Twitter, Tesla and Lam Research: Key Takeaways From Their Earnings Reports

Tesla and Lam Research are soaring post-earnings, while Twitter is plunging. Here's a look at what's driving the moves.

A barrage of tech earnings reports has arrived over the last 24 hours, and with it has come a barrage of big post-earnings moves.

Here's a quick look at the results, guidance and commentary provided by two names that are soaring post-earnings (Tesla  (TSLA) and Lam Research (LRCX) , which are up, respectively, about 17% and 12%), as well as one that's tumbling (Twitter (TWTR) , which is down about 21%).

Tesla

• Though its revenue (down 8% annually) was slightly below analyst estimates, Tesla's non-GAAP EPS of $1.86 was well above a consensus estimate of negative $0.29, not to mention Elon Musk's July forecast that Tesla would be "probably around breakeven" in Q3. (Q3 report)
• Tesla also reported better-than-expected free cash flow (FCF) of $371 million. And it forecast that it would be GAAP profitable and cash-flow positive going forward, albeit (in classic Tesla fashion) with "possible temporary exceptions, particularly around the launch and ramp of new products." The company hadn't shared a profit or cash-flow outlook in its Q3 deliveries report, which arrived earlier this month.
• The improvement seen in Tesla's automotive gross margin (GM) is getting a lot of attention, given how this figure has been pressured in recent quarters by a mix shift towards cheaper versions of the Model 3. Excluding government credits, automotive GM was 20.8%, down from a year-ago level of 23.4% but well above a Q2 level of 16.8%.
• Also boosting Tesla's EPS and FCF: GAAP operating expenses fell 16% annually to $1.09 billion, as job cuts and a sales model change made itself felt.
• Tesla did once more use some creative wordplay to change its deliveries guidance. Whereas the company previously said it's aiming for 360,000 to 400,000 2019 deliveries, it now says it's "highly confident" that it will top 360,000 deliveries.
• On the flip side, Tesla says it now expects to start volume production for its relatively cheap Model Y crossover by the summer of 2020, after having previously forecast a fall 2020 start. The company also says its Shanghai Gigafactory has begun making vehicles on a trial basis, and is working to get the government approvals needed to start volume production.
• Overall, Tesla's Q3 report does a lot to calm investors worries (heightened in July by a weak Q2 report) about the company's ability to be profitable and cash-flow positive while selling large numbers of cars for around $40,000 or less. And over time, greater manufacturing efficiencies and lower battery costs should make this feat easier.
• That said, with Tesla currently sporting an enterprise value (market cap plus net debt) of around $61 billion, the stock is already pricing in further financial improvement, as well as meaningful top-line growth.

Lam Research

• Lam, a top-3 chip equipment maker, beat EPS estimates while reporting roughly in-line revenue. More importantly, it issued a strong December quarter outlook, with revenue guidance of $2.35 billion to $2.65 billion comfortably above a consensus estimate of $2.19 billion. (September quarter report)
• With Lam having posted revenue of $2.53 billion during its December 2018 quarter, the outlook raises the possibility that Lam, which like its peers has been hit hard this year by weak demand from memory makers, could see annual revenue growth for the first time in 18 months.
• Lam's earnings call commentary was also encouraging -- both for itself and for peers such as Applied Materials  (AMAT) and KLA (KLAC) . Whereas Lam previously forecast industry wafer fab equipment (WFE) spending would drop by a mid-to-high teens percentage this year -- an outlook that implied spending in the low-$40s billion dollar range -- it now expects spending to be in the mid-$40s billion dollar range.
• Not surprisingly, given the big capex guidance hike that Taiwan Semiconductor (TSM) revealed last week as well as recent reports of Intel (INTC) PC CPU supply constraints, Lam indicated that strong demand from foundry (chip contract manufacturer) and logic (processor) clients was driving the recent strength it's seeing. Lam also asserted that it's gaining share with these clients.
• Lam's commentary about demand from DRAM was more tempered. The company noted that server CPU upgrade cycles and 5G phone launches will boost DRAM demand, but nonetheless predicted the DRAM industry's inventory levels (currently elevated) wouldn't normalize until the second half of 2020. It was a little more positive about the NAND flash memory market, noting that the supply/demand balance is already improving and forecasting that inventories would normalize during the first half of 2020.
• Lam is now up 92% on the year. With shares now trading for close to 15 times what Lam earned in fiscal 2018, before orders from memory clients tumbled, the stock doesn't have the kind of rock-bottom valuation it possessed in late 2018 and early 2019. But it doesn't exactly sport nosebleed multiples either.

Twitter

• Twitter broke a string of sales and EPS beats with a Q3 miss caused by weaker-than-expected ad sales. Ad revenue, which accounts for the lion's share of Twitter's revenue, came in at $702 million, well below a consensus estimate of $756 million. Ad revenue growth slowed to 8% from Q2's 21%, and was at the lowest level seen since Q4 2017. (Q3 shareholder letter)
• Q4 guidance is also messy: Twitter expects revenue of $940 million to $1.01 billion, below a $1.05 billion pre-earnings consensus. At its midpoint, the guidance implies revenue growth of just 7%.
• Twitter blamed a slew of factors for its newfound ad revenue pressures. The company says "bugs" that affected its "legacy" mobile app install ad solution hurt its ad-targeting ability, as well as its ability to share data with measurement and ad partners. It also noted that "certain [user] personalization and data settings" weren't operating as expected, and that ad spending seasonality was more pronounced than expected amid a weaker slate of big events relative to the summer of 2018, when the men's World Cup took place.
• On Twitter's earnings call, CFO Ned Segal indicated seasonal ad-spending trends were improving. But notably, he also said that there would be "some continued impact" in 2020 from the technical issues that are said to be weighing on ad sales.
• One positive in the Q3 report: Twitter's monetizable daily active users (mDAUs) totaled 145 million in Q3 (30 million in the U.S., 115 million elsewhere), up 17% annually and above a consensus estimate of 142 million. While I've often been critical about aspects of Twitter's user experience and how they curtail its adoption, the company's recent product improvements, together with the one-of-a-kind nature of its platform, are driving a measure of user growth.
• Regardless, the size of Twitter's post-earnings plunge makes it clear that Wall Street is skeptical that the company's ad revenue problems merely stem from some technical issues, and don't have something to do with competition and the returns advertisers are seeing on Twitter ad spend relative to other platforms. When it comes to mobile app ads in particular, it's worth noting that Facebook (FB)  and Alphabet/Google (GOOGL) have long been big players in this space, and that Apple  (AAPL) has recently emerged as one via its App Store search ad business.
• And with Twitter having gone into earnings trading for more than 7 times its expected 2020 revenue and about 35 times its expected 2020 EPS, it couldn't afford to deliver an earnings report that raised such concerns.