Investing.com | Oct 21, 2020 06:06
Wall Street’s third quarter earnings season kicks into high gear in the coming days. Investors are bracing for another rocky reporting season given the negative impact of the ongoing coronavirus crisis on several sectors and industries.
The hardest-hit sectors are expected to be Energy, with an earnings decline of more than 120%, followed by Industrials, expected to drop 61.5%. In comparison, tech company earnings are only expected to fall by 2.5%.
Not surprisingly, the Invesco QQQ ETF (NASDAQ:QQQ)—which tracks the performance of 100 of the largest non-financial stocks listed on the NASDAQ Composite—is trading near its all-time high, up almost 34% this year, compared to the S&P 500’s 6.5% increase over the same timeframe.
As such, there will be a lot on the line when the five big-name, mega-cap tech companies report their respective results in the days ahead.
Google-parent Alphabet (NASDAQ:GOOGL), (NASDAQ:GOOG) has seen its shares lag those of the other four Big Tech stocks, climbing “just” 16% year-to-date, as jitters over decreased advertising spending has kept a lid on the search giant’s gains.
GOOGL—which hit a record high of $1725.65 on Sept. 2—ended at $1,551.08 on Tuesday. It has a market cap of $1.05 trillion, making it the fourth most valuable company listed on the U.S. stock exchange.
Google beat expectations for its second quarter earnings in late July, but still suffered its first ever year-over-year revenue decline, due to the negative impact of COVID-19 on its ad business.
Consensus calls for the Mountain View, California-based tech behemoth to report earnings of $11.15 per share, improving from EPS of $10.12 a year earlier. Revenue is forecast to clock in at $42.68 billion, increasing from $40.5 billion in the same quarter a year earlier.
The main question on investors’ minds is whether the worst is behind for Alphabet’s core search and ad revenue business, which saw a year-over-year drop of almost 10% in the previous quarter. YouTube ad revenue growth, which also saw a slowdown in the last quarter, will be closely watched too.
Alphabet's lucrative Google Cloud Platform is one segment that should be primed for another quarter of blockbuster growth. In Q2, sales in the operation surged 43% to $3.01 billion.
Additionally, investors will be keen to hear further details on recent news that the U.S. Department of Justice will file an antitrust suit against Google. Part of the suit will look at allegations the company monopolizes its internet search function to suppress competition.
Microsoft (NASDAQ:MSFT) has thrived throughout the coronavirus crisis, with the tech giant enjoying a bump in demand for its cloud-based services amid the shift to work-from-home.
The Redmond, Washington-based company has seen its stock jump roughly 36% since the start of the year. Shares, which hit a record high of $232.86 on Sept. 2, settled at $214.65 yesterday. With a market cap of $1.62 trillion, Microsoft is the world’s second-most valuable company.
Microsoft, whose earnings and revenue easily topped projections in the last quarter, is expected to post earnings of $1.54 per share, rising from EPS of $1.38 in the year-ago period. Revenue is expected to total $35.77 billion, up 8% from sales of $33.06 billion in the same period a year earlier.
Beyond the top- and bottom-line numbers, investors will focus on growth in Microsoft’s Intelligent Cloud segment, which includes Azure, GitHub, SQL Server, Windows Server and other enterprise services. Microsoft’s commercial cloud revenue rose 17% year-over-year to $13.4 billion in its most recent quarter, while revenue from its Azure services grew 47%.
Another key metric in focus will be how well Microsoft’s Productivity and Business Processes unit performed. The key segment includes the Office 365 cloud productivity suite, its Teams communications app, LinkedIn (NYSE:LNKD), as well as Dynamics products and cloud services.
Microsoft’s booming gaming unit, which has benefited from increased demand amid the stay-at-home environment, will also be closely watched, with the upcoming Nov. 10 release of the next-generation Xbox console expected to drive revenue growth in the quarters ahead.
Apple (NASDAQ:AAPL), which approved a four-for-one stock split last quarter, has been largely riding high this year as lockdowns across the globe led to strong demand for its subscription services, including iTunes Music, Apple TV+ and Apple Arcade.
