On a valuation spectrum between penny stocks and blue-chip stocks, growth stocks take a peculiar position. Although they are not as nearly as speculative and volatile as penny stocks, growth stocks are based on the expectation they will eventually assume the highest form - blue-chip stocks. After all, blue-chip companies are perceived to deliver both dependable dividends while also growing.
Netflix And Tesla: Two Sides Of The Growth Coin
On this expedited growth journey, some companies fumble while others take a category of their own. This process appears to be unfolding with Netflix and Tesla. Netflix's April earnings report tells a story of hitting the brick wall of expectations, while Tesla's valuation forecast seems to be boundless.
Netflix Stock Ousted From The Growth Club?
Netflix gained its momentum by naturally filling the niche of a dying breed, the video rental business spearheaded by Blockbuster. In fact, the CEO of Blockbuster, John Antioco, spectacularly failed to notice the new video-streaming trend on the horizon. Netflix founders approached him in early 2000 to sell Netflix for $50 million.
Fast forward to late 2021, and Netflix grew by 7,536%, from a $50 million deal offer to a $318 billion market cap. As growth tech companies go, replacing and cornering a specific market, one couldn't have asked for a better result. However, year-to-date, Netflix (NFLX) dropped to rock bottom in early 2022, returning to a December 2017 level market cap of $83.36 billion.
Did Netflix lose its growth stock status?
Not quite. The Covid-19 pandemic may have pumped Netflix's usage as the go-to content delivery platform, but Netflix’s valuation has been heavily reliant on subscriber numbers. It has been an open secret that Netflix has an account sharing problem, which the company tolerated to spur growth, openly admitting as such this April, in a letter to shareholders.
"Our relatively high household penetration - when including the large number of households sharing accounts - combined with competition, is creating revenue growth headwinds. The big COVID boost to streaming obscured the picture until recently."
There are two key admissions here. The baseline for Netflix’s valuation is largely inaccurate because it relied on account sharing. Moreover, with the Covid-19 boost gone, the company is now forecasting a decline in subscribers by 2 million for Q2 2022. Hence, this is why Netflix suffered a valuation reset back to a late 2017 level, as Bank of America downgraded its ranking from "buy" to "underperform" in April.
With a new reset price, Netflix's explosive growth narrative is over, but it also serves as a new starting point. Yet, Netflix itself admits that it will take at least until 2024 until its password-sharing crackdown and ad-boosted subscription monetisation produce a major effect.
Bank of America analyst Nat Schindler said, "It will take a while for investors to believe Netflix can return to growth."
With that said, Netflix revenue for Q1 2022 is still up by 9.8% compared to the same quarter a year prior, at $7.8 billion. While that is not hyper-growth, it is growth nonetheless. When all is said and done, shouldn't it be the case that the removal of unsupported growth figures has the same valuation reset effect on another growth company?
Tesla Continues To Defy The Odds
Tesla's April earnings report showed that the company has 6.5x stronger sales than the year prior. The EVs generated $3.3 billion in Q1 profits, a 658% increase from Q1 2021. Moreover, Tesla reported an 81% increase in total revenue, to $18.8 billion. While these figures are positive, do they justify Tesla's enormous market cap of $797.7 billion?
In other words, is another valuation reset incoming? Over the last 5 years, Tesla's story was one of hyper-growth just like Netflix, gaining 1,137% appreciation. Year-to-date, Tesla (TSLA) stock too suffered a downturn, but not as nearly as much as Netflix (NFLX).
If anything, it seems that Tesla's downturn can only be attributed to the general equity market decline due to the Fed's interest rate hike. The Fed tapering increases borrowing costs, so investors tend to exit growth — and especially tech — assets into safer commodity harbours.
Yet, at face value, if any company is due for a valuation reset it would be Tesla. Elon Musk's baseline business model revolves around manufacturing and selling electric vehicles (EVs). Yet, it has done so at a considerable lower rate than traditional car companies.
Case in point, Ford sold 3.9 million cars in 2021, while Tesla sold less than one million, at 937,172, in the same year. Tesla's market valuation does not reflect this gap in the slightest. In fact, when compared to top car companies, one would think that Tesla is the largest vehicle manufacturer in the world. This leads many investors to classify TSLA as an overvalued stock.
