Blue Chips' Q1 2020 Tech Earning Reports
The biggest American companies that comprise up to 34% of the S&P 500 reported their January to March earnings this week, making the week the busiest earnings week of the quarter.
While other businesses have seen reduced activities due to measures to control COVID-19, technology companies have been actively providing much-needed work from home services or enabling people to receive the essentials they need to manage through the lockdown measures. Technology companies are some of the companies that have seen their stocks gain during this season.
The major tech companies – Apple, Amazon, Google, Facebook, and Microsoft released their Q1 2020 (January – March) earnings this week. Here is a brief look into the reports.
Amazon
Amazon is one of the most followed stocks on Wall Street during the current pandemic. Amazon has been busy delivery orders to American’s sheltering in place and taking advantage of the growing e-commerce platforms. Though expectations were high, the tech giant didn’t do as much to meet or exceed investor hopes.
Amazon reported earnings for Q1 of 2020, including:
- Revenue: $75.45 billion (Wall Street expected $73.61 billion), up from $59.7 billion in Q1 2019;
- Amazon Web Services (AWS) revenue: $10.22 billion (up 33%);
- Net Income: $2.5 billion, down from $3.6 billion Q1 2019;
- Earnings per share (EPS): $5.01 (Wall Street expected of $6.25), down from $7.09 Q1 2019;
North American sales were up 29% to $46.1 billion, while international sales grew 18% to $19.1 billion. Amazon’s leadership position in online retail and the cloud makes it a bellwether during the coronavirus pandemic. In the latest report, revenue was up but profit was down.
Amazon gave second-quarter revenue guidance in the range of $75.0 billion and $81.0 billion, compared to a consensus of $78 billion from analysts. All of this looked good to investors, except for one thing. The sticking point in the release was this line: “This guidance assumes approximately $4.0 billion of costs related to COVID-19.” In a sense, this implies that Amazon plans to spend all Q2 profits on coronavirus response.
Apple
Apple Inc., another closely watched stock on Wall Street, due to the impact of COVID-19 on its global supply chain and production, released its Q2 2020 (January to March) reports on Thursday, April 30, which included:
- Revenue: $58.3 billion (Wall Street expected $54.24 billion), almost flat from $58 billion in Q2 2019;
- Earnings: $2.55 a share (Wall Street expected $2.25), up from $2.46 in Q2 2019;
- iPhone revenue: $29 billion, down roughly 7% from last years $31.1 billion;
- Services revenue: $13.3 billion, up 16% from last years $11.5 billion;
- Wearables, home, and accessories revenue: $6.3 billion, up 24% from last years $5.1 billion;
- Gross margin: 38.4%
Apple has maintained the release schedule of its products and its planned investments in future products and services. “This approach will likely yield a stronger product roadmap versus other competitors and larger growth opportunities in 2021,” the company said.
Apple didn’t give guidance for the next quarter due to uncertainty surrounding COVID-19 uncertainty but expects revenues to drop 5% to 10%. Apple also maintained that its business is likely to “stabilize” in the third quarter.
Microsoft
Microsoft reported its third-quarter (January to March) earnings on Wednesday. The results beat Wall Street expectations, including:
- Revenue: $35 billion (Wall Street expected $33.66 billion), up from $30.6 billion in the same quarter last year.
- Earnings: $1.40 per share, compared to analysts’ estimate of $1.26 per share.
- Net income: $10.8 billion, up 22%.
Microsoft’s overall commercial cloud business – which includes Microsoft’s Azure cloud computing platform, Office 365 and other cloud services – reached $13.3 billion in sales for the quarter, up 39% year over year. The company said the coronavirus crisis had “minimal net impact” on company revenue. Despite the supply chain issues, revenue from Windows and its Surface devices benefitted as more people started to work remotely.
Facebook’s reported first-quarter earnings saw it add as much as $44 billion in market value after its stock jumped as much as 8% to $209.69 in Thursday morning trades following the earnings report. There was an increase in user numbers credited to the coronavirus pandemic. The numbers include:
- Revenue: $17.7 billion (Wall Street expected $17.3 billion), 17% growth from $15.08 billion a year ago;
- Earnings per share: $1.71 (Wall Street expected $1.70);
- Daily active users: 1.73 billion, versus the 1.7) estimate;
- Monthly active users: 2.6 billion, versus the 2.55 billion estimates;
- The average revenue per user (ARPU): $6.95
However, despite the 18% surge in revenue year-over-year, Facebook “experienced a significant reduction in the demand for advertising, as well as a related decline in the pricing of our ads, over the last three weeks of the first quarter of 2020,” Facebook said. This is largely due to stay-at-home orders across the world.
For Facebook’s family of apps, which includes WhatsApp, Instagram, and Messenger, the company reported monthly active users rose 11% to 2.99 billion in March. Facebook declined to provide forward-looking guidance given the uncertainty surrounding the coronavirus pandemic.
Alphabet (Google)
Google parent company Alphabet, generated $33.7 billion in revenue minus traffic-acquisition costs, beating analyst estimates by about $1.1 billion in Q1 2020. The earnings missed expectations, given the slump in ad revenue. The $33.76 billion generated was a sluggish 10% year-over-year growth from 2019 and a marked slowdown from the roughly 16% ad revenue growth rate that Google posted for the full 2019 year.
Here are the key numbers:
- Q1 revenue minus traffic-acquisition costs (TAC): $33.7 billion. Wall Street had predicted $32.5 billion.
- Q1 earnings per share (GAAP): $9.87, slightly up from $9.50 in the first quarter of 2019;
- Cloud revenue: $2.78 billion
- YouTube advertising revenue: $4.04 billion
- Traffic acquisition costs: $7.45 billion
Forecasts
While the recent reports reveal the effects of COVID-19 on Google ad business — something, analysts will be waiting for the second-quarter results which will better reflect the extent of the damage. Google expects:
- Q2 revenue forecast (minus TAC): $29.86 billion. In the same period last year, Alphabet reported $31.7 billion on the same basis.
- Q2 EPS (GAAP) forecast: $7.89 per share. Alphabet earned $14.21 per share for the same quarter last year.
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