Tesla’s Profits Plummeted in the Recent Quarter

Hello Peter Anthony Hovis,

The current rally is on shaky ground, as two Magnificent Seven companies failed to deliver spectacular results during yesterday’s earnings reports.

Tesla missed its earnings per share results by a mile when it posted 52 cents adjusted vs. 62 cents expected. It beat revenue expectations, though. Automotive sales fell 7% in the same quarter a year ago.

The EV maker resorted to heavy discounts to spark demand during the quarter, which harmed its profitability. Its adjusted earnings margin fell to 14.4% from 18.7% in the second quarter of 2023.

Google parent Alphabet reported results that were in-line with analyst estimates on top and bottom lines, but Wall Street punished its stock for missing on YouTube advertising revenue.

Alphabet’s overall revenue rose by 14% year over year which was a slight slowdown from 15% in the first quarter.

The bar is high for the Magnificent Seven to clear.

Analysts expect the profits for the five biggest US tech companies to increase by 29% in the second quarter form the same period a year ago. That’s a tough comparison. So, Wall Street will see if other Big Tech companies can meet these sky-high expectations.

• ‘“Given that profit expectations are high for the ‘Magnificent Seven,’ these companies will have a lot to prove,” said Anthony Saglimbene at Ameriprise. “At the same time, their outlooks will likely be heavily scrutinized in comparison to elevated valuations.”

Investors seemed to anticipate it because they sold off Big Tech shares and bought shares in the Russell 2000. Bank of America said its clients were a net seller of US stocks that totaled $7 billion. Institutions and hedge funds sold shares while retail investors were small net buyers.

This is notable.

Why? Every rally goes through a distribution phase. Basically, institutions would sell shares to retail investors slowly during a period while pumping up these stocks. They don’t want to sell too quickly because the prices will drop before they could unload all of their shares.

So, retail investors are often the last group of buyers before institutions exit their positions.

Today’s Pick: BlackLine, Inc. (BL)

BlackLine is a perfectly boring business with the most lucrative business model in the world: Software-as-a-Service. Founded by an accountant, it offers a real-time automated process for accounting.

In other words, they automate repetitive tasks to enable higher-value work, offer a dashboard full of visual insights, and unify systems and data for a complete financial story.

They want to become the indispensable platform for the office of the controller — much like Salesforce for sales professionals.

Clearly, their value proposition to controllers and CFOs is powerfulbecause they’re getting big-time clients all over the world. Here is just a sample list of their clients:

BlackLine went public in 2016, and its growth has been a compounding machine. Because of its Annual Recurring Revenue (ARR) model, the growth has been steady since 2020. Of course, this is a classic trait of a ten-bagger stock in the long term.

Now, is there plenty of room for growth? Well, BlackLine is the market leader in automated accounting and its market is still in its infancy. In fact, BlackLine estimates that they’ve penetrated only 1.5% of the Total Addressable Market.

Plus, BlackLine is still relatively young with only a $2.95 billion market cap. In comparison, Salesforce is at $248 billion. So there’s a lot of growth in the next five to 10 years.

Buy the dip: Investors were unhappy with BlackLine’s recent growth slowdown. Its total revenue growth rate was 13% in 2023 when it was growing 20%+ annually in the prior years. However, the company has set a medium-term growth target of 20% to 25%, so it is your chance to get in while the company accelerates its growth.

Don’t miss out on this steady, compounding machine that can easily turn into a ten-bagger in the next decade.