Weekly Preview: Tech Earnings In The Spotlight (AAPL, AMZN, FB, GOOG, MSFT, TSLA)
Earnings season ramps up this coming week with results expected from technology heavyweights Microsoft (MSFT), Apple (AAPL), Amazon (AMZN) and Google parent Alphabet (GOOG, GOOGL) — the market’s four-largest publicly-traded companies by market cap.
What will their results tell us? For starters, the market seems willing to forgive companies for poor reported results, particularly those that miss on the top lines. It’s understandable given that the U.S. economy has been essentially closed for business over the past two months. Next, is pulling fiscal-year guidance the new standard? Intel (INTC) stock declined almost 6% for pulling its guidance, despite easily beating on both the top and bottom lines.
There has also been a string of what has been called “mixed” results, where companies beat on revenue, but miss on profits, or in the inverse order. Or they might beat on both metrics and issue poor guidance. These are important questions for the aforementioned tech giants. And given their massive cash stockpiles, the market is also eager to learn what they plan to do with their capital return programs. Specifically, will they suspend or continue stock buybacks? And/or will they raise their dividends?
These unknowns didn’t prevent the market from rising on Friday. Investors cheered President Trump signing into law the $484 billion coronavirus aid package that includes a second round of funding for small businesses under the Paycheck Protection Plan, or PPP. The Dow Jones Industrial Average rose up 260.01 points, or 1.1%, to close at 23,775.27. The S&P 500 index added 38.94 points, or 1.4%, to close at 2,836.74, while the Nasdaq Composite gained 139.77 points, or 1.7%, to finish at 8,634.52.
Despite Friday’s gains, it was a down week overall for the market, lead by the Dow which fell 1.9%. The S&P 500 declined 1.3% and Nasdaq gave up just 0.2%. It was the first losing week in the past three weeks for the major averages. Nasdaq’s outperformance stands out, which was driven by a flurry of tech buying. This bodes well for the tech earnings that are set to announce this week. Here are the names to keep an eye on.
Advanced Micro Devices (AMD) – Reports after the close, Tuesday, Apr. 28
Wall Street expects AMD to earn 18 cents per share on revenue of $1.78 billion. This compares to the year-ago quarter when earning were 6 cents per share on $1.27 billion in revenue.
What to watch: Expectations are high for AMD, driven by better-than-expected results from rival Intel (INTC). AMD shares have been on fire for much of the year, rising some 35% over the past thirty days and are now up 22% year to date, besting the 13% decline in the S&P 500 index. The market assumes minimal disruption to AMD’s business despite the pandemic. Last week research firm Canalys issued a report, projecting a “significant downturn in demand” during Q2 as fewer businesses will spend on computing hardware. While this appears to support Intel’s conservative guidance, AMD earnings will confirm whether the bulls were right.
Starbucks (SBUX) – Reports after the close, Tuesday, Apr. 28
Wall Street expects Starbucks to earn 34 cents per share on revenue of $5.89 billion. This compares to the year-ago quarter when earnings were 60 cents per share on revenue of $6.31 billion.
What to watch: When will Starbucks get back to full strength? Citing business disruption related to Covid-19 in China, the company earlier this month pulled its full-year guidance and issued preliminary Q2 EPS results that was below analyst consensus estimate. The management cautioned that Q3 results could also be weak, saying it expects the negative financial impacts to be “significantly greater” than in Q2 and extend into Q4. Despite this downbeat outlook, Starbucks shares are up 33% in thirty days. Given the management’s strong execution track record, along with its solid capital position, it seems investors are willing to give the company time to better assess what re-opening its stores will look like.
Alphabet (GOOG , GOOGL) – Reports after the close, Tuesday, Apr. 28
Wall Street expects Alphabet to earn $10.98 per share on revenue of $40.75 billion. This compares to the year-ago quarter when earnings came to $9.50 per share on revenue of $36.34 billion.
What to watch: Has the market exaggerated concerns about weak advertiser spending? That’s one the main questions investors will get an answer to when Google reports earnings. Social media and digital ad-related stocks rose last week thanks to strong results from Snap (SNAP). Google, however, which has seen its stock rally 20% in thirty days, is reportedly slashing its second-half marketing budgets by as much as 50%. The cost include a hiring freeze for both full-time employees and contractors. Prior to the pandemic, the company had forecast an increase in marketing spending. Google’s conference call will be interesting in that regard.
