Weekly Preview: Earnings To Watch For this Week (AAPL, AMD, AMZN, FB, GOOG, MSFT)

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Credit: Carlo Allegri - Reuters / stock.adobe.com

Evidenced by Friday’s record close for the Dow Jones Industrial Average, investors are seemingly feeling more confident that the upcoming earnings results from the most influential companies in the S&P 500 will be supportive of higher valuations. The results received so far not only have been encouraging, there are reasons to expect a sustained recovery through the fourth quarter as well.

Notably, the strong close for the Dow comes despite weakness in blue chip stocks such as Intel (INTC) and IBM (IBM) which disappointed investors with their respective Q3 results and guidance. Intel suffered a 12% decline Friday, while IBM — which reported its results on Thursday — suffered a 10% decline. Overall, tech stocks were under pressure Friday after Snap‘s (SNAP) earnings results revealed significant adverse impacts from Apple’s (AAPL) changes to ad-privacy policy that limited apps' access to user information. Snap stock plunged more than 26% Friday.

Investors are bracing for a similar impact to other social media stocks, namely Facebook (FB), Twitter (TWTR), and to a lesser extent Alphabet (GOOG , GOOGL) which all report their earnings results this coming week. Given the declines already seen in Facebook, which lost 5% Friday, it’s possible that the bad news is already priced in. We will have to wait and see. As for the broader market, the Dow gained 74 points, or 0.2%, closing at 35,677.02 points and surpassing its record close of 35,625.4 hit Aug. 16.

Meanwhile, the S&P 500 fell 0.1% and the Nasdaq Composite gave up 0.8% to post respective closes of 4,544.90 and 15,090.20. For the week, all three major averages ended in positive territory. The main question heading into the week is whether this rally can continue, particularly as Big Tech comes into focus with four of the FAANG stocks, plus Microsoft, being slated to announce their results.

While it’s still early in the reporting cycle, the guidance that corporations are providing for the fourth quarter and beyond are encouraging, suggesting supply chain disruptions and the impact of the Delta variant are heading in the right direction. Understandably, stocks are responding favorably. I suspect this will continue to be the case.

Here are the earnings to keep an eye on this week.

Facebook (FB) - Reports after the close, Monday, Oct. 25

Wall Street expects Facebook to earn $3.17 per share on revenue of $29.59 billion. This compares to the year-ago quarter when earnings came to $2.40 per share on revenue of $21.47 billion.

What to watch: Facebook shares have been under pressure over the past several weeks, falling about 7% driven by unrelenting bad press, including a whistleblower who alleges that the social media giant knowingly harms teenagers' mental health and contributes to the political discord plaguing the U.S. Aside from the internal document leak alleging company misconduct, Facebook is also dealing with the likelihood of regulatory pressure. What’s more, Apple's (AAPL) anti-tracking changes have posed a great risk to Facebook’s ability to scale and adapt to new digital advertising trends. Facebook stock has fallen some 15% since August. But this could be a buying opportunity. Aiming to be known for more than just social media (Messenger, Instagram and WhatsApp), reports suggest Facebook is considering rebranding with a new name in the coming week. On Monday the market will want answers to all of these question to assess where the stock might be heading next.

Advanced Micro Devices (AMD) - Reports after the close, Tuesday, Oct. 26

Wall Street expects AMD to earn 67 cents per share on revenue of $4.11 billion. This compares to the year-ago quarter when earning were 41 cents per share on $2.56 billion in revenue.

What to watch: Having surpassed both revenue and profit estimates in ten straight quarters, it appears AMD is finally getting the respect it deserves. The stock has skyrocketed over the past several weeks, rising 16% in thirty days and 46% in six months, besting respective gains of 5% and 9% for the S&P 500 index in those time periods. Benefiting from secular cloud-driven growth within the datacenter and the PC market, the market is no longer taking the company for granted. Shifting its production to higher-margin chips, not only does the company continues to grow its revenue, AMD is also capitalizing on its performance leadership with higher prices for its chips. As such, AMD’s gross margin has become a key contributor to its success and rising cash flow. Assuming these metrics maintain their uptrend in the coming quarter, the stock can still move higher despite its strong year-to-date performance, rising 30% against the S&P 500 index’s 21%. And given the company’s streak of earnings beats, it would be a mistake to part with AMD stock.

