Alphabet, Meta and Amazon reporting this week, the US reports strong GDP growth, and the RBA meets

Updated: Jan 31

Deep into earnings season, three mega cap giants reported last week, with three more to go this week to keep us busy. The market will have to keep a juggling act of processing news of interest rate rises along with earnings results. Apple (NASDAQ: AAPL) reported strong earnings results, where it traded up 5% in after-hours trading post-announcement. Apple reported an earnings per share (EPS) of $2.10 and revenue of $123.9 billion, beating Wall Street forecasts of $1.89 and $118.66 billion, respectively. Most pleasing was to see iPhone revenue up 9% in light of the impacts from supply constraints, particularly with legacy node chips. This is significant given its iPhone products make up 58% of Apple’s total sales. Its Services business unit (which includes iCloud, Apple Music, search licensing and App Store fees) continues from strength to strength, up 24% year-on-year, which contributed to Apple’s impressive gross margin of 43.8%. iPad revenues were the sacrificial lamb for the supply issues, as management prioritised other devices which have a greater share of revenue. Tesla’s (NASDAQ: TSLA) fourth quarter results came in stronger than expected, with both the top and bottom-line figures beating Wall Street estimates. Total revenue increased 65%, with automotive revenue up 71%. However, the share price dived after CEO Elon Musk said in a conference call that Tesla factories are still running below capacity due to chip shortages, and no new models would be produced in 2022. Furthermore, Musk confirmed the company is not currently working on a US$25,000 car, contrary to ambitions he announced in 2020. This disappointed investors as an affordable option such as this would have driven sales. Microsoft (NASDAQ: MSFT) also posted solid results, beating both earnings and revenue expectations. They grew revenue by 20% and net income by 21%. Guidance was strong for the next quarter, with revenue above consensus forecasts and operating margins to widen slightly. An uptick in international travel and consumer spending resulted in Mastercard (NYSE: M) and Visa (NYSE: V) posting strong results. Your friends and family may have even contributed these reports as some of them have started travelling internationally again! Australian software company Atlassian (NASDAQ: TEAM) continued their habit of easily smashing expectations, with revenue increasing by 37% for the quarter, and revising up its revenue expectations for the year. The share price shot up 10% in after-market trading. In economic news, the print for GDP in the US was 6.9% quarter-on-quarter growth, well above economists’ forecasts of 5.5%. If the US unemployment rate comes in at or below expectations this week, this will provide further support to our view the economy is performing strongly and to expect four rate rises in 2022. We have priced this into our models for when we discount the free cash flows of companies. The trimmed mean CPI for Australia came in at 2.6% year-on-year, which puts inflation into the 2-3% target band that the RBA targets. With the RBA meeting this Tuesday, we will be keeping a close eye on the statement they release for any changes in wording or tone regarding their views on the economy, inflation and potential rate rises. We expect interest rates to rise above its historically low rate this year. The US also posts its forward-looking JOLTS Job Openings numbers this week. There is expected to be 11.075 million job openings for December. As mentioned, the unemployment rate for January will be released this week, which is expected to come in flat at 3.9%. Despite a lot of big names having already reported, there are still quite a few significant companies that will be announcing results this week. Here are the forecasts for some of the key companies we will be looking at:

  • Alphabet: $27.58 EPS and $72.08 billion revenue

  • Meta: $3.85 EPS and $33.35 billion revenue

  • Amazon: $3.73 EPS and $137.8 billion revenue

The continuing growth of the global economy in its pandemic rebound should keep fuelling Alphabet’s (NASDAQ: GOOGL) earnings growth. This will be due to businesses spending more on ads and consumers search on Google as they return to their pre-pandemic activities. With this, we still expect its YouTube business to perform strongly. Meta’s (NASDAQ: FB) earnings announcement will be sure to gain a lot of traction, after recently announcing the company’s transition to focus on the metaverse, even giving itself a name change. Mark Zuckerberg felt like he had to come up with something transformative as Facebook reaches global saturation. Wall Street is expecting earnings to decline as it invests heavily in the metaverse, and investors will be keen to hear more about Zuckerberg’s plans and what it all means. Amazon’s (NASDAQ: AMZN) fourth quarter results are expected to be hampered somewhat by labour supply shortages, increased wages, and supply chain issues. However, demand has remained strong for its e-commerce business, despite the economic reopen building momentum. Another holding of ours who are reporting is PayPal (NASDAQ: PYPL). The estimate for active customer accounts is 425 million. We are also interested to see how its Venmo business performs with its strong monetisation efforts. An interesting statistic for the week The world’s worst inflation was in Zimbabwe. There was a 6.5 sextillion percent inflation rate in 2008. With the trimmed mean inflation rising into the RBA’s 2-3% target band this week, spare a thought for what Zimbabwe went through in 2008. To illustrate how much this is, this is what 6.5 sextillion per cent looks like as a numerical figure – 6,500,000,000,000,000,000,000%.

Have a great week,

Sam Waldron - Research Analyst

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