“Less bad is good enough.” This has been the theme of the second-quarter earnings season so far, particularly during the week that just concluded, where tech giants such as Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Google parent Alphabet (GOOG , GOOGL) and Microsoft (MSFT), among others, reported their results. Their numbers, as a collective, suggested that economic conditions are not as bad as feared.
That said, for each report that was surprisingly positive, there were those that were tough to stomach, such as the results released from Roku (ROKU) and Intel (INTC). The former lost as much as 25% of its value following the results, while Intel reached a new 52-week low, falling more than 8% following its double miss and weak guidance. Conversely, there’s Microsoft, Alphabet and Amazon which impressed the market with better-than expected numbers, while Apple capped it off with a dominant quarter of its own.
Meta Platforms, which was believed to be suffering as results from TikTok weighed on sentiment, demonstrated it can still grow its users among its family of apps, even though its numbers weren’t breathtaking. Overall, it has been a mixed bag so far. For some investors, this scenario between good and bad has created some buying opportunities. For others, the outlook remains too muddied to buy any dip during this selloff. For those who are interested in Intel for example, it could be a while before the stock rebounds.
Baird analyst Tristan Gerra, who downgraded Intel, believes the company’s struggles are due to a "Shift in consumer patterns away from COVID-times at home entertainment devices, combined with weak first-half seasonality, suggests no PC recovery near-term, with resulting under-utilization rates challenging gross margin recovery. While it’s still early, and there are still more than half of the earnings season still remain, the outlook companies have provided so far suggests rising inflation and rising interest rates is manageable.
Friday’s stock market performance would seem to reflect that optimism. The Dow Jones Industrial Average continued its rally Friday, rising 315.50 points, or 0.97%, to end the session at 32,845.13. The S&P 500 rose 57.86 points, or 1.42%, finishing at 4,130.29, while the tech-heavy Nasdaq Composite add 228.09 points, or 1.88%, to close at 12,390.69. The Nasdaq was powered by the gains in Amazon, Apple and Tesla which led all of the FAANGs higher. Investors are now more confident about the direction of the economy and the impact of monetary policy decisions will have. Will the rally continue?
For earnings, here are the stocks I’ll be watching this week.
Advanced Micro Devices (AMD) - Reports after the close, Tuesday, Aug. 1
Wall Street expects AMD to earn $1.03 per share on revenue of $6.53 billion. This compares to the year-ago quarter when earning were 63 cents per share on $3.85 billion in revenue.
What to watch: Despite consistent headwinds with chip supply chain challenges, AMD continues to deliver strong operating results, suggesting that issues related to rivals such as Intel (INTC) are their own to deal with. Nevertheless, Intel’s disappointing Q2 results last week dragged down the entire sector, taking AMD with it. A weak forecast in the PC market by Intel is believed to be the pressure point for chip stocks. AMD has felt the pressure over the past several months as the stock has fallen 36% year to date, trailing the 14% decline in the S&P 500 index. However, the decline in the stock during that span does not reflect the strong execution within the company. AMD posted 71% revenue growth in Q1, which beat estimates by $330 million, while EPS surged more than 50%. Unlike its chief rival, AMD continues to demonstrate strong operating leverage given that it is able to grow profits at a faster rate than its revenue. As such, having surpassed both revenue and profit estimates in twelve straight quarters, AMD stock deserves more respect than it’s currently getting. Assuming the company’s growth metrics remains intact in Q2 this would present a great buying opportunity for AMD stock.
Alibaba (BABA) - Reports before the open, Thursday, Aug. 4
Wall Street expects Alibaba to earn $1.52 per share on revenue of $30.05 billion. This compares to the year-ago quarter when earnings came to $2.57 per share on revenue of $32.37 billion.
What to watch: Since its peak in the latter part of 2020, Alibaba has lost roughly two-thirds of its market cap or about half a billion. The shares have plunged more than 72% since its 2020 peak, driven by China's increased regulatory scrutiny. The Chinese e-commerce giant has been under pressure from issues related to corporate governance and its political standing in China. Operating requirements imposed onto BABA by the SAMR include providing subsidies to merchants and partners and forcing the company to increase its investments in the country, whether in the form of direct sales and marketing dollars or “strategic initiatives” investment. The added pressure has impacted Alibaba not only in terms of slowing revenue growth, but SAMR’s anti-competition policies have also pressured Alibaba’s profit margins which have fallen by eleven percentage points from 27% in 2020 to 16% at the end of 2021. On Friday the stock continued its decline following a report that said billionaire Jack Ma plans to cede control of Ant Group (Alibaba owns roughly one-third of Ant). It appears after a prolonged period of regulatory pressures, Ant may now want to distance itself from Alibaba.
Lyft (LYFT) - Reports after the close, Thursday, Aug. 4
Wall Street expects Lyft to lose 3 cents per share on revenue of $987.94 million. This compares to the year-ago quarter when it reported a loss of 5 cents per share on revenue of $696.86 million.
What to watch: Despite the brutal selloff of the stock, Lyft's business continues to operate well. Currently commanding 29% market share in the U.S., Lyft is the second-largest ride-sharing company next to Uber (UBER). While questions remain regarding the company’s international expansion initiatives as well as driver incentives, there are still tons of catalysts to propel Lyft higher and sustain growth over the long term. The company has seen a strong rebound in rider demand which was reflected in the first quarter results. The company enjoyed not only a robust 44% year over year growth in total revenues, but also a 40% year over year jump in the number of active drivers. Notably, despite the increase in gas prices, driver earnings were up. The company continues to benefit from the rebound in corporate travel. Yet, the stock is down 67% year to date, including a 61% decline over the past six months, trailing the S&P 500 in both spans. With the stock currently trading lower than its IPO price, value investors should see this as an opportunity to add. That said, for the stock to rebound from current levels, Lyft not only must deliver a top- and bottom-line beat Thursday, it also needs upside guidance that lays out a path towards stronger profitability.
Beyond Meat (BYND) - Reports after the close, Thursday, Aug. 4
Wall Street expects Beyond Meat to lose $1.18 per share on revenue of $151.18 million. This compares to the year-ago quarter when the loss came to 31 cents per share on revenue of $149.43 million.
What to watch: Beyond Meat stock has been in the meat grinder for some time. Once the darling of the stock market, the plant-based meat giant has lost all of its sizzle. Aside from wage inflation, the company is dealing with supply chain shortages which has impacted its once torrid growth pace. It also appears that commercial traction is fading, which has resulted in steepening losses. As a result, the stock has lost more than 50% of its value so far this year, including a 45% decline in the past six months. And when expanding that view my twelve months, shares have plunged some 75%, compared to a 7.5% decline in the S&P 500 index. In the most-recent quarter, the company not only missed revenue estimates, but it also announced a large quarterly loss. On the bright side, the company posted almost $110 million in total revenue, though it was offset by downbeat gross margin. The management has guided for continued revenue growth. But the market wants to know when the company can start growing its gross margins and achieve profitability. The valuation is more appealing at current levels, and assuming that the company doesn’t lower its revenue and profit guidance, the stock could stabilize and start moving higher from here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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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