Company / Analytics

Analytics, 28 July 2022

Mega-cap tech stocks announce earnings

Most mega-cap tech stocks have announced or are set to announce their second-quarter earnings this week. Earnings from Microsoft and Google were announced on Tuesday, While Facebook’s parent company released its second-quarter earnings on Wednesday.

Microsoft posted 12% growth year over year in the second quarter of 2022, the smallest revenue growth since the pandemic. Earnings per share for the company also fell short of consensus for the first time since 2016 while net income rose by 2% to a staggering $16.74 billion.

As for Google’s parent company Alphabet, The revenue growth slowed to a mere 13% as compared to the same time last year when growth was at 69%. It is however important to note that, at that period, most companies were benefitting from the post-pandemic reopening where consumer spending was on the rise.

Facebook’s parent company Meta posted more gloomy results for the second quarter and issued a disappointing third-quarter forecast. With a steeper-than-expected drop in revenue and missed earnings, shares of the company dropped 3.8% in extended trading.

Here is a more detailed analysis of how the companies performed in Q2.

Microsoft

For Q2, Microsoft missed the $2.29 earnings per share forecast by analysts, settling at $2.23 per share, according to Refinitiv. Revenue also missed expectations, as the company posted $51.87B in revenue, as compared to the $52.44B expected by analysts. Net income rose by 2% to a staggering $16.74 billion.

The company also posted 12% growth year over year in the second quarter of 2022, the smallest revenue growth since the pandemic. The decline in PC sales and slower cloud infrastructure growth contributed heavily to the weaker-than-expected revenue growth of the company, which stood at about 10% growth from the first quarter of 2022. The company’s implied gross margin, at 69.85%, was wider than the 69.30% consensus among polled analysts.

For the fiscal year 2023, the company reiterated its first-quarter forecast, ignoring the current economic state. According to Amy Hood, Microsoft’s finance chief, Microsoft would lengthen the useful life of server and networking equipment to six years from four years, similarly to what the company did in 2020.

In terms of market performance, Microsoft stock has tumbled 25% so far this year, compared with a roughly 18% decline in the S&P 500 index of U.S. stocks.

Alphabet

Alphabet reported weaker-than-expected earnings and revenue for the second quarter. For Q2, Alphabet missed the $1.28 earnings per share forecast by analysts, settling at $1.21 per share, according to Refinitiv. Revenue also missed expectations, as the company posted $69.69B in revenue, as compared to the $69.9B expected by analysts.

Revenues from YouTube, Google Cloud, and traffic acquisition costs also missed expectations. According to StreetAccount, YouTube advertising revenue was at $7.34 billion versus the $7.52 billion expected, while Google Cloud revenue settled at $6.28 billion versus the expected $6.41 billion, and Traffic acquisition costs (TAC) generated $12.21 billion versus the expected $12.41 billion. Sales for YouTube rose only 5%, as compared to 84% in the same period in 2021.

The revenue growth slowed to a mere 13% as compared to the same time last year when growth was at 69%. It is however important to note that, at that period, most companies were benefitting from the post-pandemic reopening where consumer spending was on the rise. Advertising revenue increased just 12% to $56.3 billion, as marketers reeled in their spending to manage inflationary pressures.

Google’s CFO, Ruth Porat, told CNBC that the company credited a 3.7% points decline in revenue growth to currency fluctuations from a strengthening dollar, characterizing the current outlook as one of “uncertainty in the global economic environment.”

In terms of market performance, Alphabet stock has tumbled 22% so far this year.

Meta

For the fiscal second quarter, Meta posted a steeper-than-expected drop in revenue. For the quarter, Meta missed the $2.59 earnings per share forecast by analysts, settling at $2.46 per share, according to Refinitiv. Revenue also missed expectations, as the company posted $28.82B in revenue, as compared to the $28.94B expected by analysts. Revenue in the second quarter fell almost 1% from a year earlier.

The company also missed expectations in terms of expected daily and monthly users. The average revenue per user was slightly lower than expectations, at $9.82 versus the expected $9.83 per user.

Meta also issued a disappointing third-quarter forecast, citing a “continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader macroeconomic uncertainty.” The company said sales in the quarter will be in the range of $26 billion to $28.5 billion, trailing the $30.5 billion average analyst estimate. That translates to a projected decline of between 2% and 11% from a year ago.

In terms of market performance, Meta stock has tumbled almost 50% so far this year.

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