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Amazon, Meta, Alphabet and Microsoft are part of Zacks Earnings Preview
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For Immediate Release
Chicago, IL – October 31, 2022 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Amazon (AMZN - Free Report) , Meta (META - Free Report) , Alphabet (GOOGL - Free Report) and Microsoft (MSFT - Free Report)
Making Sense of Big Tech Earnings After FANG Disappointments
The earnings bombshells from Amazon and Meta and sub-par releases from Alphabet and Microsoft have forced us all to revisit our long-held assumptions about the sustainability of these technology leaders' earnings power.
Apple(AAPL) has redeemed itself with its quarterly release, cementing its leadership credentials and its 'Rock of Gibraltar' status in the eyes of its legion of supporters.
Apple's solid results aside, the questions appear to be mostly about the outlook for Amazon and Meta, as Alphabet and Microsoft's results weren't really that bad. Some of that differentiation was clear from the stock market reaction to the results as well, with Amazon and Meta shares literally being taken to the woodshed following the releases.
The one thing that is becoming clear after results from these 'Big 5 Tech Players' is that none of these their profitability is Teflon coated and immune from cyclical forces. Apple may be looking invincible today in the afterglow of its quarterly report, but the consumer decision to purchase the company's pricey phones and other devices will also always remain a discretionary choice and vulnerable to economic forces.
Q3 earnings for the 'Big 5 Tech Players' in the aggregate are down -15.2% from the same period last year on +9.4% higher revenues.
For 2022 as a whole, the group is expected to bring in -13.2% lower earnings on +6.1% higher revenues. But growth is expected to resume next year, as you can see in the chart below that shows the group's earnings and revenue picture on an annual basis.
One possible explanation for this group's growth challenge is the all-around margin pressures, a function of their bulging payrolls, particularly for Amazon, Meta and Alphabet. One could say that if they move into the management mode of other blue-chip operators by getting on top of their expenses, they can help strengthen their profitability.
Amazon hired a ton of workers during Covid to meet the surging demand as all of us stopped going to stores. The question now is whether they need to let some of those workers go as Covid restrictions are mostly in the rear-view mirror now.
In addition to the group's margin challenge, there are two key factors that will drive their profitability over the next two years.
The first factor is the unusual impact of Covid on their profitability in the last two years. You can see some of that from the 2021 growth figures in the above chart. The chart below shows the aggregate dollar earnings for the group in the last 6 years and estimates for the next two years.
We have highlighted above the two years that benefited from the Covid effects. The question now is whether the +58% jump in 2021 earnings brought forward profits from 2022 only, or did it include 2023 as well?
The second factor is related to the impact of macroeconomic forces on profitability. Microsoft's business was affected not only by the slump in PC demand, a function of post-Covid adjustments, but also by growth deceleration in the cloud business. We saw similar cloud-centric challenges in the Amazon and Alphabet reports as well.
This cloud deceleration is likely a reflection of companies cutting back on so-called enterprise spending, on top of digital advertising spending. The market was under the impression that cloud spending was effectively immune from economic forces and would not experience any cuts. The numbers from Microsoft, Amazon and Alphabet show otherwise.
This brings us back to evaluating the seemingly Teflon-coated status of Apple's gadgets and services.
I am of the opinion that once the Fed's tighter policy regime produces cracks in the labor market, we will end up discovering that consumers rationally defer replacing their older devices with newer ones. We are not there yet because the labor market is rock solid, but we could very well reach that stage in either of the coming two quarterly reports.
Q3 Earnings Season Scorecard
Including all of the reports through Friday, October 28th, we now have Q3 results from 263 S&P 500 members that combined account for 52.6% of the index's total market capitalization.
We have another super busy reporting docket this week, with results from more than 1,100 companies on deck, including results from 163 S&P 500 members.
For the 263 index members that have reported results already, total earnings are down –0.6% from the same period last year on +11.3% higher revenues, with 71.9% beating EPS estimates and 63.1% beating revenue estimates.
The EPS and revenue beats percentages were notably on the weak side earlier in the reporting cycle. But as you can see above, they are very much within the historical range by now.
The Earnings Big Picture
2022 Q3 earnings are expected to be up +1% on +9.4% higher revenues.
Don't forget that it is the strong contribution from the Energy sector that is keeping the aggregate Q3 earnings growth in positive territory. Excluding the Energy sector, Q3 earnings for the rest of the S&P 500 index would be down -6.4% from the same period last year.
