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Tech Stock Earnings Slated on Jan 26: MSFT, GOOGL, PYPL

The fourth-quarter earnings season is underway with results from 63 S&P 500 members or 19.2% of the index's total market capitalization already out (as of Jan 20).

Per the latest Earnings Preview , total earnings of these index members are up 4.7% year over year on the back of 2.7% higher revenues. Beat ratios are impressive with 66.7% beating earnings estimates and 50.8% coming ahead of revenue expectations.

Notably, earnings and revenue growth numbers are better than the recent quarters and on track to cross the highest level in the last eight quarters. However, positive earnings surprises are tracking low at this stage compared with the past quarters.

Technology Sector

Technology will be in the spotlight this week, with several major companies including Microsoft MSFT , Intel INTC and Alphabet GOOGL aka Google scheduled to report results this week. As per our latest report, 10.1% of the technology sector's total market capitalization on the S&P 500 index reported their results.

Total earnings of these tech companies are up 1% from the same period last year on 2.2% higher revenues, with 85.7% beating earnings estimates and 71.4% surpassing revenue expectations. Per the report, technology earnings are expected to be up 3.6% on 4.3% higher revenues.

Among the technology firms slated to report their quarterly earnings on Jan 26, let's see what's ahead for these three:

Microsoft Corporation , one of the largest broad-based technology providers in the world, is slated to release second-quarter fiscal 2017 results.

According to our model, a company needs the right combination of two key ingredients - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) - to increase its odds of an earnings surprise.

Consequently, we do not expect the company to post an earnings beat since it carries a Zacks Rank #2 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Microsoft is benefiting from its hybrid and hyperscale cloud, which spans multiple jurisdictions, making it ideal for multinational companies and banks that have operations worldwide and are required to be in compliance with laws of the countries in which they operate.

Microsoft cites this as the primary reason behind drawing 80% of the world's largest banks to Azure. Moreover, the company's expanding cloud services have also helped it to capture big customers like Boeing, Rolls-Royce, Schneider Electric and Facebook.

Notably, Microsoft results surpassed the Zacks Consensus Estimate in three of the preceding four quarters. It has an average four-quarter positive surprise of 10.55%.

Coming to the share price, Microsoft underperformed the Zacks categorized Computer Software industry over the last one year. While the industry gained 21.57%, the stock gave a positive return of only 21.96%.

Microsoft Corporation Price and EPS Surprise

Microsoft Corporation Price and EPS Surprise | Microsoft Corporation Quote

We also don't expect Alphabet Inc. , a leading provider of target-based advertisements on the web, to post an earnings beat when it reports fourth-quarter 2016 results.

This is because the company has a Zacks Rank #2 but an Earnings ESP of -0.26%. We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

However, Alphabet's top line is expected to benefit from strength in the mobile platform. Also, YouTube remains a strong contributor benefiting from the increase in online video consumption. (Read More: Alphabet: Will it Beat Earnings Estimates in Q4? )

We note that the surprise history has been decent in Alphabet's case. The company missed estimates just once in the last four quarters, that too by a small margin. It has an average four-quarter positive surprise of 4.55%.

Over the past one year, shares of Alphabet outperformed the Zacks categorized Internet Services industry. While the industry grew 15.10%, the stock returned 14.67%.

Alphabet Inc. Price and EPS Surprise

Alphabet Inc. Price and EPS Surprise | Alphabet Inc. Quote

Similarly, we don't expect PayPal Holdings, Inc.PYPL , a worldwide online payments system operator, to outperform estimates when it reports fourth-quarter 2016 results. The company has a Zacks Rank #2 and an Earnings ESP of 0.00%.

Partnership and mobile centrism continues to be PayPal's top priorities. The company's ongoing strategic partnerships with Visa and MasterCard offer great flexibility and choice to consumers. Partnerships with Facebook, Apple, and Alibaba are also reaping results. (Read More: What to Expect from PayPal this Earnings Season? )

However, PayPal's surprise history is impressive as it surpassed estimates in three of the last four quarters and matched estimates on one occasion. It has an average four-quarter positive surprise of 7.09%.

Over the last one year, the stock has outperformed the Zacks Internet - Software industry. It has gained 32.25% compared with the industry's gain of 17.57%.

PayPal Holdings, Inc. Price and EPS Surprise

PayPal Holdings, Inc. Price and EPS Surprise | PayPal Holdings, Inc. Quote

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Microsoft Corporation (MSFT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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