NASDAQ registered one of its worst daily performances in months on July 20 as the index got dragged down by the crashing stocks of Tesla and Netflix.
On Thursday, NASDAQ declined by 295 points, or 2.05 percent, which is the biggest daily percentage decline since Feb. 21, when the index fell by 2.5 percent. The plunge was largely driven by two stocks: Tesla and Netflix. While shares of Netflix dipped by 8.4 percent, to $437.42, Tesla shares declined by around 9.7 percent, to $269.90. Investor confidence in both these companies was shaken due to concerns about earnings and valuation metrics.
Netflix was negatively affected after its second-quarter earnings fell short of market expectations. Revenue for the second quarter came in at $8.19 billion, a 2.7 percent increase from a year back. However, it was shy of analyst expectations of $8.3 billion. In addition, the company only projected $8.52 billion in revenue for the third quarter, less than the $8.7 billion expected.
Despite reporting an addition of 5.9 million new streaming customers in the second quarter, the less-than-expected earnings as well as third-quarter earnings forecast weighed down on the stock on Thursday.
Moreover, Netflix’s average revenue per subscriber fell 3 percent from a year back as many of the new additions came from countries where the streaming platform charges a lower fee.
The platform is also affected by ongoing strikes by Hollywood writers and actors that have shut down the production of various movies and web series. The company raised its free-cash flow estimate for the year, from $3.5 billion to $5 billion, partly due to lower spending triggered by production shutdowns.
Tesla Gets Hammered
Tesla stock got hammered after reporting a mixed second quarter, while some experts raised concerns about the company’s valuation.Tesla’s vehicle profit margins fell to 18.1 percent in the second quarter from 19 percent in the previous quarter, according to a calculation by Reuters. The firm also reported its lowest operating income since 2021. This triggered worries about the company’s growth.
In an interview with Yahoo Finance, Craig Irwin, from Roth Capital Partners, slammed Tesla’s valuation, saying that the company is “egregiously overvalued right now.” As of July 17, Tesla had a market valuation of $832.34 billion.
Irwin set Tesla’s price target at $85, which is close to a 70 percent drop from Thursday’s share price of $269.90. Mr. Irwin also said that price could be slashed further due to Tesla’s profit challenges.
NASDAQ Performance
On Friday, NASDAQ opened positive and was trading up by 0.1 percent as of 10:47 EDT. Both Tesla and Netflix were in the red at the time.So far this year, NASDAQ has risen by 35 percent. In a July 6 write-up at USA Today, Wayne Duggan, author of “Beating Wall Street With Common Sense,” said that if the rally in tech stocks were to continue in the second half of this year, the year 2023 could prove to be a “historic” one for NASDAQ.
The 30 percent-plus gain in the first half has already put NASDAQ on track to register its best yearly performance since the 1990s’ tech bubble, he noted. In its 45-year history, NASDAQ has only registered over 50 percent annual gains three times.
However, inflation could play spoilsport. If prices and interest rates remain elevated or begin to move up aggressively, it can end up affecting America’s economic growth.
This would pose a risk to corporate profitability, and investors would be more wary of parking their money in stocks, which could end up pushing the market down.