Facebook (FB) – Reports after the close, Wednesday, Apr. 29
Wall Street expects Facebook to earn $1.75 per share on revenue of $17.52 billion. This compares to the year-ago quarter when earnings came to 85 cents per share on revenue of $15.08 billion.
What to watch: As with Google, the social media giant’s digital advertising business is expected to take a hit as companies scale back on spending due to the coronavirus. Investors will also focus on the company’s user growth and engagement metrics which are often the main drivers of the stock, namely its monthly active users (MAU) and its average revenue per user. The company has topped consensus earnings expectations in each of the past 17 quarters, underlying an exceptional execution track-record. But will this be the quarter that execution takes a hit? Facebook stock which has gained almost 25% in thirty days does not reflect any doubt.
Microsoft (MSFT) – Reports after the close, Wednesday, Apr. 29
Wall Street expects Microsoft to earn $1.28 per share on revenue of $33.93 billion. This compares to the year-ago quarter when earning were $1.14 per share on $30.57 billion in revenue.
What to watch: The strength of Microsoft’s Commercial Cloud business has been, and will continue to be, the catalyst for the stock’s strong return over the past year (up 36%) and the main reason that the stock is up 9% year to date. Due to the work-from-home (WFH) shift, cloud platforms such as Microsoft’s Azure, have experienced a significant surge in demand. Reports suggests that customers seeking some financial relief during the pandemic have experienced better negotiating relationship with Microsoft. What’s more, while Zoom Video (ZM) has been a darling during the WFH shift, Microsoft’s Teams collaboration suite has also seen a spike in use. On Wednesday investors will want some evidence that Azure and Teams can continue to chip away at Amazon’s cloud market lead and Zoom’s video rapid rise, respectively.
Tesla (TSLA) – Reports after the close, Wednesday, Apr. 29
Wall Street expects Tesla to report a per-share loss of 18 cents on revenue of $5.85 billion. This compares to the year-ago quarter when the loss came to $2.90 per share on revenue of $4.54 billion.
What to watch: From its March 23 low, shares of Tesla have skyrocketed by as much as 110%. The gains have been driven by a combination of factors. Not only are investors anticipating a better-than-expected Q1, the coronavirus pandemic has effectively placed Tesla in the drivers seat in the electric vehicle race. For that matter, Tesla is also in the passenger seat and occupy both rear seats, given the dire financial straits its competitors are in. Can the stock continue to drive higher? On Wednesday the market will want updates on the company’s progress on several fronts. The company recently announced it will raise prices for two China-made Model 3 variants after China cut subsidies on electric vehicles. How will that improve the company’s cash position?
Amazon (AMZN) – Reports after the close, Thursday, Apr. 30
Wall Street expects Amazon to earn $6.39 per share on revenue of $72.91 billion. This compares to the year-ago quarter when earnings came to $7.09 per share on revenue of $59.70 billion.
What to watch: The e-commerce and cloud computing giant has received a slew of bullish commentary from analysts who have cited tailwinds from coronavirus-related demand. The company is seen as a “prime beneficiary,” according to JMP Securities who recently upgraded the stock to Market Outperform with a price target of $2,650. JPM expects the trend to lead to long-term “consumer wallet share gains” for Amazon. Beyond e-commerce, investors will want to know about the company’s AWS cloud platform, which is generates the bulk of Amazon’s profits, but has been losing some ground to Microsoft’s Azure. Will the trend continue?
Apple (AAPL) – Reports after the close, Thursday, Apr. 30
Wall Street expects Apple to earn $2.31 per share on revenue of $55.34 billion. This compares to the year-ago quarter when earnings came to $2.46 per share on revenue of $58.02 billion.
What to watch: Has the market grown too bearish on Apple, which has seen a slew of Street downgrades over the last week? Are analysts underestimating the long-term outlook on iPhone and Services revenue? Nomura analysts believe Apple’s iPhone 12 “is running four to six weeks behind plan.” The firm last week affirmed its Neutral rating on the stock and $240 price target, calling for a decline of 15% from Friday’s close. But Apple is more than just a hardware shop. The company last recently announces that its Services, including App Store, Apple Arcade, and iCloud, are now available in 20 more countries. Can the Services business, which has grown to become Apple’s second-largest business, offset the any potential declines in iPhone unit sales?
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Source:nasdaq.com
