Equity valuations, Tesla’s capital raise, watch US tech earnings

Back on July 8 we tweeted that Elon Musk, the CEO of Tesla, should consider taking advantage of the high equity valuations of Tesla’s shares and issue equity capital to accelerate growth even further.

Less than two months following our thoughts Tesla announced an equity distribution pact worth $5bn meaning that the company can issue new shares “from time to time” with the intention to use the proceeds to strengthen its balance sheet and fund growth. The world’s leading EV-maker is expanding rapidly having just finished a manufacturing plant in Shanghai and is expanding with new factories in Germany and Texas. The news caused its shares to decline by almost 5% yesterday which is significantly above the dilution effect from the new shares. In the option market a lot of activity is still visible on the $500 strikes with heavy call option volume on the expiration date on Thursday. This means that today’s price action will even more exciting.

Today a small group of US technology companies will report earnings after the close. The companies are Crowdstrike, Copart, MongoDB, Guidewire and Smartsheet. What we have observed over the past couple of weeks is that US technology companies reporting earnings have seen speculative rallies into the releases, so potential behaviour could happen again in today’s session. Of the companies reporting today especially MongoDB stands out with a 31% rally since 10 August. It seems investors are betting heavily that analyst estimates are way off expecting revenue only to grow 28% from a year ago following a 46% growth in FY21 Q1 (ending on 30 April) which showed robust revenue generation despite COVID-19.