Alphabet (GOOG , GOOGL) - Reports after the close, Tuesday, Oct. 26

Wall Street expects Alphabet to earn $23.43 per share on revenue of $63.43 billion. This compares to the year-ago quarter when earnings came to $16.40 per share on revenue of $46.17 billion.

What to watch: Shares of Google parent Alphabet, up 24% in six months and 62% year to date, compared with 21% rise in the S&P 500 index, have strongly outperformed their FAANG peers over the past year, netting 80% returns. The gains have been driven by the tech giant’s cyclical recovery in its advertising business. This was noticeable last quarter when the company delivered an impressive 61% jump in Q2 revenue. The market has seemingly re-priced the stock based on the company’s growth resurgence. But while the the increased multiple seems justified, the stock is no longer cheap. That said, Google’s recent uptrend in several verticals in online advertising, particularly in areas such as retail, financial services and travel, remain compelling reasons to bet on higher prices. But are these trends sustainable for the foreseeable future? On Tuesday the market will want to see sustained improvement in these areas to assess whether the stock can maintain its uptrend or if it’s time to take profits.

Microsoft (MSFT) - Reports after the close, Tuesday, Oct. 26

Wall Street expects Microsoft to earn $2.07 per share on revenue of $43.97 billion. This compares to the year-ago quarter when earning were $1.82 per share on $35.72 billion in revenue.

What to watch: Sustained work and learn-from-home trends, which have driven increased demand for Microsoft services, particularly in the Intelligent Cloud segments, are expected to remain high. But can the company maintain its strong growth momentum entering a period of more difficult comparisons? Thanks to a strong of better-than-expected earnings, Microsoft stock has been a big winner this year, surging some 40% compared with 21% rise for the S&P 500 index. Microsoft’s commercial cloud segment which includes Azure, generating some 42% of total revenues in the last quarter, remains one of the most important parts of the business. Not only did quarterly revenues surge 36% in Q4, booking also rose surged 30% with company citing a cycle of net long-term cloud contracts. The market values the ability to anticipate continued revenue growth given the recurring nature of the services business. This does, however, raise the question whether all of this good news is already priced in the stock. Microsoft on Tuesday must deliver not only robust business segment results, but also better-than-expected guidance.

Apple (AAPL) - Reports after the close, Thursday, Oct. 28

Wall Street expects Apple to earn $1.23 per share on revenue of $84.67 billion. This compares to the year-ago quarter when earnings came to 73 cents per share on revenue of $64.7 billion.

What to watch: How much has Apple suffered from the chip shortage sales? According to industry reports, the tech giant has reduced iPhone 13 production targets by about 10 million units from its prior target of 90 million units. While the long-term revenue impact is believed to be minimal, the reduction is certain to hit revenue in the short term. Analyst Samik Chatterjee of Morgan Stanley forecast a 10-cent impact for each five million iPhone unit production cut. This means Apple could suffer an EPS impact of 20 cents, assuming a 10 million reduction. This would reduce the current $1.84 estimate to $1.64. When considering Apple earned $1.68 per share a year ago, this puts the company in danger of producing minimal to no growth. The Street forecasted revenue for January quarter to grow just 6.5%, while the subsequent quarters would struggle due to the chip shortage. This highlights the importance of Apple’s Services business, which now accounts for almost 30% of total revenue. Investors are hoping for more clarity on these areas on Thursday.

Amazon (AMZN) - Reports after the close, Thursday, Oct. 28

Wall Street expects Amazon to earn $8.92 per share on revenue of $111.63 billion. This compares to the year-ago quarter when earnings came to $12.37 per share on revenue of $96.14 billion.

What to watch: Driven by the unexpected pandemic-induced surge in demand for e-commerce and cloud-computing solutions, Amazon has been one of the market’s strongest winners over the last 18 months. Not only has the company played an important role in bridging consumers with access to the things they need the most, Amazon’s AWS cloud-based solutions have also enjoyed strong demand as corporations scrambled to scale their IT infrastructures to enable remote-work and virtual collaboration. During that span, Amazon's stock has surged some 90%, driven by record high revenue and profits. The market has begun to assess the stock based on the company’s faster growth profile. The question is whether these trends — which have been brought forward by at least five years — can continue in the next several quarters. In other words, the market will want to know whether Amazon’s market share gains are here to stay beyond the pandemic.

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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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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