Dow Jones futures were little changed early Wednesday, along with S&P 500 futures and Nasdaq futures. The major stock market averages were near record highs. Tesla (TSLA) remained active overnight after surging on CEO Elon Musk’s tweet that he may take the company private. Tesla stock dipped back below a buy zone in the premarket, but its risk-reward dynamic has changed. Snapchat parent Snap (SNAP) whipsawed on its Q2 results that added to user concerns at Twitter (TWTR) and Facebook (FB) user growth. Match Group (MTCH), Shutterfly (SFLY) and Applied Optoelectronics (AAOI) were three big winners overnight.
Dow Jones futures were just above break-even vs. fair value. S&P 500 futures were flat. Nasdaq 100 futures lost a fraction.
In the latest Trump trade war step vs. China, the U.S. will impose 25% tariffs on $16 billion worth of Chinese goods on Aug. 23, the U.S. Trade Representative said late Tuesday. That follows tariffs on $34 billion in Chinese goods on July 6, followed by dollar-for-dollar retaliation by Beijing. President Donald Trump also is mulling 25% tariffs on a further $200 billion in Chinese goods.
In Tuesday’s session, the Dow Jones rose 0.5% while the S&P 500 index and Nasdaq composite advanced 0.3%. The S&P 500 index and Nasdaq composite are less than 1% from record highs. The Dow Jones is within 4%.
Shares of the electric vehicle maker remained active overnight, currently down 1.8% to 372.75. In Tuesday’s stock market trading, Tesla stock skyrocketed 11% to 379.57, after Tesla CEO Elon Musk tweeted out that he wanted to take the company private at 420 a share, claiming he had “secured” funding. Shares shot up as high as 387.48 intraday, nearly eclipsing the Sept. 18, 2017, peak of 389.61.
Tesla stock surged past a 373.43 cup-base buy point in massive volume on Tuesday, though it was dipping below that entry in Wendesday’s premarket. But it rose on buyout speculation. If the Tesla does go private at 420 a share, that’s a 10.7% premium to Tuesday’s close. But that also means the reward from buying Tesla stock at this point is capped. On the downside, if Elon Musk chooses not to take Tesla private, the stock likely would give up its buyout-buzz gains very quickly, with the possibility that the selling wouldn’t stop there.
Keep in mind that a Tesla buyout would be the largest in history. At 420 a share, it would be $72 billion excluding debt. Buyouts often involve profitable companies with decent cash flow, not a money-losing enterprise with dwindling cash. Despite Elon Musk’s claim of “secured” funding, does Tesla have the necessary financial backing? And it’s unclear if Elon Musk’s vow to let ordinary Tesla stock holders keep their shares as a private company could work.
Of course, the buyout price could be higher to win over shareholders, especially if Tesla stock rallies on its own accord beyond 420.
Bottom line: Tesla stock, for now, likely will rise and fall on go-private rumors and news. That creates more uncertainty and alters the risk-reward dynamic.
Snapchat parent Snap stock soared in initial after-hours trading, then reversed sharply lower. It was down about 1% in the premarket. Shares are more than 50% below their record high set in March 2017, on their second day of trading.
Snap reported higher revenue and a smaller loss than expected. But Snapchat users actually declined vs. Q1.
While Snap likely can monetize its existing Snapchat user base better, stalling levels are not a good sign. Snap’s woes also follow similar problems at Twitter and Facebook, raising concerns that social media growth may be stalling.
Twitter on July 27 reported its own active users dropped vs. Q1 as it suspended fake and suspicious accounts. Twitter user levels likely will fall in the current quarter as well. The surprise user drop and guidance sent Twitter stock plunging 20.5% on July 27 and 8% the following session.
Facebook users continue to rise, but missed some growth metrics. Facebook stock plunged 19% on July 26, though that was largely to do with a revenue miss and weak guidance.
Match Group earnings and revenue beat forecasts, fueled by strong Tinder app growth. Shares shot up 14% to 44.72 early Wednesday, signaling a big move back above the 50-day moving average. Match stock is working on a 48.75 buy point.
Shutterfly earnings came in at 38 cents a share, much better than expected. Revenue shot up 120% to $443 million. Shutterfly stock spiked 9% early to 91.10. Shares have been trying to break a downtrend since peaking at 100.34 on June 5. Shutterfly stock could be starting to build the right side of a base, with a potential entry of 100.44.
Applied Optoelectronics earnings of 64 cents a share easily beating views for 44 cents. Revenue fell 25% to $87.8 million but also beat comfortably. Applied Optoelectronics stock roared 23% in the premarket. Shares should vault above its 50-day line once again after finding support at their 200-day recently.
Applied Opto stock is well off highs and the fundamentals are still weak. But this could be the start of a rebound. More broadly, Applied Opto follows positive results from fellow optical components plays Acacia Communications (ACIA) and Neophotonics (NPTN).
On Wednesday morning, Lumentum Holdings (LITE) reported strong results, lifting its shares. Lumentum is another optical components firm, though it’s also been winning Apple (AAPL) business for its 3D sensors tech.
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