Big Tech Earnings Bonanza (AAPL, AMZN, FB, GOOG): The Implications for Investors
After the market closed on Thursday, there was a big tech bonanza.
Four of the the world’s largest technology-based businesses -- Facebook (FB), Amazon (AMZN), Apple (AAPL), and Google (GOOG) -- reported earnings after hours and all four beat analysts’ estimates. There was a common theme, but the beats were of varying degrees, and the implications of them were somewhat different.
Let’s start at the top. Amazon didn’t just beat expectations, they smashed them into smithereens. They reported earnings of $10.30 per share versus the consensus estimate of $1.46. That was a total profit of $5.2 billion, around double what they made in the same quarter last year. Revenue also climbed, coming in at $88.9 billion, a 40% year-on-year increase.
The message here is clear. Those who worried that AMZN had got ahead of itself, or that maintaining growth would be impossible once the numbers became big, or that consumers would somehow punish the company for being so successful, or whatever else they worried about, were simply wrong. Any or all of those things could happen at some point in the future, but for now, Amazon is the biggest beneficiary of two notable trends, one short-term and the other long-term.
The short-term trend is obvious. Coronavirus, far from going away as the weather warms up or miraculously disappearing in some other way, is resurgent. That means people, whether by choice or because of mandated closures, are staying home and therefore shopping online.
If you think that is only temporary and still insist that Amazon can’t keep growing, consider the long-term part of this. As ubiquitous as online shopping sometimes seems to be, it actually accounts for around 18% of total purchases in the U.S. In other words, there is still a lot of room for further growth.
Apple’s numbers weren’t as flashy as Amazon’s but, in many ways, were the most impressive of the bunch. They reported revenue of $59.7 billion, up 11% from the same quarter last year, with EPS doing even better on a year-to-year basis, rising 18% to $2.58.
Think about that for a minute. Apple managed to increase both sales and profits in a quarter that witnessed one of the biggest shocks to the global economy in history, with whole countries closing down and when most of their stores were shut for big chunks of the quarter. As Tim Cook put it on the subsequent earnings call, that is “a testament to the important role our products play in our customers' lives and to Apple's relentless innovation." Add on to the fact that Apple announced a 4-for-1 stock split, and you had an eventful earnings report.
If there were visible ill-effects from the pandemic in these tech results, it was expected they would be felt by the two companies whose results were more dependent on advertising revenue, but there was some good news even there.
Facebook certainly didn’t feel the pinch. There were some fears that a combination of coronavirus and controversy would hit FB revenue hard, but that wasn’t the case. They reported 11% sales growth compared to last year, resulting in EPS of $1.80 versus the consensus $1.39.
Obviously, that isn’t an Amazon-type blowout, nor is it as coronavirus-defying as Apple’s results, but nevertheless, it is impressive in the circumstances.
There has been a lot of reporting recently of some high-profile defections from Facebook’s platform by the likes of Verizon. That will hurt a bit going forward I’m sure, but Facebook’s revenue is far more dependent on small- to medium-sized businesses, and those companies’ desire to keep customers informed of their status during the pandemic kept ad revenues overall buoyant.
The one ray of hope for the merchants of doom came in Google parent Alphabet’s numbers, even though they too smashed expectations, with EPS of $10.13 versus estimates for $8.22. The bad news here was that Alphabet did show the effects of the economic chaos, with those earnings representing a 29% year-on-year decline.
There is good news too, though. That 29% drop in profit came on revenue that fell only 2%, so sales actually held up quite well. YouTube fell short of expectations, but anybody with a teenager in their house could tell you that TikTok’s surge in popularity was going to do some damage there.
All in all, Google’s quarter can best be described as “mixed.” If they had reported any other day, the EPS beat may have been better received but, with the other spectacular big tech results to compare them too they looked a little underwhelming. The stock was trading in the pre-market a little lower than yesterday’s close.
As you might expect, yesterday’s big tech bonanza has lifted the major indices this morning, the Nasdaq in particular, reversing the drop on some really disturbing economic data yesterday. Investors, however, should be careful not to interpret that as being a sign of generalized well-being in stocks. There is a growing divergence.
As I wrote here on Wednesday, the “stay at home” trade is alive and well, but that is because people are stuck at home, in many cases spending their enhanced unemployment checks. Those checks will cease tomorrow unless Congress can get their act together, so there is a danger that even tech companies will get hit eventually.
For now, though, don’t read too much into these results. They are beats, pure and simple, and that just shows that even as the economy suffers, there are companies that can benefit.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.