What else is then in play for Tesla to maintain its hyper-growth valuation? Does it mean that Tesla's expectation is more valid than that of Netflix?
Before anything else, Tesla has the first-mover advantage in the area that counts the most. While there were plenty of EV companies before Tesla, it was the first company to pull out EVs from the cumbersome EV aesthetic. While Tesla had to push their EVs into the luxury vehicle category to make that happen, it successfully made their cars into status signalling devices.
Governments all over the world further boost this speculation by announcing the gradual ban of gas-operated vehicles. For this reason, there is now the expectation that most vehicles on the road by 2040 will be electric, with Tesla forging the way.
Consumer behaviour has become a factor as well. Despite car insurance rates being generally more expensive for EVs as opposed to traditional gas-powered vehicles, Tesla has taken strides to make their vehicles more affordable. Yet, they also tend to be used as a status signalling vehicle, which generally happens with luxury products.
Combined with Elon Musk's omnipresent online persona, with over 80 million Twitter followers, and SpaceX involvement, this creates a big cushion for Tesla. So much so that not even major supply disruptions can upset Tesla's gains.
With so much market upheaval, it bears remembering why the average stock market return for the last 100 years has remained steady at 10%. While it is anyone's guess if Tesla will keep this momentum going, it also bears keeping in mind that Tesla made it through while openly admitting past underperformance and future downturn.
"Our own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through the rest of 2022."
Given such contrast, it is safe to say that Tesla is in its own premium growth stock category, especially now when gas prices are soaring. Case in point, AAA research showed significant pressure to make the transition to EVs when gas prices are up.
At the same time, Netflix, as a software platform, is more of a "take it or leave it" proposition, with many people opting for the latter, viewing Netflix as a luxury item in times of economic distress. While Tesla may offer luxury EVs, abandoning its plan to enter the mid-range category, it appears that Elon Musk managed to fine-tune Tesla's elite brand to absorb negative pressures.
About the author: Shane Neagle is Editor In Chief at The Tokenist.
In a filing earlier this month, Twitter estimated that less than 5% of its monetisable daily active users during the first quarter of the year were spam accounts or bots. However, Musk believes that approximately 20% of accounts on the platform are fake or spam accounts. He has also expressed concerns that the figure could be higher still.
“My offer was based on Twitter’s SEC filings being accurate,” Musk tweeted Tuesday morning. “Yesterday, Twitter’s CEO publicly refused to show proof of <5%. This deal cannot move forward until he does.”
After becoming Twitter’s largest single shareholder in early April, Musk declared a takeover bid for the social media platform, offering $54.20 per Twitter share. By the end of the month, Twitter had agreed to the deal.
Shares were up by as much as 6% in after-hours trading following the news.
Automotive revenue hit $16.86 billion, up 87% from the same period last year. Meanwhile, automotive gross margins soared to a record 32.9%, with the EV company reporting a gross profit of $5.54 billion. Regulatory credits made up $679 million of Q1 automotive revenue.
Tesla said revenue growth was pushed forward partly by an increase in the number of vehicle deliveries, as well as an increase in average sales prices.
Earlier in April, Tesla reported making 310,048 vehicle deliveries worldwide for the first quarter. Its Model 3 and Model Y vehicles made up 95% of deliveries in the period ending March 31, 2022.
Despite ongoing disruption from the Covid-19 pandemic as well as the conflict in Ukraine, Tesla CEO Elon Musk remains confident that the company can grow at least 50% over figures from the previous year.
“It seems likely that we’ll be able to produce one and a half million cars this year,” Musk said.
The multi-billionaire entrepreneur has said he will “acquire all of the outstanding Common Stock of the Issuer not owned by the Reporting Person for all cash consideration valuing the Common Stock at $54.20 per share.”
The proposal was delivered via a letter to Twitter on 13 April, with Musk saying that Twitter needs to go private in order for necessary changes at the company to occur.
Musk has said that he would need to reconsider his position as a shareholder if Twitter does not accept his offer.
Following the news, Twitter shares are up over 13%.
Michael Kamerman, CEO of Skilling, shares his opinion on what stock you should buy this week.
