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Tech stocks have been standout performers in the market this year, with a combination of favorable developments on the macro front driving this momentum. These factors include improved clarity surrounding an end-point to the Fed’s tightening cycle and efforts from Tech management teams to rein in operating expenses (OpEx) through reduced headcount and other measures.
With many Tech companies on deck to report March-quarter results this week, the market will be looking for top-line growth trends and whether there is further room for profitability and margin-improvement measures beyond what has been already announced.
These questions will be front and center in this week’s earnings reports from four of the ‘Big 5 Tech players’. Alphabet (GOOGL - Free Report) and Microsoft (MSFT - Free Report) will report after the market’s close on Tuesday (4/25), Instagram parent Meta Platforms (META - Free Report) will report after the close on Wednesday (4/26), and Amazon (AMZN - Free Report) will report after the close on Thursday (4/27).
The chart below shows the year-to-date stock market performance of the Zacks Technology sector (the purple line; up +18.2%), the S&P 500 index (up +8.1%), Alphabet (blue line; up +19.4%), Meta (green line; up +75.6%), Amazon (orange line; up +26.2%) and Microsoft (up +18.1%).
Image Source: Zacks Investment Research
In addition to the aforementioned OpEx angle, reports from these players will give us the latest trends on the cloud front, particularly from Amazon, Alphabet, and Microsoft.
Digital advertising has historically been seen as core to Alphabet and Meta, but Amazon has also become a major player in the space. Ad spending likely remained stable in the first three months of the year, but it will be interesting to see how these management teams see trends for the current and coming periods, given the macroeconomic uncertainties. This will have a direct read-through for Snap (SNAP - Free Report) , which reports Q1 results this week on Thursday (4/27).
All of these companies are big players in the artificial intelligence (AI) space, with the Microsoft vs. Alphabet rivalry particularly intense. With the initial excitement around ChatGPT and other AI applications now behind us, the questions now center around how these AI capabilities will be monetized through new and existing business models. It is reasonable to expect each of these management teams to spend considerable time on their Q1 earnings calls on their AI offerings.
Take a look at the chart below that shows current consensus expectations for this group for the current and coming periods in the context of what they achieved in the preceding period.
As you can see, the group is expected to have -11.2% lower earnings in 2023 Q1 on +1.9% higher revenues. This would follow the -28% drop in earnings on +1.4% higher revenues in 2022 Q4.
Image Source: Zacks Investment Research
The chart below that shows the group’s earnings and revenue growth on an annual basis.
Image Source: Zacks Investment Research
The group’s phenomenal boost in 2021 partly reflected pulled-forward demand from future periods that is being adjusted last year and this year. As you can see above, the expectation is for ‘regular/normal’ growth to resume next year, but a lot of that is contingent on how the macroeconomic picture unfolds.
Beyond the big 5 Tech players, total Q1 earnings for the Technology sector as a whole are expected to be down -17.3% from the same period last year on -4.4% lower revenues.
The chart below shows the sector’s Q1 earnings and revenue growth expectations in the context of where growth has been in recent quarters and what is expected in the coming four periods.
Image Source: Zacks Investment Research
This big-picture view of the ‘Big 5’ players and the sector as a whole highlight the earnings growth challenge at present. But as you can see below, the Tech space is expected to resume its growth-engine status from next year onwards.
Image Source: Zacks Investment Research
Q1 Earnings Season Scorecard
Including Monday morning’s results, we now have Q1 earnings from 90 S&P 500 members, or 18% of the index’s total membership. Total earnings for these 90 index members are down -1.9% from the same period last year on +7.1% higher revenues, with 77.8% beating EPS estimates and 66.7% beating revenue estimates.
We have a super busy reporting docket this week, with almost 700 companies reporting Q1 results, including 178 S&P 500 members. In addition to the aforementioned mega Tech players, this week’s docket has representation from every sector of the economy.
Below, we compare the Q1 results thus far from what we have seen from this same group of 90 index members in other recent periods.
The first set of charts compares the earnings and revenue growth rates for the 90 index members that have reported with what we had seen from the group in other recent quarters.
Image Source: Zacks Investment Research
The comparison charts below put the Q1 EPS and revenue beats percentages in a historical context.
Image Source: Zacks Investment Research
The Earnings Big Picture
To get a sense of what is currently expected, take a look at the chart below that shows current earnings and revenue growth expectations for the S&P 500 index for 2023 Q1 and the following three quarters.
Image Source: Zacks Investment Research
As you can see here, 2023 Q1 earnings are expected to be down -8.3% on +2.2% higher revenues. This would follow the -5.4% earnings decline in the preceding period (2022 Q4) on +5.9% higher revenues.
Embedded in these 2023 Q1 earnings and revenue growth projections is the expectation of continued margin pressures, which has been a recurring theme in recent quarters. The chart below shows the year-over-year change in net income margins for the S&P 500 index.
Image Source: Zacks Investment Research
Estimates for Q1 came down as the quarter got underway, in line with the trend that had been in place since the start of 2022. That said, the magnitude of negative revisions to Q1 estimates was smaller than we had seen in the preceding two periods.
Estimates for full-year 2023 have also been coming down as well, as we have been pointing out consistently in these pages.
The chart below shows the earnings and revenue growth picture on an annual basis.