Shares in Apple have surged by around 60% this year. The stock, which hit an all-time high of $137.98 on Sept. 2, settled at $117.51 on Tuesday. It has a market cap of $2.01 trillion, making the Cupertino, California-based tech and consumer conglomerate the most valuable company trading on the U.S. stock exchange.
Consensus calls for Apple—whose earnings and revenue smashed expectations in the last quarter—to report earnings per share of $0.71 for its fiscal fourth quarter, down around 8% from the year-ago period. Revenue is forecast to slip 0.3% from the same period a year earlier to $63.85 billion, as some aspects of the business have taken a hit from the coronavirus.
Although Apple no longer reports individual unit sales of its product lineup, many will be eager to hear if the company will provide insight on the initial impact of the iPhone 12, which became available for pre-order earlier this month.
Any updates on growth in its iPad and Mac business will also be of interest to investors, as both have performed strongly amid the stay-at-home environment, posting year-over-year revenue growth rates of 31% and 26.1%, respectively, in the last quarter.
More importantly, investors are hoping Apple will provide guidance for the next quarter as it is typically lucrative due to holiday season spending. The iPhone giant failed to offer a forecast for this quarter's results when it announced its Q3 figures, due to uncertainty surrounding the impact of the virus on its business.
Widely viewed as one of the biggest beneficiaries of the COVID-19 crisis, Amazon (NASDAQ:AMZN) has significantly outperformed the broader market this year, surging nearly 75%, as Americans accelerated their shift to online shopping.
Shares of the Seattle, Washington-based company, which hit a record high of $3,552.25 on Sept. 2, closed at $3,217.01 last night. With a valuation of $1.61 trillion, Amazon is the third most valuable company listed on the U.S. stock exchange.
Amazon—which reported blow-out second quarter results at the end of July—is projected to print earnings per share of $7.29, a year-over-year growth rate of around 72% from EPS of $4.23. Revenue is expected to climb 32% from the year-ago period to $92.57 billion, reflecting strength in both e-commerce and cloud computing.
Investors will continue to focus on the company’s booming cloud-computing business to see if it can maintain its torrid pace of growth. Amazon Web Services’ revenue jumped 29% to $10.8 billion in the second quarter, cementing its spot as the leader in the cloud-computing space, ahead of Microsoft Azure and Google Cloud.
Growth in its Subscription Services unit, which mainly constitutes Amazon Prime and its 150 million paying members, will also be in focus. Numbers from this segment rose 29% to $6.02 billion in the previous quarter.
Looking ahead, investors will be looking for guidance on Amazon’s revenue and operating income for its key fourth quarter, which covers the holiday shopping season. Analysts are expecting the e-commerce and tech giant to guide for Q4 revenue of $111.4 billion, representing an increase of 27% from the same quarter a year earlier.
Facebook (NASDAQ:FB) has enjoyed a strong increase in demand across its family of social media apps, which include Instagram, Messenger and WhatsApp, due to ongoing restrictive social-distancing measures. Not surprisingly all three platforms have growing audiences, with the social network now counting 3.14 billion members.
While shares in Facebook have outperformed the broader market this year, they have trailed many of its closest rivals. Worries over reduced advertising spending as a result of an ongoing ad boycott combined with COVID-19-related disruptions to the advertising industry, limited gains.
Facebook stock, which has gained 30% year-to-date, ended at $267.56 yesterday. At current levels, the Menlo Park, California based social media giant is valued at $762.2 billion, making it the smallest of the five big tech firms and the only one with a market cap below $1 trillion.
Facebook, which reported a massive beat on earnings and revenue in the second quarter, is projected to post earnings per share of $1.88 for the July-September period, down 11.3% from EPS of $2.12 in the same quarter a year earlier. Revenue, however, is forecast to increase 11.6% from the year-ago period to $19.7 billion, thanks to strong demand for its remote work-from-home software products.
Beyond the top-and-bottom line numbers, investors will be waiting to hear more about the lingering impact from the COVID-19 outbreak on ad revenue for the rest of 2020 and beyond. Facebook’s 10% year-over-year ad revenue growth in the second quarter represented a slowdown from the 17% increase in the first quarter this year.
Written By: Investing.com
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