Tesla stock retreats as profits, financing option face doubts
Tesla shot to all-time highs on Wall Street this week thanks to claims of profitability and hype about an impending announcement, but doubts about both events led to shares plunging back down Wednesday.
Tesla stock dove as much as 9.4 percent Wednesday before closing with a 7.3 percent decline at $41.10, a drastic drop from the all-time intraday and closing highs the Palo Alto electric car maker reached Monday and Tuesday. Investors pushed the stock up after the company announced Sunday night that it had recorded its first profitable quarter, exciting observers who were already on the edge of their seats to hear news CEO Elon Musk teased on Twitter.
Tuesday's announcement was not as important as many hoped, however, with Musk announcing a new financing model that he said would allow consumers to own a Model S sedan for as little as $500 a month, a claim that was roundly derided.
"Although Tesla characterized the financing program as 'revolutionary,' it is similar to a car loan with a buyback option," an obviously unimpressed Elaine Kwei, an analyst at Jefferies Group, wrote.
"We do not think the new financing arrangement lived up to the hype -- and related stock move -- heading into the announcement," Pacific Crest analyst Ben Schuman wrote in a report.
Schuman went on to denigrate Musk's claim that the move would open the car up to a new class of owners.
"We expect any increase in reservations based on this announcement to be minimal as $1,200 per month over 5.5 years still limits Tesla to an exclusive group of buyers," he wrote.
While analysts doubted Tuesday's announcement would lead to dramatically increased demand or revenues, at least Tesla's profitability was unscathed, right? Well, not really -- Bloomberg News reported that the company's net gains in the first quarter were influenced by two factors that may not lead to long-term financial health.
The company reportedly received a boost of $10 million from renegotiating payments to the U.S. Energy Department, which granted the company $465 million loans. By agreeing to repay the loans up to 5 years early, Tesla was able to count a $10 million credit in the first quarter of 2012, Bloomberg reported.
Bloomberg also uncovered a letter to a Tesla customer asking him to pay for his Model S specifically because it would count toward that quarter's earnings, helping the company achieve profitability.
"Tesla is right on the cusp of profitability this quarter for the first time in 10 years since the company started. ... In order for Tesla to be able to count your Model S for the quarter, we simply need to receive payment," the letter read.
If Tesla was able to obtain payments from many customers with similar pleas, it could have pulled a substantial amount of revenues forward from the second quarter to the first, which could lead to unsustainable profits.
Zynga, Facebook and Apple gain on hopes for future products
While Tesla's future was not strong enough to sustain its stock gains Wednesday, three other Silicon Valley companies saw their shares rise on prospects for future projects.
The largest gains of the day belonged to San Francisco social-gaming company Zynga, which zoomed 15.3 percent higher after launching its first real-money gambling venture. Zynga launched poker and casino games in Britain that will allow users to wager real funds, with eyes on similar offerings in the United States if Internet gambling is legalized on these shores.
"Investors are clearly very interested in real-money gaming opportunities and these headlines shine the spotlight on Zynga as one way to play that trend," Robert W. Baird analyst Colin Sebastian told Bloomberg.
Former close Zynga partner Facebook also enjoyed strong gains, increasing 3.3 percent ahead of its own much-hyped announcement. The Menlo Park social network is hosting reporters Thursday in an event that its invite said would introduce "our new home on Android."
The invitation has led to speculation that the event will focus on a Facebook-themed smartphone, or at least a more integrated Facebook mobile application. For live coverage of the event, go to www.sv.com at 10 a.m. Pacific time Thursday for a live blog from TechFiles columnist Troy Wolverton and more.
Facebook closed at $26.25 a share, and also could have received a boost from an eMarketer report that said Facebook owned 30 percent of the display-advertising market after a strong fourth quarter.
Apple is no stranger to reports about its future products, and Wednesday was no different. After reports late Tuesday about its next round of iPhone releases, the company returned to the spotlight Wednesday morning after Topeka Capital analyst Brian White reported that conversations with Asian component suppliers lead him to believe Apple will release a 60-inch television set later this year. White reported that the "iTV" will be sold with multiple mobile components -- an "iRing" that allows the user to control the set by pointing, and iPad-like "mini-iTVs" that can receive streams from the main appliance.
White's description sounds cool, but is one of several predictions of an Apple television set dating back years, and none have yet to prove correct. Still, Apple stock gained 0.5 percent to $431.85.
Stock indexes drop as Netflix and SunPower get hammered
Apple's gain seems much larger when compared to the overall movement of the market, as Wall Street indexes hit a serious skid Wednesday. All three major U.S. indexes declined, led by the tech-heavy Nasdaq composite index at 1.1 percent.
Netflix (NFLX) was one of the companies pulling indexes down Wednesday, with the Los Gatos video-on-demand company dropping 3.9 percent to $169.74. Netflix shares have now dropped 10.3 percent this week as rumors that activist investor Carl Icahn is dumping the shares circulate, despite his denial; Icahn's purchase of Netflix last year helped push the stock higher at the time.
Cisco (CSCO) managed to avoid big losses, possibly because of the announcement of yet another foreign acquisition targeting the wireless-carrier enterprise market. The San Jose networking giant declined 0.1 percent to $21.20 after committing $310 million to the purchase of British 'soft-cell" company Ubiquisys.
Silicon Valley tech stocks
Up: Zynga, Facebook, Yelp, Apple
Down: SunPower, Tesla, Workday, Ruckus, Netflix, LinkedIn, Advanced Micro Devices, Palo Alto Networks, VMware, Intel (INTC), Electronic Arts (ERTS), Intel, Yahoo (YHOO), Nvidia, Intuit (INTU), Gilead, eBay (EBAY), Oracle (ORCL), Splunk
The tech-heavy Nasdaq composite index: Down 36.26, or 1.11 percent, to 3,218.6
The blue chip Dow Jones industrial average: Down 111.66, or 0.76 percent, to 14,550.35
And the widely watched Standard & Poor's 500 index: Down 16.56, or 1.05 percent, to 1,553.69
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.