Tesla (TSLA) Q2 Earnings: 4 Things to Watch

Our preview of the upcoming week's earnings reports includes Tesla (TSLA), Alphabet (GOOGL), Apple (AAPL), Microsoft (MSFT) and Facebook (FB).

Tesla car
(Image credit: Getty Images)

We're about to enter the busiest week of this earnings season so far, and Tesla (TSLA (opens in new tab), $645.33) will help lead the charge after the market closes on Monday, July 26, when it reports second-quarter results.

The electric vehicle (EV) maker last took its turn in the earnings confessional in April, when it reported better-than-expected profit and revenues thanks in part to gains from its bitcoin investment.

But a lot has happened since then.

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For starters, Tesla CEO Elon Musk announced in May that the company will not sell any of its Bitcoin and will no longer accept the cryptocurrency as a payment for its cars until a more environmentally friendly alternative can be found for mining the coins.

Plus, the price of Bitcoin plunged roughly 40% in Q2.

While Bitcoin's impact on TSLA's bottom line will certainly draw interest from Wall Street, Credit Suisse analyst Dan Levy (Hold) is homing in on three additional key themes in the final print.

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First is the company's capacity build-out, particularly as TSLA looks to get new factories in Texas and Berlin online. Second is the status of the firm's full self-driving (FSD) capabilities, as "some have cited concern over Tesla's release of features that aren't fully validated." And lastly, Levy is looking for upside on gross margin.

"We assume volume strength, price increases and favorable mix should more than offset higher raw material costs and production inefficiencies," he says. Levy expects gross margin, excluding regulatory credits, will arrive at 25% – up 300 basis points (a basis point is one-one hundredth of a percentage point) from Q1 – while earnings per share (EPS) will land at $1.34.

Overall, the consensus estimate for Tesla's second-quarter report is for earnings of 96 cents per share, up 118% year-over-year (YoY), with revenues expected to rise 85.8% from the year prior to $11.2 billion.

A Boisterous Bounce-Back for Alphabet Earnings?

The pros are upbeat ahead of Alphabet's (GOOGL (opens in new tab), $2,665.95) announcement due out after the July 27 close, expecting the Google parent to report EPS of $19.21 in its second quarter, which would mark an 89.6% improvement from the year prior, on $56.0 billion in revenues (+46.3% YoY).

"We remain positive on GOOGL and highlight [it] among our favorite large-cap picks as we believe it should benefit from ad spend recovery, pent-up demand for Google Cloud and call options on Waymo and other non-advertising initiatives," says Jefferies analyst Brent Thill, who rates the stock at Buy.

BofA Big on Apple Ahead of Q3 Report

Analysts are optimistic ahead of Apple's (AAPL (opens in new tab), $148.59) fiscal third-quarter earnings report, too, with consensus estimates for the iPhone maker's EPS docked squarely at $1.00 (+56.3% YoY). Meanwhile, revenues are projected to arrive at $72.9 billion, which is 22.2% higher than what AAPL brought in this time last year.

However, BofA Global Research is guiding for even better numbers from Apple (EPS of $1.05 on $77 billion in revenue). "We expect AAPL to report a strong June quarter on broad-based hardware strength," the firm says.

BofA Global Research has a Neutral (Hold) rating on the tech stock, with a $160 price target, representing expected upside of 8% over the next 12 months or so.

Apple will report Tuesday after the closing bell.

Cloud Expected to Lift Microsoft Results

Microsoft (MSFT (opens in new tab), $289.38), which also reports Tuesday evening, is expected to report earnings of $1.90 per share in its fiscal fourth quarter – up 30.1% from the year prior. Revenues are forecast to arrive at $44.1 billion (+16% YoY).

"We expect MSFT to broadly outperform Street expectations on the heels of sustained strength within the company's commercial business lines, particularly Office 365 and Azure," says Stifel analyst Brad Reback, who has a Buy rating on the stock.

"We continue to believe that the pandemic is forcing organizations of all sizes to accelerate the pace of their respective cloud migrations and that MSFT should continue to be a key beneficiary as its broad stack enables it to capture Tier 1 workloads previously out of reach."

Analysts Have High Q2 Expectations for Facebook

After a slow start to the year, Facebook (FB (opens in new tab), $371.94) has been trending higher since late March, and is now more than 36% higher for the year to date. Part of this upside came in the wake of the social media giant's first-quarter earnings results in April.

Specifically, FB shares jumped 7.3% the day after the company reported stronger-than-anticipated earnings and revenue thanks to a 30% year-over-year pop in the average price per ad and a 12% rise in the number of ads shown.

Canaccord Genuity analysts Maria Ripps and Michael Graham think ad revenue continued to accelerate in the second quarter. "Digital advertising spend remains robust as ongoing momentum from COVID beneficiary verticals like e-commerce and technology is now accompanied by a recovery from travel, traditional retail, and movie studios," the analysts say. And for FB's second quarter, they are targeting year-over-year ad revenue growth of 47.4%.

The pros are generally positive for Facebook's top- and bottom-line growth, as well. For its second quarter, the average analyst estimate is for revenues of $27.8 billion, up 59.9% from one year ago, while EPS are expected to come in at $3.02 (+67.2%). FB will unveil its Q2 report after the July 28 close.

Karee Venema
Contributing Editor, Kiplinger.com