As we have consistently been pointing out, estimates are coming down, both for the current period (2022 Q4) as well as full-year 2023.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>The Earnings Picture is Good, But Not Great
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Amazon, Meta, Alphabet and Microsoft are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – October 31, 2022 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Amazon (AMZN - Free Report) , Meta (META - Free Report) , Alphabet (GOOGL - Free Report) and Microsoft (MSFT - Free Report)
Making Sense of Big Tech Earnings After FANG Disappointments
The earnings bombshells from Amazon and Meta and sub-par releases from Alphabet and Microsoft have forced us all to revisit our long-held assumptions about the sustainability of these technology leaders' earnings power.
Apple(AAPL) has redeemed itself with its quarterly release, cementing its leadership credentials and its 'Rock of Gibraltar' status in the eyes of its legion of supporters.
Apple's solid results aside, the questions appear to be mostly about the outlook for Amazon and Meta, as Alphabet and Microsoft's results weren't really that bad. Some of that differentiation was clear from the stock market reaction to the results as well, with Amazon and Meta shares literally being taken to the woodshed following the releases.
The one thing that is becoming clear after results from these 'Big 5 Tech Players' is that none of these their profitability is Teflon coated and immune from cyclical forces. Apple may be looking invincible today in the afterglow of its quarterly report, but the consumer decision to purchase the company's pricey phones and other devices will also always remain a discretionary choice and vulnerable to economic forces.
Q3 earnings for the 'Big 5 Tech Players' in the aggregate are down -15.2% from the same period last year on +9.4% higher revenues.
For 2022 as a whole, the group is expected to bring in -13.2% lower earnings on +6.1% higher revenues. But growth is expected to resume next year, as you can see in the chart below that shows the group's earnings and revenue picture on an annual basis.
One possible explanation for this group's growth challenge is the all-around margin pressures, a function of their bulging payrolls, particularly for Amazon, Meta and Alphabet. One could say that if they move into the management mode of other blue-chip operators by getting on top of their expenses, they can help strengthen their profitability.
Amazon hired a ton of workers during Covid to meet the surging demand as all of us stopped going to stores. The question now is whether they need to let some of those workers go as Covid restrictions are mostly in the rear-view mirror now.
In addition to the group's margin challenge, there are two key factors that will drive their profitability over the next two years.
The first factor is the unusual impact of Covid on their profitability in the last two years. You can see some of that from the 2021 growth figures in the above chart. The chart below shows the aggregate dollar earnings for the group in the last 6 years and estimates for the next two years.
We have highlighted above the two years that benefited from the Covid effects. The question now is whether the +58% jump in 2021 earnings brought forward profits from 2022 only, or did it include 2023 as well?
The second factor is related to the impact of macroeconomic forces on profitability. Microsoft's business was affected not only by the slump in PC demand, a function of post-Covid adjustments, but also by growth deceleration in the cloud business. We saw similar cloud-centric challenges in the Amazon and Alphabet reports as well.
This cloud deceleration is likely a reflection of companies cutting back on so-called enterprise spending, on top of digital advertising spending. The market was under the impression that cloud spending was effectively immune from economic forces and would not experience any cuts. The numbers from Microsoft, Amazon and Alphabet show otherwise.
This brings us back to evaluating the seemingly Teflon-coated status of Apple's gadgets and services.
I am of the opinion that once the Fed's tighter policy regime produces cracks in the labor market, we will end up discovering that consumers rationally defer replacing their older devices with newer ones. We are not there yet because the labor market is rock solid, but we could very well reach that stage in either of the coming two quarterly reports.
Q3 Earnings Season Scorecard
Including all of the reports through Friday, October 28th, we now have Q3 results from 263 S&P 500 members that combined account for 52.6% of the index's total market capitalization.
We have another super busy reporting docket this week, with results from more than 1,100 companies on deck, including results from 163 S&P 500 members.
For the 263 index members that have reported results already, total earnings are down –0.6% from the same period last year on +11.3% higher revenues, with 71.9% beating EPS estimates and 63.1% beating revenue estimates.
The EPS and revenue beats percentages were notably on the weak side earlier in the reporting cycle. But as you can see above, they are very much within the historical range by now.
The Earnings Big Picture
2022 Q3 earnings are expected to be up +1% on +9.4% higher revenues.
Don't forget that it is the strong contribution from the Energy sector that is keeping the aggregate Q3 earnings growth in positive territory. Excluding the Energy sector, Q3 earnings for the rest of the S&P 500 index would be down -6.4% from the same period last year.
As we have consistently been pointing out, estimates are coming down, both for the current period (2022 Q4) as well as full-year 2023.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>The Earnings Picture is Good, But Not Great
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.