Heading into reporting season, all the focus was on the market’s biggest names. How did they square up?
Amid a stunning rally over the last year, expectations could not have been greater heading into the latest earnings season.
With mega-tech names comprising more than 20% of the entire S&P 500, there is little denying the burden on the tech industry has been particularly heavy, even if there has been some rotation towards ‘value’ in recent months.
Nonetheless, with all the prevailing tech trends throughout the pandemic still flourishing, opportunities for the likes of Amazon, Facebook, Apple, Alphabet and Microsoft to justify their valuations have been supported by an earnings season to remember.
Amazon entrenches its necessity in society
Global ecommerce behemoth Amazon (AMZN) delivered earnings of US$15.79 per share versus forecasts of US$9.54 per share, and revenue of US$108.52 billion versus US$104.47 billion.
With sales up 44% year-on-year, it is evident that Amazon has been one of the biggest beneficiaries amid the pandemic. In our view, the thesis here is particularly clear. Online shopping has become the go-to method for consumers across the world, even in countries that have largely recovered from the effects of the pandemic.
With guidance for next quarter pointing to revenue of between US$110 billion and US$116 billion, another period of strong growth looms on the horizon. Underpinning this will be the company’s Prime Day event, which is scheduled to take place in the June quarter.
The timing couldn’t be any better either. Consumers in the US are awash with cash at the moment on the back of several stimulus packages.
Elsewhere, the company’s cloud division is booming, with sales up more than 30%, while Prime Video has acted as a key component in promoting the uptake of its Prime subscription service, which now boasts over 200 million subscribers.
All in all, the evidence points to broad-based success for Amazon, and with international sales growth now outpacing that in North America, there is plenty left to play out in this story.
Facebook is becoming a personal ad medium
When the pandemic first broke out just over a year ago, there were some effects that initially flowed through to the advertising market, with Facebook (FB) one of those hit hardest. Fast forward and the stark contrast couldn’t be any more apparent.
Facebook trounced consensus estimates when it reported revenue and earnings late last month. However, the driving factor wasn’t necessarily the increase in active users, it was the engagement among these users, and the pricing of said ads.
In total, the average price per ad rose 30%, while the number of ads shown jumped 12%. With overall revenue up 48% across the last 12 months, net income nearly doubled to US$9.5 billion.
Some challenges have been identified by management as potential hurdles in the back-end of this year, including regulatory matters, and a long-running platform dilemma with Apple.
However, the company’s focus on a personalised experience is something we see likely to resonate, and as it builds out other services, and seeks to enhance the monetisation of its services for end-users, the prospect of accelerating uptake across its family of apps is a growth drawcard.
Apple stays with us at all times
Almost unsurprisingly, Apple (AAPL) delivered a knockout blow this earnings season as it achieved a number of records. With sales across the company soaring 54% to US$89.58 billion, profits came in well ahead of all expectations.
Perhaps the biggest achievement was the company’s feat in recording double-digit growth across every single product category. While iPad sales led the way with growth of 79%, and Mac sales were 70% higher, the real star was Apple’s ever-dependable iPhone, with sales of the smartphone leaping 65.5%.
On the back of the strength of the results, Apple has lifted its dividend 7%, and it will now look to buy up to US$90 billion in shares through a corporate buy-back.
One watch-point for Apple is the global chip shortage that has hamstrung a number of different industries. Management will need to be on top of the challenges that ensue, however, the company has already defied the odds in delivering accelerated growth even as the economy opens - something that many observers thought would be restricted to stay-at-home conditions.
New models for Apple’s products will continue to drive growth, and the Greater China region still represents a lucrative and burgeoning opportunity that is still very much in its early days.
Microsoft sees device growth re-emerge
A leading catalyst for Microsoft (MSFT) stock across the last year has been its cloud segment, however, that was arguably outgunned this most-recent quarter as another big trend took hold. Device sales were key to the company exceeding analysts estimates on the top and bottom lines, as well as forward guidance for revenue.
With annualised revenue growth of 19% across the business, Microsoft recorded its biggest quarterly growth since 2018. PC sales were the key lynchpin as a shortage in supply late last year was addressed in the early parts of 2021.
Nonetheless, even looking to the Azure segment, with growth of 50% consistent with the same growth in the preceding quarter, Microsoft bucked the trend of recent times, which has seen growth ease as Azure becomes a bigger part of the business.
Growth across every product line was encouraging, with only one category, office consumer products and cloud services, recording single-digit sales growth.
When we consider the sheer strength across Microsoft’s More Personal Computing segment, which includes devices, gaming and Windows, there will be significant cross-selling opportunities moving forward, and in light of supply constraints that hampered results, there is scope for this to improve even further.
Alphabet reaches greater audiences
Making it five from five, Alphabet delivered blowout results, smashing earnings and revenue forecasts for the first quarter of the calendar year.
Given its ownership of YouTube, Alphabet has been leveraged to one of the most prolific trends playing out, which has been the consumption of digital media amid lockdowns and stay-at-home restrictions.
In turn, ad revenue growth in this segment skyrocketed 50%. The segment pulled in US$6.01 billion in sales, contributing to a 34% rise in revenue across the broader business to US$44.68 billion.
What’s more, this level of growth represents the fastest annualised growth for the business in four years, proving that the pandemic has accelerated the transition in this space. That follows an immediate dip in advertising at the onset of the pandemic, as seen by Facebook.
With its broader social media and cloud divisions also firing, alongside a number of other ‘bets’ that offer long-term upside, there are good prospects backing Alphabet’s strong growth outlook.
It really has been an earnings season to remember. What’s more, the next one looks just as promising.