Quarterly results from Apple, Amazon.com and Facebook came up short this week, but Microsoft and Alphabet jumped to new highs.
It was the busiest period of earnings season, with five of the market’s six biggest companies issuing numbers. (Tesla was last week.) Most beat expectations, with some notable exceptions.
Facebook (FB) got things off to a shaky start on Monday afternoon by missing revenue estimates by $560 million. Monthly active users, revenue per user and guidance all missed estimates. Like Snap (SNAP), the social-media giant blamed iOS privacy-rule changes.
FB made two other announcements. First, it will separate Reality Labs into its own business unit next quarter. Second, it will change its name and symbol to Meta (MRVS). Those steps could help shift attention from the social-media network, which has reputational blemishes and stagnant user growth (despite its massive size).
Mark Zuckerberg’s company was already falling before the report. The shares continued to a new five-month low after the results.
Twitter (TWTR) also plunged more than 10 percent after revenue and user growth missed. Coupled with the news from FB and SNAP, the reports suggested that the online-advertising bonanza reported earlier this year is slowing.
Apple’s Troubled Supply Chain
As reported by Bloomberg on October 12, supply-chain disruptions prevented AAPL from hitting its iPhone goals. That caused revenue to miss estimates by about $1.5 billion. Profit just squeaked by at $1.24 per share. CEO Tim Cook cited “industry wide chip shortages.”
Interestingly, all the weakness occurred in hardware lines that would be impacted by chips: iPhones, Macs, iPads and Other Products (including wearables). Services revenue beat estimates by almost 4 percent.
Investors may not react too harshly because demand is strong as users upgrade to the latest iPhone 13. They could make investors focus on knowing when the supply chain is improving, which could increase the importance of news reports and analyst research.
Amazon.com Delivers Weak Numbers
Unlike AAPL, AMZN’s numbers didn’t leave as much room for optimism. Earnings missed as the e-commerce giant warned about rising costs for labor and transportation. Revenue also missed, possibly because shoppers are returning to traditional stores. After all, how did AMZN miss estimates when nationwide sales unexpectedly grew in two of the three months during the quarter?
Guidance for the crucial holiday quarter was also weak. Revenue is expected to grow about 8 percent (the mid-point of its range), well below the 13 percent number modeled by Wall Street. It was the second difficult quarter since Andy Jassy took over as CEO. Did Jeff Bezos choose a good time for space travel?
Still, the AWS cloud-computing business beat estimates with 39 percent growth. Its revenue also exceeded the retail business for the first time ever, according to CNBC.
Microsoft, Alphabet Surge
Of the major Nasdaq stocks, MSFT and GOOGL had the strongest results this week. MSFT continued to enjoy better-than-expected growth across its Azure cloud-computing unit.
GOOGL did a better job navigating the tough advertising environment, for two apparent reasons. First, its ownership of Android made it less vulnerable to iOS changes. (Although YouTube was affected.) Second, GOOGL has more exposure to local search and small-business advertising.
Visa, Mastercard Tank
Two of the biggest decliners this week were credit-card giants Visa (V) and Mastercard (MA). MA beat earnings estimates but missed on revenue — another bad sign in a quarter with strong retail spending.
V had more problems than that. First, analysts noted higher incentives paid to partners. Second, management warned of a slow rebound in its lucrative international business. Third, the Wall Street Journal reported that the Justice Department is probing V for potential antitrust issues involving its relationship with fintech companies like Square (SQ).
That put V on pace for its worst week since March 2020.
Merck’s Stunning Month
Merck (MRK), on the other hand, is having is biggest monthly gain since November 2009. The pharmaceutical giant’s earnings, revenue and guidance flew past consensus. Growth of its Keytruda cancer drug also surprised to the upside. In addition, management said its experimental Covid-19 drug could generate as much as $7 billion of sales next year.
The rally brought MRK back to the $88 price level where it peaked in late 2019. It’s also near a previous all-time high from late 2000. Given the speed of its rally and the newness of the story, traders may look for a breakout in the once-slow moving drug maker.
McDonald’s (MCD) is another snoozer that may be coming to life. The hamburger giant reported strong earnings and revenue. But the real story was its ability to pass on price increases to customers, which helped grow same-store sales by almost 13 percent. It also successfully launched new products and benefited from partnerships with performers like rapper Saweetie.
While MCD struggled with labor issues, management said it will develop artificial intelligence with International Business Machines (IBM) to accelerate drive-thru operations.
These other companies had noteworthy results this week:
- Enphase Energy (ENPH): The solar-energy stock is the biggest gainer in the S&P 500 this week after earnings, revenue and guidance beat estimates.
- Align Technologies (ALGN): The maker of orthodontic braces beat earnings and sales projections after widening its doctor network. Attention will likely focus on its Investor Day presentations today, October 29.
- Bunge (BG): The soybean processor beat estimates and guided upward for the fifth straight quarter. Analysts at firms including Barclays, Goldman Sachs and JPMorgan raised price targets in response.
- Aside from the companies mentioned above, see our special report on automakers Ford Motor (F) and General Motors (GM).
In conclusion, the busiest week of earnings season is done. FB and TWTR showed that online ads are slowing. AMZN’s core retail business is struggling, while MSFT continues to thrive. AAPL faces challenges but enjoys strong demand. Meanwhile MRK is suddenly coming to life, while credit card giants MA and V are breaking down.