Tesla
By now, Tesla is renowned for its well-performing stock as well as its prolific CEO, Elon Musk. But, the company has reached new heights, delivering 310,048 cars in the first quarter of 2022.
Despite ongoing supply chain interruptions and China’s zero Covid policy, Tesla broke their own sales record – delivering nearly double the 184,800 cars in Q1 2021.
With Tesla’s Berlin factory up and running, and the increase in overall production, momentum will only grow for the company.
Whilst this progress is impressive, it is the news of a stock split that has accelerated Tesla’s stock price. Investors may see this as a green light to invest in Tesla stock but they should be wary that a stock split could have little to no impact on the overall stock price.
An added facet for investors to consider is the concerningly high valuation of the company. This gives very little room for the company to stall or misstep, something which comes with the territory of the market.
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Not investment advice. Past performance is not indicative of future results.
According to filings made to the US Securities and Exchange Commission (SEC), Musk, who regularly puts out controversial Tweets, has taken a 9.2% stake in Twitter at the cost of $2.89 billion on Friday.
Following the news, Twitter shares soared as much as 26% in pre-market trading, adding over $8 billion to its $31.5 billion market value prior to Musk’s interest being made public. Following the stock price jump, Musk’s shares are now worth approximately $3.6 billion.
At the end of last month, Musk had said he was giving “serious thought” to creating a new social media platform after remarking that Twitter doesn’t allow for free speech. In a Tweet, the billionaire said, “Given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy. What should be done?”
Some analysts predict that Musk’s shareholding could lead to him taking an active interest in the social media platform which may result in a buyout.
“We would expect this passive stake as just the start of broader conversations with the Twitter board/management that could ultimately lead to an active stake and a potential more aggressive ownership role of Twitter,” said Dan Ives, an analyst at Wedbush Securities.
Musk has been selling off chunks of Tesla stock since asking his Twitter followers in a November Twitter poll whether he should sell some of his stake in the company. “Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock. Do you support this?” Musk wrote, causing Tesla shares to drop by 24%.
3.5 million Twitter users voted 57.9% in favour of the move by Musk. He later said he would exercise options toward the end of the year.
According to regulatory filings, the billionaire has now sold around 13.5 million shares for approximately $14.1 billion. However, to fully meet his 10% pledge, Musk still needs to offload some 17 million shares.
According to Forbes, Musk’s net worth currently sits at $245.6 billion.
Turning to Twitter, Musk said, “Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock. Do you support this?"
3.5 million Twitter users voted 57.9% in favour of the move by Musk, who launched the poll following criticism that he does not pay enough tax.
"Note, I do not take a cash salary or bonus from anywhere. I only have stock, thus the only way for me to pay taxes personally is to sell stock," Musk also tweeted. The 10% stock is worth approximately $21 billion.
Following Musk’s Twitter poll, shares in Tesla fell 7.6% in early trade on Germany’s Tradegate on Monday. In late October, Tesla passed a trillion dollars in market cap, joining several other big companies such as Amazon, Apple, and Microsoft. Around this time, some of Tesla’s board members chose to sell a large number of shares, including Elon Musk’s brother Kimbal Musk.
The clean energy car manufacturer’s stock market value has soared throughout 2020 and 2021 as investors bet on accelerating sales of electric cars in a global push towards increased sustainability amid the climate crisis. By 2030, the UK government plans to ban the production of petrol and diesel cars to meet national climate targets.
On Monday, Tesla shares increased by as much as 9% to as high as $998 following the announcement of Hertz’s 100,000 vehicle order. The shares later returned to below this level. Nonetheless, it marks a major milestone for Elon Musk’s company.
The milestone follows a record quarter for Tesla in which its Model 3 became Europe’s best selling car in September. This was the first time a battery electric vehicle topped the monthly sales chart in the continent.
Hertz has said that the vehicles would be delivered by the end of 2022 as part of its goal to build the largest EV rental fleet in the United States. It is understood that the purchase could cost as much as $4 billion, even with a bulk discount.
The rise in Tesla’s share price has further boosted the fortunes of its founder and CEO. Even before Monday’s gains, Musk’s gains stood well above the $250 billion mark.
