It’s the second week of earnings, and nearly all the biggest companies have reported. So let’s get started:
Alphabet: Alphabet GOOGL reported a strong quarter beating the respective Zacks Consensus Estimates on both top and bottom lines. Google earned more in the last quarter at lower margins as volumes came at the cost of weaker pricing and rising traffic acquisition costs, especially to distribution partners such as Apple.
But the company also exercised notable cost discipline that included the use of artificial intelligence to lower cooling costs by 40% and overall electricity costs by 15%. Reduced losses at Other Bets also contributed. This enabled it to generate solid cash flows with the balance sheet cash crossing $100 billion. Read more: Alphabet (GOOGL) Beats Earnings, Revenue Estimates in Q3
Amazon: If you’re waiting to see increase in Amazon’s AMZN profitability, you’re going to have a long wait. Amazon’s earnings growth comes from the increased scale of its business rather than its ability to squeeze out stronger margins. So it’s satisfied with tiny margins to deliver large amounts of goods and services to customers. That’s why a capital-intensive business like AWS, which is growing in leaps and bounds, actually expands its margins (it would have done the opposite to most technology companies).
But then Amazon isn’t just a technology company. Most of its revenue comes from retail, where it is pushing many traditional players out of business while opening its own physical stores to support its online model. Amazon’s success stems primarily from the fact that Bezos thought about it first. So things like the quick, free shipping that it offers has quickly set the benchmark that others must also deliver on. Only, Amazon is the one with the warehouses, trucks, planes and partnerships that can make this possible at the kind of volumes that it does.
So like it or not, it will continue on its own path, beating estimates along the way. But investors would do well to look at the free cash flow (less finance lease principal repayments and assets acquired under capital leases) and ROA, which are showing a not unexpected but not-so-positive trend. Read more: Whole Foods Buyout, Prime Day Drive Amazon (AMZN) Q3 Earnings
Microsoft: The strength in the software giant’s first quarter earnings results was attributed to Microsoft’s MSFT growing cloud prowess. And rightly so, because Microsoft is working to become a cloud-first company. The highlight of the quarter was the $20.4 billion annualized revenue runrate it said it achieved from its commercial cloud business because that was a target it set for some time in 2018.
Of course, Microsoft multiplies revenues in the last month of the quarter by 12 to arrive at the annualized rate instead of quarterly revenue by 4 the way AWS does, so results may just look a bit more favorable. Around 89% of this business is annuity-based lending visibility and improved prospects for the future.
To be fair, the rest of the business also did rather well, with Windows taking slight share (according to management calculations), Surface and search growing double-digits each and gaming software/services/XB Live users also growing strongly. Read more: Microsoft (MSFT) Q1 Earnings Beat on Strong Azure Growth
Intel: Intel INTC beat our estimates on both the top and bottom lines, sending share prices soaring. The company still remains hugely dependent on the PC market where its continued innovation ensured a 55% revenue share in the last quarter. The data center side of things looks good, although investments in AI and other technology are currently a pressure on profits.
Recent acquisitions of Altera and Mobileye and its partnership with Micron have added muscle to three other product lines/segments. So Intel has several strong growth engines that should help it tap emerging opportunities in IoT, self-driving cars and more. This structure, however, means that nearly half the business (non-PC) is growth oriented, so this half will pressure profitability. Therefore, it’s encouraging to note that Intel intends to bring opex down to about 30% of revenues by 2020. Read more: Intel (INTC) Q3 Earnings Top on Robust Data-Centric Growth
Twitter: The benefits of restructuring are clearly showing on Twitter’s TWTR quarterly performance. So while revenues declined again in the last quarter (on a larger user base and weaker pricing), its losses continued to come down.
Encouragingly, user growth and ad engagements improved in the last quarter, although management focuses on the daily active user (DAU) metric rather than the monthly active user (MAU) metric generally used for such platforms. That’s again probably not a bad thing since the company recently admitted that it has been miscalculating/inflating its MAU growth numbers. Read more: Twitter (TWTR) Beats on Q3 Earnings, Stock Rallies 12%
|
Ticker |
Price Change Last Week |
Price Change Last 6 Months |
|
AAPL |
-0.47% |
+9.83% |
|
FB |
+0.71% |
+21.78% |
|
GOOGL |
-0.28% |
+17.01% |
|
MSFT |
+1.70% |
+18.69% |
|
INTC |
+1.92% |
+11.32% |
|
CSCO |
+2.33% |
+4.36% |
|
AMZN |
-2.00% |
+9.39% |
Other earnings stories
Other Reports from Last Week: Texas Instruments, Advanced Micro Devices, Western Digital, Xilinx, KLA-Tencor, Seagate, Cadence Design, Teradyne, Fortive, Fortinet, F5 Networks, Juniper, Akamai, Corning, VeriSign, CA Inc, Expedia, Nielsen.
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