Company / Analytics

Analytics, 29 July 2021

Big Tech Earnings: Tech companies report profits

Big Tech companies, including Tesla, Google, Microsoft, Apple, Facebook, and Amazon are reporting quarterly earnings this week from Tuesday through Thursday. Some of the technology companies such as Google, Microsoft, and Apple are reporting earnings at a time of both fierce competition in the cloud computing market and as they face mounting pressure on antitrust issues.

Tesla Earnings

Tesla reported a stronger-than-expected second quarter, with a record net income of $1.1 billion. It was far more than double the $438 million it made in the first quarter, and more than 10 times the net income it reported a year ago. The earnings provided an answer to major criticism of investors who’ve been bearish on the stock over the strength of Tesla’s results.

Notably, Tesla didn’t depend on selling regulatory credits to other automakers to achieve its blockbuster earnings. Those credits were responsible for just $354 million in revenue in the quarter. In previous quarters, even when Tesla reported positive adjusted earnings, its net income depended on selling credits to rivals that needed to buy them to meet tougher environmental standards. Critics have long attacked Tesla for that, saying the company wasn’t making money actually selling cars.

The company’s adjusted income, which is the measure more closely watched by investors, jumped to $1.6 billion, far better than the $1.1 billion forecast by analysts. It was also up from its previous record earnings on that basis of $1.1 billion in the first quarter. Revenue of $12 billion also easily topped forecasts of $11.3 billion.

But CEO Elon Musk did acknowledge that the company’s growth has been hampered by the computer chip shortage hitting all other automakers and many other manufacturers. Tesla and Musk provided a cautious outlook about a number of other plans and products it has promised.

Tesla repeated its earlier guidance that it expects to complete construction of factories near Austin, Texas, and in Berlin and start limited production of the Model Y SUV at those plants later this year. But it’s not just a chip shortage dogging the company. There is also a shortage of the cells used to make the large batteries each vehicle needs.

Tesla said Monday that it won’t start production of its Cybertruck pickup until after the Model Y is up and running in Texas. And it pushed back the plans for a semi-tractor truck until 2022 “due to the limited availability of battery cells and global supply chain challenges.”

Alphabet earnings

Google-parent company Alphabet reported June-quarter earnings after the market close late Tuesday. The internet giant’s core search advertising business continued to rebound, as travel and other sectors recover from the coronavirus pandemic. This time last year, Google was starting to feel the early pandemic slump as large parts of the global economy shut down. On Tuesday, the company showed just how far it’s come since.

Google parent company Alphabet reported revenue of $61.9 billion for the quarter ended June 30, a staggering 62% jump from the same quarter last year and significantly higher than analysts had expected. The company’s profits more than doubled to $18.5 billion.

Much of that growth was driven by a rebound in Google’s core advertising business, which posted revenue of $50.4 billion — a 69% increase from the year prior. Ad revenue from the company’s video platform YouTube surged 84% to $7 billion.

Google’s ongoing efforts to diversify its business beyond online advertising also appear to be bearing fruit. Alphabet and Google CEO Sundar Pichai hailed the company’s investments in artificial intelligence and its rapidly growing cloud business, the latter of which shrunk its quarterly losses from $1.4 billion to $591 million compared to the same period last year. Google Cloud revenue surged 54% to $4.6 billion.

Analysts had estimated Google GAAP earnings of $19.24 per share on gross revenue of $56.29 billion. The company said net revenue came in at $50.95 billion vs. estimates of $46.19 billion. Traffic acquisition costs jumped 63% to $10.93 billion.

Traffic acquisition costs have been rising as Google relies more on Apple (AAPL), partner sites, and third-party apps to generate mobile advertising revenue. In the June quarter, Alphabet repurchased $12.8 billion of its GOOGL stock, versus $11.4 billion in the previous quarter and $6.8 billion in the year-earlier quarter.

Alphabet’s stock rose 3% in after-hours trading Tuesday following the earnings report.

Apple earnings

Apple announced Tuesday a new overall June quarter revenue record of $81.4 billion, a 36% year-over-year increase compared to $59.6 billion a year ago. The company posted a quarterly net profit of $21.7 billion, or $1.30 per diluted share, versus a profit of $11.2 billion, or 65 cents per diluted share, a year ago.

The tech giant saw new revenue records in each of its geographic segments, double-digit growth in each of its product categories, and a new all-time high installed base of more than 1 billion iPhone devices.

Apple’s services revenue reached a record $17.5 billion, up 33% year-over-year, with all-time records for cloud services, music, video, advertising, and payment services. The company now has over 700 million paid subscriptions across services on its platform, an increase of more than 150 million compared to last year. Despite supply chain constraints, iPhone sales surged 50% year-over-year to $39.57 billion, Mac sales rose 16% year-over-year to $8.23 billion, iPad sales jumped 12% year-over-year to $7.36 billion. Sales in the Wearables, Home and Accessories segment also grew 36% year-over-year to $8.77 billion.

