Companies Smiling Over Strong Performance Amid the COVID-19 Crisis

[Asia Economy Reporter Yujin Cho] Despite the economic contraction caused by the COVID-19 pandemic and the impact on global supply chains, some companies received better-than-expected results in the third quarter of this year.

While major global automakers were expected to post sluggish earnings due to disruptions in semiconductor supply chains, Tesla achieved record sales for six consecutive quarters.

Tesla, the first among major automakers to announce its earnings, reported on the 20th (local time) that its third-quarter sales reached $13.76 billion (approximately 16.168 trillion KRW), an increase of more than 50% compared to $8.77 billion in the same period last year.

This marks six consecutive quarters of record sales since the second quarter of last year, surpassing Wall Street's expectations of $13.63 billion. Net quarterly profit for the same period was $1.62 billion, nearly four times (389%) higher than $331 million in the same period last year.

The reason behind Tesla's better-than-expected strong performance is attributed to Tesla's unique production structure called 'vertical integration of technology.' Tesla has secured proprietary design technology that can replace key components.

Most automakers receive parts from multiple large parts suppliers, but the parts supplied by these suppliers are also completed through numerous single-part subcontractors, making it difficult to grasp the supply chain, which contrasts with Tesla's approach.

For example, Tesla's engineering team directly designed an alternative technology for microcontrollers, a key component in car production and considered the main cause of the current semiconductor bottleneck.

The structure of independently designing core technologies and integrating related parts networks differentiates Tesla from other automakers that rely heavily on external large parts suppliers. Dan Levy, an analyst at Credit Suisse, evaluated, "Tesla has gained better responsiveness in chip sourcing through its software technology leadership."

With the resumption of economic activities amid COVID-19, major Wall Street banks also posted better-than-expected results. On the 14th (local time), Bank of America (BoA) announced that its third-quarter net profit increased by 58% year-on-year to $7.69 billion (approximately 9.1 trillion KRW). Earnings per share were $0.85, exceeding the expert forecast of $0.71 compiled by financial information firm FactSet.

Wells Fargo Bank also recorded a 59% surge in third-quarter net profit to $5.12 billion compared to the same period last year, and Citigroup posted $4.64 billion, a 48% increase year-on-year. Citigroup's earnings per share were $2.15, significantly surpassing FactSet's estimate of $1.71.

The increase in loans due to the normalization of economic activities by U.S. companies and consumers contributed to the strong earnings of major banks through increased interest income. Additionally, it is analyzed that banks posted better results compared to the previous year by reversing a significant portion of the large loan loss provisions they had set aside in preparation for bad debts at the beginning of the COVID-19 crisis last year.

(Photo by Forbes)

The world's largest online video streaming service (OTT), Netflix, also announced results exceeding Wall Street expectations amid COVID-19.

Netflix's third-quarter sales reached $7.48 billion, a 16% increase compared to the same period last year, and earnings per share were $3.19. Sales matched Wall Street expectations compiled by Refinitiv, and earnings per share exceeded the market estimate of $2.56.

The popularity of the Korean original drama 'Ojingeo Game' (Squid Game) played a key role in driving the results, with paid subscribers increasing by 4.38 million in the third quarter. The number of new subscribers in the third quarter exceeded Wall Street's estimate of 3.86 million compiled by financial information firm Refinitiv. As a result, Netflix's cumulative subscribers increased to 213.6 million.

Foreign media also cited the huge success of Squid Game as the background for the strong performance. Bloomberg News reported, "Netflix recorded the strongest subscriber growth this year, surpassing Wall Street expectations, thanks to the popularity of Squid Game." According to Netflix, 142 million people worldwide watched the drama during the first four weeks after its release in mid-last month.