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Earnings: Can TSLA Spark Investor Sentiment?

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May 4, 2016
tsla baba mgm earnings preview

The earnings parade continues in full force with quarterly results out of auto-industry disruptor Tesla (TSLA), China’s e-commerce giant Alibaba (BABA) and gaming empire MGM Resorts (MGM).

Tesla Troubles?

TSLA has bled through more than $2.9 billion the last six quarters, according to the Wall Street Journal, as it has dealt with starting production and then massive shortages that derailed deliveries on its Model X. This is a problem TSLA has since solved and vowed not to repeat with the Model 3.

But if the stock value is any indication, investors still support the company and its promise to disrupt the auto industry with its electric cars. Share prices are up more than 575% since 2013, and up 62% since its 2016 bottom in mid-February. That’s even factoring in the 12% decline in the last month.

When Q2 results were released ahead of the market open Wednesday, analysts at Thomson Reuters were pegging a $0.60 a share loss, on average, dropping considerably deeper since the $0.36 a share loss a year ago. Revenue, however, is projected to surge by 45% to $1.60 billion.

Short-term option traders have priced in a potential 7.5% share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform by TD Ameritrade.

Ahead of earnings many options traders were active in the May 210-strike puts. As for calls, traders have been active in the May 250 strikes. The implied volatility is at the 39th percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price and over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

TSLA earnings preview

FIGURE 1: A NEW SPARK FOR TSLA?

Shares of TSLA are up 62% since bottoming earlier this year. Chart source: thinkorswim® by TD Ameritrade. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Can Alibaba’s Revenues Grow?

BABA announced in March that its 2016 gross merchandise volume had reached $476 billion, raising expectations for BABA’s Q4 earnings results, some analysts say. They say they will be interested in hearing how well China’s largest e-commerce player’s new products and acquisitions helped boost the bottom line and what they will do for fiscal Q1.

Analysts reporting to Thomson Reuters are anticipating a per-share profit of $3.63 on revenues of $23.1 billion. That’s substantially better than a year ago when BABA posted a profit of $2.98 on revenues of $17.4 billion.

Short-term option traders have priced in a potential 5.25% share price move in either direction around the earnings release according to the Market Maker Move indicator.

Ahead of earnings, buyers were active at the May 76-strike puts as well as the May 80-strike calls. The implied volatility is at the 40th percentile. 

BABA earnings preview

FIGURE 2: BABA SHARES BOB AND WEAVE.

BABA shares have outperformed the S&P 500 (SPX), and are up 20% in the last three months compared with the 8% gain on the SPX. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

How Did MGM’s Macau Market Fare?

MGM already has alerted analysts that its troubled Macau gaming market isn’t doing as bad as it once was, down 13% in the Q1 compared with a 27% drop a year ago. Some analysts say they expect MGM’s domestic hotel operations, however, to help balance the results.

At Thomson Reuters, the expectations are for a profit of $0.11 per share, compared with last year’s $0.33 a share, on revenues that are projected to be flat year-over-year at $2.3 billion.

Short-term option traders have priced in a potential 6% share price move in either direction around the earnings release according to the Market Maker Move indicator.

Ahead of earnings, buyers were active at the 20.5-strike puts as well as the 20-strike calls. The implied volatility is at the 33rd percentile.

MGM earnings preview

FIGURE 3: MGM’S CLIMB.

MGM shares have jumped nearly 30% since bottoming in mid February, though they are down 7% since peaking in April. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.