Investors have watched the Federal Reserve closely for signs of just how aggressive it will be in tightening its monetary policy to fight inflation. After initially seeing at least a glimmer of hope that the Fed might not move at breakneck speed with ongoing interest rate increases, the news conference that Fed Chair Jerome Powell gave put to rest any ideas of a near-term tempering of the central bank's resolve. The Nasdaq Composite (NASDAQINDEX: ^IXIC) fell sharply after the announcement, falling more than 1% Thursday morning when regular trading opened.
Electric vehicle (EV) pioneer Tesla (NASDAQ: TSLA) has been a big detractor from the market's performance over the past couple of months, finally succumbing to investor fears about the impact of a global economic downturn on the auto manufacturer. Yet while Tesla's declines Thursday morning were relatively mild, Roku (NASDAQ: ROKU) delivered a financial report that investors found more troubling, and that sent its stock sharply lower in premarket trading.
Tesla reports on China
Shares of Tesla moved lower between 1% and 2% in premarket trading on Thursday morning, adding to a nearly 6% decline on Wednesday. The EV company reported monthly sales figures in the key Chinese market, and even though the numbers were impressive, they failed to live up to the lofty expectations that many shareholders have for Tesla.
The latest figures from the China Passenger Car Association showed that Tesla delivered just over 71,700 electric vehicles manufactured at its Chinese Gigafactory facility in Shanghai during October. That was a healthy number, but it was down by 14% from the more than 83,100 EVs that Tesla delivered in September, which set a record for the company.
Tesla investors also have to take into account some other trends that could affect its competitive stance in the world's most populous nation. Despite the encouraging adoption of Tesla vehicles by Chinese consumers, the U.S. automaker still ranks far behind the EV delivery volume of China's BYD, which came in at more than 217,500 cars. Moreover, with factors like China's zero-COVID policy and a general economic slowdown taking shape, Tesla has had to resort to cutting its prices for its mass-market Model 3 and Model Y vehicles. That flies in the face of increases in costs that threaten Tesla's bottom-line growth.
China is an essential market for Tesla to tap, even though it comes with considerable obstacles. Any further pressure in China could make it hard for the stock to recover from its recent declines.
Roku runs into the ad downturn
Shares of Roku fell much more sharply, dropping 15% early Thursday. The streaming TV specialist said its business could take a double hit for the rest of the year, making investors more nervous about its longer-term prospects.
Roku's third-quarter financial report included numbers that indicated ongoing growth in some areas. Revenue was up 12% year over year to $761 million, with streaming hours climbing 21% to 21.9 billion. Roku reported 65.4 million active accounts at the end of September, up by 9 million accounts in the past 12 months. Average revenue per user posted a 10% jump to $44.25.
However, Roku noted that advertising spending on its platform grew at a slower rate than it had expected at the beginning of 2022, citing weakness across the industry. Moreover, with strains on consumer budgets, Roku sees sales of its hardware also coming under pressure. Investors were surprised to see Roku predicting a possible year-over-year sales drop in the fourth quarter.
Investors weren't prepared for that much bad news, explaining the big share-price drop. Yet such moves have been par for the course this earnings season, as shareholders demand near-term profit potential and resiliency against deteriorating macroeconomic conditions.