Investing in individual shares conveys more danger than other trading asset classes. It may be because the shares conceivably offer more significant yields. Most famous shares are usually updated weekly. The stock market’s tendency implies that there are continually intriguing developments going on consistently. This is creating boundless opportunities for the investors to create positive returns. Since there are tons of companies today, it can sometimes be difficult to decide which are the best shares to purchase.
Top Shares To Buy Right Now UK
Below is a quick-fire list of some of the top shares to buy right now UK. If you'd prefer to purchase any of these shares right now, eToro is a good option to consider as you’ll need not pay any commissions and you can create an account in minutes.
1. Tesla (TSLA)
Our top pick in the securities exchange right presently is Tesla. Tesla was perhaps the most sizzling stock for 2020. Numerous financial backers and individuals trust the company and buy Tesla stock due to the popularity of Elon Musk. Today, Tesla is experiencing strong sales growth. The electric vehicle creator's offer cost was up over 600% because of an assortment of components.
2. HSBC (HSBC)
HSBC has had an all-over-year. HSBC is a bank with a tremendous presence in Asia. It is still making a good presence in the UK and other countries.
3. Facebook (NASDAQ: FB)
Facebook shares are down almost 7% throughout the most recent 5 days. The organisation reported that a change to Apple's security strategy would affect its advertisement business. This implies that genuine transformations, like deals and application innovations, are conceivably higher than whatever Facebook is reporting to its clients.
4. DISNEY (NYSE: DIS)
The Walt Disney Company, or Disney, is a worldwide entertainment organisation whose scope extends a long way past ‘The Happiest Place on Earth' at Disneyland. In addition to the 12 Disneyland Theme Parks, it works well throughout the planet. But lately, it has forcefully ventured into different areas of entertainment.
5. ZOOM (NASDAQ: ZM)
If you hadn't found out about Zoom before the Coronavirus pandemic, we're willing to be that you have now. This cloud-based video conferencing software turned out to be incredibly famous during lockdown throughout the world.
6. Unilever (ULVR)
Interestingly, Unilever is a famous consumer goods company. It owns many famous brands such as Lipton, Magnum, Dove, etc. For some time, it has been promoted as a safe stock due to the consistent popularity of the company's products. Generally speaking, Unilever would be a decent purchase right currently because of its low cost and alluring profit yield.
Conclusion
Determining the top shares to buy right now UK isn’t pretty much as simple as reading an article. In reality, investors must initially understand what they look for from their investment portfolio before they even think about investing a dollar in a single stock.
The move marks the first international of PayPal’s crypto product, which was first launched last October in the US. Its crypto feature allows customers to buy or sell bitcoin, bitcoin cash, ethereum, or litecoin with just £1. Additionally, customers are also able to track real-time crypto prices and access educational content on the market.
The extension of the service to the UK will rely on the New York regulated digital currency company Paxos and PayPal has confirmed that it has engaged with all relevant British regulators to launch its crypto service.
Despite ongoing concerns regarding crypto’s volatility, consumer protection and the potential for money laundering issues, many major companies including Tesla, Mastercard, and Facebook have been opening up to crypto in recent months. PayPal is one of the many large finance firms choosing to embrace the unregulated world of crypto. The move by the online payments giants comes as Bitcoin hit $50,000 on Sunday, reaching a more than 3-month high.
Following other big tech firms such as Baidu and Bilibili, Xpeng is the latest Chinese company to list on the Hong Kong stock exchange. The electric car manufacturer is already listed on Nasdaq and is rapidly becoming a strong rival to Tesla in China.
Xpeng raised HK$14 billion ($1.8 billion) in its initial public offering ahead of the start of trade on Wednesday. The company issued 85 million Class A ordinary shares at HK$165 ($21.20) each. Its shares traded approximately 1.8% higher on opening. The IPO comes as Chinese firms are put under pressure to list closer to home. Recently, Chinese transport company DiDi fell under scrutiny over data security when it listed overseas.
Xpeng’s performance has improved considerably over the years, having previously proposed, and been rejected for, a merger with another struggling electric car manufacturer Nio. In its US IPO last year, Xpeng raised $1.5 billion and in the fiscal year 2020, and delivered over 27,000 vehicles to consumers. If successful, Xpeng’s performance in Hong Kong could facilitate similar moves by other electric vehicles companies.
