher prices for cars like Tesla’s Model 3, its most affordable model, could eat into some demand. But JPMorgan analyst Ryan Brinkman told clients Thursday that the company may be in a better position than some competitors “given its generally longer waitlists and loyal and aspirational customer base.”

Risks remain: That does not mean Tesla’s stock is protected from a sell-off. Bank of America analyst John Murphy noted Wednesday that the company’s stock “may already be priced for perfection (or at least priced for hyperbolic growth).” That will make logging fresh rallies – or holding onto its gains – a trickier endeavor.

Billionaire investor Bill Ackman has decided to cut his losses on Netflix as the streaming service’s stock implodes.

The latest: Ackman told investors that his firm, Pershing Square Holdings, sold its shares in Netflix on Wednesday after the company reported earnings. That locked in a loss of more than $ 400 million.

Ackman bet $ 1.1 billion on Netflix just a few months ago.

“While Netflix’s business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company’s future prospects with a sufficient degree of certainty,” Ackman wrote.

The company’s stock plunged 35% on Wednesday after it announced that it lost subscribers last quarter for the first time in more than a decade. It expects to shed another 2 million subscribers this spring.

It was Netflix’s worst one-day performance since 2004 and wiped more than $ 50 billion off the value of the company.

Ackman said that changes to the outlook for subscriber growth dramatically affect how Pershing Square values ​​Netflix’s stock. While he expressed support for proposed changes, including a version of Netflix that includes ads, he said they make it difficult to anticipate how the business will perform.

“Based on management’s track record, we would not be surprised to see Netflix continue to be a highly successful company and an excellent investment from its current market value,” Ackman said. “That said, we believe the dispersion of outcomes has widened to a sufficiently large extent that it is challenging for the company to meet our requirements for a core holding.”

Not just Netflix: Investors are getting worried about the wider streaming industry as the soaring cost of living encourages households to cut back on extra expenses. Disney’s stock dropped more than 5% on Wednesday, while Roku (ROKU) fell 6%.

Home prices in the United States reached an all-time high in March as buyers scrambled to close deals before mortgage rates rose even further.

According to the National Association of Realtors, the median price of an already-built home in March was $ 375,300, up 15% from the year before, my CNN Business colleague Anna Bahney reports.

As the cost of borrowing increases and personal expenses climb, demand for homes is expected to fall back. Last week, mortgage rates hit 5% for the first time in more than 10 years.

But for now, the market remains red hot.

“The housing market is starting to feel the impact of sharply rising mortgage rates and higher inflation taking a hit on purchasing power,” said Lawrence Yun, NAR’s chief economist. “Still, homes are selling rapidly, and home price gains remain in the double-digits.”

Supply of homes remains tight, and professional investors are flooding the market. They’re flush with cash, which adds to competition for limited properties.

Remember: The Federal Reserve Bank of Dallas said last month that it was worried about the run-up in housing prices, and saw signs that a dangerous bubble was forming.

Alaska Air (ALK), American Airlines (AAL), AT&T (T), Dow (DOW), Nucor (NUE), Xerox (XRX) and Union Pacific (UNP) report results before US markets open. Snap (SNAP) follows after the close.

Also today: Initial US jobless claims for last week post at 8:30 am ET.

Coming tomorrow: A key gauge of the health of top economies, the Purchasing Managers’ Index.

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