The United States led the company’s net sales with $35.87 billion, followed closely behind by its Europe and Greater China segments net sales of $18.9 billion and $14.7 billion, respectively. Meanwhile, sales in Japan came in at $6.46 billion while the rest of the Asia Pacific segment came in at $5.39 billion.

Looking ahead, Apple expects double-digit revenue growth below 36% in its September quarter, primarily due foreign exchange rates, a slowdown in the growth of its services segment and greater supply constraints related to silicon which are expected to impact iPhones and iPads.

Apple’s board of directors have declared a cash dividend of $0.22 per share of its common stock. The dividend is payable on Aug. 12 to shareholders of record as of the close of business on August 9. The company returned nearly $29 billion to shareholders during the quarter.

Despite the better-than-expected results, Apple stock was down over 2% in extended trading. It dropped on Tuesday after Apple warned on its earnings call growth in the September quarter would not be as strong as June’s.

Microsoft earnings

Microsoft (MSFT) reported its Q4 2021 earnings after the closing bell on Tuesday, beating analysts’ expectations on the continued strength of its growing cloud empire, which saw its Azure platform revenue skyrocket by 51%. Microsoft reported earnings per share (EPS) of $2.17 per share, adjusted, vs. $1.92 per share as expected by analysts. Revenue reached $46.15 billion, against $44.24 billion analysts expected.

Revenue rose 21% year over year in the quarter, which ended June 30, according to a statement. Revenue had increased by 19% in the previous quarter. Net income increased by 47%.

With respect to guidance, Microsoft called for $14.5 billion to 14.75 billion in fiscal first-quarter revenue from its Productivity and Business Processes segment, higher than the $14.07 billion. For the Intelligent Cloud segment, the company sees $16.4 billion to $16.65 billion in revenue, higher than the $15.71 billion consensus. And the More Personal Computing segment guidance was $12.4 billion to $12.8 billion in revenue, with the middle of the range coming in just short of the StreetAccount consensus of $12.67 billion.

In the fiscal fourth quarter, Microsoft’s Intelligent Cloud segment, which includes the Azure public cloud, Windows Server, SQL Server and GitHub, produced $17.38 billion in revenue, up 30% year over year. Analysts polled by StreetAccount had expected $16.33 billion in revenue.

Revenue from Azure, which competes with Amazon Web Services, grew 51% in the quarter, or 45% in constant currency. Analysts had been expecting 45.3% revenue growth from Azure, according to a CNBC consensus, while the StreetAccount consensus was 42%. In the prior quarter, Azure revenue grew 50%. Microsoft does not disclose Azure revenue in dollars.

In the fiscal first quarter, Azure revenue growth in constant currency should remain relatively stable on a sequential basis, Microsoft’s finance chief Amy Hood said on the company’s earnings call.

The Productivity and Business Processes unit, which contains Office productivity software along with LinkedIn and Dynamics, contributed $14.69 billion in revenue, up 25% and above consensus estimate of $13.93 billion.

Microsoft’s More Personal Computing segment, which features Windows, as well as devices, gaming and search advertising, generated $14.09 billion in revenue. That’s up 9% and more than the $13.74 billion.

Technology industry research company Gartner estimated that PC shipments grew 4.6% in the quarter. Microsoft’s revenue from device makers for Windows licenses in the quarter fell 3%, with license revenue associated with consumer PCs decelerating to a decline of 4% from 44% growth in the prior quarter. The company pointed to supply constraints, which PC makers Dell and HP have flagged in recent months.

The coronavirus pandemic benefited Microsoft results in some ways and hurt in others. The company’s revenue from Xbox content and services, including sales of video games, declined 4%, with the metric comparing unfavorably against 65% growth in the year-ago quarter.

Microsoft’s server products category, which features the Windows Server operating system and SQL Server database software, delivered 16% revenue growth, up from 3% in the prior quarter thanks to an easy comparison against the year-ago quarter because of transactional weakness at the time. Those conditions also arose because of Covid.

Search advertising revenue grew 53% as the advertising market rebounded. That also benefited the LinkedIn business, which showed 46% growth. The Marketing Solutions business tied to advertising grew 97%, with more than $1 billion in quarterly revenue, Microsoft CEO Satya Nadella said on the call. LinkedIn overall now generates $10 billion in annual revenue, he said.

During the fiscal fourth quarter, Microsoft announced its intent to acquire speech-recognition company Nuance Communications for $19 billion, including debt. It also introduced Windows 11, a new version of its desktop operating system, although sales of licenses to device makers will be deferred.

The company’s board voted to make Nadella its chair.

Notwithstanding the after-hours move, Microsoft shares are up about 29% since the start of 2021, while the S&P 500 index has risen almost 17% over the same period.

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