Image Source: Zacks Investment Research
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>> 2023 Q1 Earnings Season Off to a Promising Start
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Big Tech Earnings Looming: What to Expect
Tech stocks have been standout performers in the market this year, with a combination of favorable developments on the macro front driving this momentum. These factors include improved clarity surrounding an end-point to the Fed’s tightening cycle and efforts from Tech management teams to rein in operating expenses (OpEx) through reduced headcount and other measures.
With many Tech companies on deck to report March-quarter results this week, the market will be looking for top-line growth trends and whether there is further room for profitability and margin-improvement measures beyond what has been already announced.
These questions will be front and center in this week’s earnings reports from four of the ‘Big 5 Tech players’. Alphabet (GOOGL - Free Report) and Microsoft (MSFT - Free Report) will report after the market’s close on Tuesday (4/25), Instagram parent Meta Platforms (META - Free Report) will report after the close on Wednesday (4/26), and Amazon (AMZN - Free Report) will report after the close on Thursday (4/27).
The chart below shows the year-to-date stock market performance of the Zacks Technology sector (the purple line; up +18.2%), the S&P 500 index (up +8.1%), Alphabet (blue line; up +19.4%), Meta (green line; up +75.6%), Amazon (orange line; up +26.2%) and Microsoft (up +18.1%).
Image Source: Zacks Investment Research
In addition to the aforementioned OpEx angle, reports from these players will give us the latest trends on the cloud front, particularly from Amazon, Alphabet, and Microsoft.
Digital advertising has historically been seen as core to Alphabet and Meta, but Amazon has also become a major player in the space. Ad spending likely remained stable in the first three months of the year, but it will be interesting to see how these management teams see trends for the current and coming periods, given the macroeconomic uncertainties. This will have a direct read-through for Snap (SNAP - Free Report) , which reports Q1 results this week on Thursday (4/27).
All of these companies are big players in the artificial intelligence (AI) space, with the Microsoft vs. Alphabet rivalry particularly intense. With the initial excitement around ChatGPT and other AI applications now behind us, the questions now center around how these AI capabilities will be monetized through new and existing business models. It is reasonable to expect each of these management teams to spend considerable time on their Q1 earnings calls on their AI offerings.
Take a look at the chart below that shows current consensus expectations for this group for the current and coming periods in the context of what they achieved in the preceding period.
As you can see, the group is expected to have -11.2% lower earnings in 2023 Q1 on +1.9% higher revenues. This would follow the -28% drop in earnings on +1.4% higher revenues in 2022 Q4.
Image Source: Zacks Investment Research
The chart below that shows the group’s earnings and revenue growth on an annual basis.
Image Source: Zacks Investment Research
The group’s phenomenal boost in 2021 partly reflected pulled-forward demand from future periods that is being adjusted last year and this year. As you can see above, the expectation is for ‘regular/normal’ growth to resume next year, but a lot of that is contingent on how the macroeconomic picture unfolds.
Beyond the big 5 Tech players, total Q1 earnings for the Technology sector as a whole are expected to be down -17.3% from the same period last year on -4.4% lower revenues.
The chart below shows the sector’s Q1 earnings and revenue growth expectations in the context of where growth has been in recent quarters and what is expected in the coming four periods.
Image Source: Zacks Investment Research
This big-picture view of the ‘Big 5’ players and the sector as a whole highlight the earnings growth challenge at present. But as you can see below, the Tech space is expected to resume its growth-engine status from next year onwards.
Image Source: Zacks Investment Research
Q1 Earnings Season Scorecard
Including Monday morning’s results, we now have Q1 earnings from 90 S&P 500 members, or 18% of the index’s total membership. Total earnings for these 90 index members are down -1.9% from the same period last year on +7.1% higher revenues, with 77.8% beating EPS estimates and 66.7% beating revenue estimates.
We have a super busy reporting docket this week, with almost 700 companies reporting Q1 results, including 178 S&P 500 members. In addition to the aforementioned mega Tech players, this week’s docket has representation from every sector of the economy.
Below, we compare the Q1 results thus far from what we have seen from this same group of 90 index members in other recent periods.
The first set of charts compares the earnings and revenue growth rates for the 90 index members that have reported with what we had seen from the group in other recent quarters.
Image Source: Zacks Investment Research
The comparison charts below put the Q1 EPS and revenue beats percentages in a historical context.
Image Source: Zacks Investment Research
The Earnings Big Picture
To get a sense of what is currently expected, take a look at the chart below that shows current earnings and revenue growth expectations for the S&P 500 index for 2023 Q1 and the following three quarters.
Image Source: Zacks Investment Research
As you can see here, 2023 Q1 earnings are expected to be down -8.3% on +2.2% higher revenues. This would follow the -5.4% earnings decline in the preceding period (2022 Q4) on +5.9% higher revenues.
Embedded in these 2023 Q1 earnings and revenue growth projections is the expectation of continued margin pressures, which has been a recurring theme in recent quarters. The chart below shows the year-over-year change in net income margins for the S&P 500 index.
Image Source: Zacks Investment Research
Estimates for Q1 came down as the quarter got underway, in line with the trend that had been in place since the start of 2022. That said, the magnitude of negative revisions to Q1 estimates was smaller than we had seen in the preceding two periods.
Estimates for full-year 2023 have also been coming down as well, as we have been pointing out consistently in these pages.
The chart below shows the earnings and revenue growth picture on an annual basis.
Image Source: Zacks Investment Research
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>> 2023 Q1 Earnings Season Off to a Promising Start