Tesla seeks financing
Tesla (TSLA, Financial) has been sending memos to its suppliers asking for discounts on purchases that go back to 2016.
According to the Wall Street Journal, "The auto maker's memo, sent by a global supply manager, described the request as essential to Tesla's continued operation and characterized it as an investment in the car company to continue the long-term growth between both players."
The market was disappointed by the news, sending the stock down 3% on Monday.Ă‚
Tesla's request is a desperate attempt to register a profitable quarter. CEO Elon Musk has been quite vocal about the company’s ability to post a profit during the second half of 2018. He has also been dismissing the idea of raising capital for financing operations.
Although the electric vehicle manufacturer achieved its target of producing more than 5,000 Model 3 cars during its second fiscal quarter, it does not do much to remedy Tesla’s profitability and financing woes. The company only has around $2.7 billion in cash right now with an additional $543 million available through the credit facility.
It appears Tesla’s management is more focused on protecting the stock price in the short term, rather than its business in the long run. There have been several arguments regarding Tesla’s need for capital financing, yet the CEO refuses to acknowledge them.
First, Tesla offered its Fremont factory as collateral in revision of agreement with its creditors to shore up liquidity options. Now, the company is asking suppliers to offer discounts on backdated purchases that can improve short-term profitability and provide the company with much-needed cash for its operations. However, the company is not using conventional channels to procure financing, which indicates Musk’s inclination toward protecting the stock price in the short term.
Point of interest
As the management team isn’t publicly accepting the fact it needs cash to finance operations, once Tesla turns toward such options in distress, the market will react much more aggressively, hurting shareholders. Hence, it’s better to remain on the sidelines.
Instagram on the rise
Facebook (FB, Financial) is expected to post better-than-expected results on Wednesday as Instagram is reportedly doing great.
Instagram-spend rose 177% among North American clients during the second quarter of 2018, noted Goldman Sachs. Merkle – a marketing agency – also noted in its Digital marketing report for 2018 that ad impressions on Instagram more than tripled during the second quarter. Another marketing analytics firm, Kenshoo, reported that “Instagram spending doubled YoY with Instagram Stories accounting for 11% of spend on Instagram ads.”
This doesn’t bode well for Snapchat's parent company Snap (SNAP, Financial), which is struggling to revitalize user growth. The app only added 4 million daily active users during the first quarter of 2018, as compared to 8 million users in the year-ago quarter. On the other hand, Instagram crossed 400 million active users only for its stories feature, in contrast to Snapchat’s 191 million total DAUs during the first quarter.
Point of interest
Going into the earnings season, a Facebook-Snapchat pair trade might reward investors. As Instagram is increasing in popularity among advertisers and Snapchat is facing difficulties in improving user growth, buying Facebook and shorting Snap is an interesting strategy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
