US markets recover, Tesla margins in reverse, Netflix faces Brazilian hit 

US markets recovered from a rocky middle of the month on concerns about private credit to make solid progress over the past week.

This progress was somewhat interrupted by concern about renewed tensions between the US and China over trade ahead of a deadline which could see additional tariffs introduced at the beginning of next month.

The tone is likely to be set next week by a raft of big corporate earnings announcements, including from the likes of Microsoft, Meta, Apple, Amazon and Alphabet.

Warner Bros Discovery was up on M&A speculation, while shares in energy contractor Haliburton surged on a positive outlook for its overseas business. Medical robotics outfit Intuitive Surgical was also in demand on a strong quarterly performance.

Names on the back foot included health insurance firm Molina Healthcare which was badly hit by rising costs and high-performance server business Super Micro Computer which warned on revenue.

Tesla

Despite posting record for deliveries in the third quarter and higher than expected revenue, the electric vehicle maker missed consensus earnings estimates, sending the shares 4% lower in pre-market trading.

The strong revenue performance reflected a rush by customers to buy ahead of the expiration of federal tax credits but was not enough to boost profits which were dented by higher costs, lower capacity utilisation and tariffs.

The bottom line is that despite selling 7% more electric vehicles the business booked a 40% fall in operating profit. Gross margin adjusted for regulatory credits, a closely watched metric, fell almost two percentage points to 15.4%.

The customer spending spree during the summer helped Tesla shift excess inventories and boost cash flow, but this is a one-off and the expiration of tax credits is likely to dent demand through the remainder of the year.

To mitigate the impact, in October Tesla announced stripped down versions of its Model Y and Model 3 cars, lowering the price point by around $5000. Investors are expected to vote on Elon Musk’s proposed $1 trillion pay package in early November.

Netflix

Netflix shares fell 10% on 22 October after third quarter profit fell well short of analysts’ expectations, due to an unexpected tax $619 million tax liability in Brazil.

With the shares up nearly 40% year-to-date and expectations for continued margin expansion, the earnings bar was high heading into the report, which partially explains the negative investor reaction.

Revenue for the three months to 30 September increased 17% year-on-year to $11.51 billion, just shy of the company’s own guidance as well as consensus estimates.

The Brazilian tax issue reduced Netflix’s operating margin to 28%, well below the 31.5% previously guided for. This resulted in EPS (earnings per share) of $5.87, compared with analysts’ forecasts of $6.94.

For the December quarter Netflix projected revenue of $11.96 billion, ahead of consensus estimates calling for $11.90 billion, and EPS of $5.45 compared with analysts’ forecasts of $5.42.

Although historically Netflix has primarily been focused on organic growth, that didn’t stop market chatter of a potential bid for studio Warner Bros Discovery, which has put itself up for sale.

General Motors

Detroit automaker General Motors topped consensus analyst estimates for the third quarter and raised full guidance, driven by a better-than-expected pick up in sales, sending the shares up by more than 13% on 10 October.

The company now sees adjusted EPS (earnings per share) of $9.75 to $10.50, up from $8.25 to $10.0 with adjusted free cash flow expected to be between $10 billion and $11 billion compared with $7.5 billion to $10 billion.

Anticipated full year tariff headwinds also dropped to a range of $3.5 billion to $4.5 billion as the Trump administration extended a tariff reprieve for American automakers to 2030.

CEO Marry Bara commented: ‘The MSRP offset program will help make US-produced vehicles more competitive over the next five years, and GM is very well positioned as we invest to increase our already significant domestic sourcing and manufacturing footprint.’

Adjusted EPS for the three months ended 30 September dropped 5% to $2.80, easily surpassing consensus estimates of $2.27 while revenues slipped slightly to $48.6 billion.

The shares are up 23% so far in 2025 compared with a 14% advance in the S&P 500 index.