Winners, Losers, Insights and Surprises: Big Tech’s Earnings Reports Round-Up

Winners, Losers, Insights and Surprises: Big Tech’s Earnings Reports Round-Up

From the FAANGs to newer entrants to the public capital markets circus including Snap and Pinterest, the past few weeks have seen big tech present their Q2 earnings reports. But as well as presenting the figures, the leaders of many companies use the obligatory tri-monthly report to their investors as a platform from which to communicate other news. Sometimes it’s positive, others less so. Companies can announce new products or services, changes to management or structure. Or they might carefully distance themselves from blame and the factors that have meant a quarter has been a disappointment.

Here’s what the biggest tech companies on Wall Street, shares in which many of those investing online from the UK own, reported and shared this month as the divulged their Q2 earnings reports.

Amazon

Amazon, currently the second largest company in the world after Microsoft, had, within the context of the incredibly high standards it has set itself in recent years, what can be described as a ‘mixed’ set of Q2 earnings to report. For a year, Amazon hadn’t gone a single quarter without it setting a new earnings record. That streak had to come to an end eventually and it did this quarter.

The online retail giant and cloud computing services market leader did manage to beat sales forecasts but slipped below analyst earnings forecasts. The stumble is one that most investors won’t, however, be overly concerned about. The company had set aside an $800 million investment to roll out standard free one-day delivery for a wide range of products to Amazon Prime members. While the target was achieved the cost of doing so was more than anticipated, which led to profits coming in slightly lower than the market had anticipated.

But both profits and earnings were still up on the same quarter last year – $2.6 billion from $2.5 billion and $63.4 billion from $52.9 billion respectively. Forward guidance for Q3 sales was roughly in line with analyst forecasts for $67.2 billion with the company estimating $66-$70 billion. The Amazon Prime 1-day delivery promise might be hitting the company in the pocket in the short term but it has already shown it will help drive sales, which should be a positive in the longer term.

Alphabet

Alphabet, previously known as Google, which is now the company’s biggest unit after a 2015 restructuring, produced a very positive Q2 earnings report. Stronger than expected growth in advertising revenues saw the company post a $9.9 billion profit for the quarter compared to $8.3 billion the previous year. Both figures excluding fines.

Through its Google search engine, video streaming platform YouTube, Google Maps, Chrome browser, Gmail email client and other smaller platforms, Alphabet holds a whopping 31.1% of the entire digital advertising market. The company’s cloud computing business is also gaining momentum, though is still significantly behind its major competitors, Amazon’s AWS and Microsoft’s Azure.

The other major announcement of note delivered alongside Alphabet’s Q2 results was that the company will initiate a $25 billion equity buy-back focused on Class C stock. Its share price gained 7% following the report.

Facebook

The social media giant also goes down as a mixed bag of an earnings report, which was positive on the numbers but with a sting in the tail. Facebook’s revenue for the quarter came in at $18.69 billion – a 28% improvement on the same three months the previous year and ahead of the $18.49 billion forecast by analysts. While not a huge difference it was enough to see Facebook’s share price gain a quick 5% following the after-hours release of the numbers.

However, that initial optimism was dampened when closer inspection of the press release that announced the earnings report’s key figures also revealed the announcement of a new FTC investigation into the Facebook. The probe will take the form of an antitrust investigation that began in June and is not connected to the recent $5 billion fine meted out by the same body as punishment for the misuse of users’ data.

Analysts were also briefed to expect a deceleration in earnings growth over the second half of 2019.

Apple

Apple’s fiscal calendar runs to a different schedule than most of the other big tech companies and it is due to announce its fiscal Q3 results on July 30th. However, the company also made a major announcement last week – that it is to invest $1 billion for the acquisition of the majority of Intel’s smartphone-modem business. The deal comes with around 2000 Intel staff and gives the iPhone maker a key bit of technology as it gets ready to build its new generations of 5G network-ready smartphones.

Intel’s own earnings report led to a 5% gain in its share price as a result of better than anticipated sales. The sales growth was catalysed by PC and other electronics makers stockpiling ahead of tariffs going up as a result of the U.S.-China trade war. However, the down side to that might well be a drop off in chip sales over the second half of the year.

Microsoft

Having regained its crown as the world’s largest company by market capitalisation, Microsoft consolidated that position by revealing a set of Q4 earnings (and full year results) that blew analyst forecasts away. Revenues were up 12% to $33.72 billion and well ahead of estimates for $32.77 billion. Earnings per share were also well ahead of expectations for $1.21 at $1.37. The Microsoft unit whose biggest component is the Office software suite saw sales that were a 14% improvement on the same quarter last year.

But not of those gains came close to those of cloud computing unit Azure, whose revenues had leapt 64% on the same quarter in 2018. It’s a deceleration from the 73% and 76% growth recorded in previous quarters but still impressive.

The company’s full-year figures showed total revenues up 14%, non-adjusted net income up 137% and non-adjusted diluted earnings per share up 138%.

Netflix

The biggest disappointment of big tech’s earnings season has so far been Netflix. The television and film content streaming company saw its share price drop 10% in the aftermath of an earnings report that saw it miss its new subscribers target by almost 50%. 2.7 million new subscribers were added internationally against forward guidance for 5 million. The company’s domestic U.S. market was also an own goal with net subscriber figures down 100,000 against forward guidance that 300,000 would be added.

The only real silver lining was that earnings per share came in ahead of analyst estimates for 56 cents at 60 cents. Revenue was just off forecasts at $4.92 billion rather than $4.93 billion. The company briefed that it believed the disappointing quarter was a result of price rises to its subscription model in some regions as well as the fact the quarter fell during a lull in the release of popular new content.

Netflix stated it is confident that Q3 figures will compensate for the Q2 slump.

Twitter

Following a tough period of transition and several disappointing quarterly earnings reports, Twitter finally came good this time around. The microblogging social media company’s revenues came in at $841 million, ahead of analyst estimates for $829.1 million. Earnings per share were also 5% up on forecasts of 19 cents, hitting 20 cents.

Twitter has overhauled the way it reports user numbers. Previously, the company reported total user numbers, a methodology heavily criticised given the fact that it was well known that a large number of users were ‘bots’, ‘fake’ or inactive and not in any way monetisable. Twitter has reacted to that by adding a new metric to its reports – Average Monetisable Daily Active Users (mDAUs).

It was the first time the figure has been included in a quarterly earnings report and it was put at 139 million – 29 million in the USA and 110 million worldwide excl.-USA. The company said those figures represented 14% and 10% year-on-year growth compared to the same quarter last year.

Snap

Finally, Snap, the parent company of Snapchat also had a positive quarter to round up a good 3 months for social media. It reported user growth of 8% from the same time last year and revenue gains of 48% to $388 million. Analysts had predicted user numbers to be up 2 million when 13 million were added. Revenues were also ahead of Snap’s own forward guidance, which had been for income to reach between $335 million and $360 million.

The popularity of new augmented reality apps such as the ‘gender swap’ filter proved a major boost to user interaction patterns and encouraged new users onto the app. Other positives identified by Snap’s management as being behind the recent recovery of the social media’s popularity were a move into new territories and a redesign of the Snapchat Android app.

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