Apple, Amazon, Twitter: Earnings Spotlight

Major tech companies such as Apple, Amazon, Microsoft, Meta, and Alphabet reported earnings this week. Although results were mixed, the sentiment for tech shares was positive. The tech sector led US stocks to finish sharply higher on Thursday.

Overall, first-quarter earnings have been upbeat. 81% of the S&P 500 companies that have reported results so far beat Wall Street expectations. Data from Refinitiv shows that typically only 66% of companies beat estimates. 

Here are the week’s top stock headlines.

Apple’s strong quarter 

Apple reported its Q2 2022 earnings after market close yesterday. Revenue grew nearly 9% year over year for the quarter, a sign that demand for their iPhones and Mac computers remains strong despite challenging macroeconomic factors.

Notably, Apple’s services business, which includes App Store, Apple TV+, Apple Music, and cloud services, saw a 17% surge in revenue year over year. Apple TV+ recently became the first streaming service to win an Academy Award for Best Picture, for its movie “Coda.”

For the reported quarter, paid subscriptions grew to 825 million, up more than 165 million in the past 12 months. Given the success of Apple’s services for consumers, the company sees enterprise as the next big opportunity. Apple recently launched Apple Business Essentials, a device management service for small businesses.

Overall, CEO Tim Cook said that Apple’s financial performance was “better than we anticipated.” 

After gaining 4.5% during the session, Apple shares fell 2.2% in extended trading after warning that supply constraints and China’s Covid lockdowns could affect sales by between $4 billion and $8 billion in the current quarter. 

Amazon’s first quarterly loss since 2015

Shares of Amazon fell 9% in extended trading yesterday after the company reported disappointing results for Q1 2022. Revenue grew just 7%, compared with 44% growth for the same quarter last year. 

Amazon also reported a net loss of $3.8 billion for the quarter, largely due to its nearly 20% stake in electric vehicle company Rivian. Amazon lost $7.6 billion on its investment after Rivian shares fell more than 50% during the quarter. The loss is Amazon’s first quarterly loss since 2015.

One bright spot was Amazon Web Services (AWS), the company’s cloud computing division. AWS sales jumped 36.5% year over year, beating analyst estimates. 

The company has attributed much of the slowdown to higher costs of running its warehouses and delivering packages, as well as the ongoing war in Ukraine. Amazon also warned that there may be further losses ahead. For the current quarter, the company expects operating income between a loss of $1 billion and a gain of $3 billion. That’s a significant dip from an operating profit of $7.7 in the same period last year. 

To offset rising costs, Amazon raised the price of its Prime membership in the US last quarter. Earlier this month, the firm introduced a 5% fuel and inflation surcharge for some sellers.

Elon Musk buys Twitter

On Monday, Twitter accepted Tesla CEO Elon Musk’s offer to take it private. The deal is worth $44 billion and investors will receive US$54.20 for each Twitter share they own. The deal is expected to be completed later this year.

Although Twitter’s board initially attempted to fend off the hostile takeover by adopting a poison pill strategy, they accepted the deal after Musk provided details of how he will finance the takeover. Musk has secured US$25.5 billion of debt and margin loan financing, and will provide about US$21 billion in equity to fund the deal.

Twitter shares rose after the announcement, but fell throughout the week ahead of Twitter’s Q1 2022 earnings. The company reported earnings yesterday, missing analyst revenue estimates. However, monetisable daily active users grew 15.9% from the same period last year.

With Twitter as a private company, Musk has pledged to make it a bastion of free speech. He also said he intends to stop spam bots.

Alphabet’s rare miss

Google’s parent Alphabet reported uninspiring Q1 2022 results on Tuesday, largely due to disappointing YouTube revenue.

Total revenue rose 23% to $68 billion, slightly below analyst estimates for the reported quarter. However, sales from Google Search and Google Cloud were healthy. The units saw revenue growth of 24% and 44% respectively, compared to a year ago. 

What worried investors was weak results from YouTube. Revenue from YouTube ad sales rose 14% to $6.9 billion, below Wall Street estimates of $7.21 billion. The company said the war in Ukraine had an “outsized impact” on YouTube revenue as ad sales in Russia were stopped. Additionally, many advertisers cut back on ad spends. 

YouTube is facing increasing competition from TikTok. To compete, they introduced Shorts – a short-form video concept similar to TikTok. Shorts now has 30 billion daily views, a four-fold increase over the past year. Youtube is currently testing ads on Shorts. On its earnings call, Alphabet said that they received positive initial feedback and results from advertisers.

Although shares of Alphabet dropped 5% during extended trading on Tuesday, the share price recovered. Alphabet shares are up 3.7% as at yesterday’s close.

Microsoft’s solid quarter

On Tuesday, Microsoft reported fiscal Q3 2022 revenue of $49.4 billion, beating Wall Street’s expectations. The company’s Azure cloud revenue came in higher than expected, while other business units reported robust growth.

We take a closer look at Microsoft’s earnings here

Facebook bounces back

On Wednesday, Facebook parent Meta surprised the market with better than expected results. Despite slowing revenue growth, daily active users increased.

We take a deep dive into Meta here.

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