US Earnings Season - The Tech Wreck

A host of earnings reports from large US companies have landed this week. Apple and Amazon both reported their quarterly results yesterday. While Alphabet, Microsoft, Meta (formerly known as Facebook) and Spotify announced their results earlier in the week.

Keeping abreast of the quarterly performance of certain US companies can provide a useful insight into what to expect when ASX-listed companies report their results early next year.

Alphabet (NASDAQ:GOOG)

Alphabet, parent company of Google, YouTube and Android, posted weaker than expected results with revenue and earnings both coming in below consensus estimates. Revenue was up 6% to $69.1 billion for the quarter, versus the same period last year. Most notable was the 2% drop in YouTube’s advertising revenue for the first time since the company began separately reporting the unit’s performance. Alphabet noted that the weaker than expected results were impacted by a pullback in advertising spend on search ads from certain areas such as insurance, lending and cryptocurrencies.

GOOG’s earnings slipped 24% for the quarter compared to a year ago. In response, GOOG stock has since fallen 12% and is down 37% for the year. Alphabet CEO, Sundar Pichai, said in a statement that the company is “focused on moderating operating expense growth”, and, “our actions to slow the pace of hiring will become more apparent in 2023”. During the quarter, GOOG cancelled the next generation of its Pixlebook laptop and announced that it would shut its digital gaming service, Stadia.

Amazon (NASDAQ:AMZN)

AMZN’s share price slumped lower following its weak outlook amid global recession fears. The company guided that sales in the fourth quarter would be well below original expectations. Sales in the recent quarter were up 15% from a year ago, while net income declined 9% to $2.9 billion.

The company’s share price fell almost 20% in after-hours trading following the results to trade below $90, its lowest price since March 2020.

Apple (NASDAQ:APPL)

Apple reported record revenue for the September quarter, growing revenue by 8%. This was driven by a 5% jump in services revenue (which includes the App Store, Apple Music and Apple TV+) and a 9% increase in product sales. Net income for the quarter was $20.7 billion, also a record result.

Earlier this week, Apple announced that it would raise the price of its Apple Music and Apple TV+ streaming services, which may help to further boost revenues in the coming quarters. This is also positive news for audio streaming competitor, Spotify (which we’ll discuss shortly).

Meta (NASDAQ:META)

Meta Platforms, formerly known as Facebook, released its results after market close on Wednesday (Thursday morning AEST), reporting revenue of $27.7 billion for the three months to September, down more than 4% from a year ago. In contrast, operating expenses were up more than 19%, causing margins to compress and earnings to shed by more than half, compared to the same quarter last year. META anticipates capital expenditures to be in the range of $34-39 billion in FY23, driven by investments in data centres, servers, and network infrastructure.

META’s stock price has fallen roughly 25% since its results were announced, its lowest level since 2015.

Microsoft (NASDAQ:MSFT)

Microsoft’s stock price has slid 10% since its results were released and is down more than 30% for the year. Its revenue and operating profit were both up 11% and 6%, respectively, last quarter. However, the company warned that a sharp decline in personal computer sales and a strong US dollar will weigh on its growth in the future.

Spotify (NYSE:SPOT)

Spotify grew revenue 21% to €3 billion compared to the same quarter last year, reflecting subscriber growth of 13% and premium average revenue per user (ARPU) growth of 7% to €4.63 per month. It was also lifted by ad-supported revenue growth of 19% from a year ago, reaching 13% of total revenue.

Cost of revenues and operating expenses were higher than expected due to several factors, most notably due to higher personnel costs and foreign currency headwinds. This resulted in an operating loss of €228 million for the quarter, missing management guidance of €218 million.

It is also interesting to note that Spotify launched its first iteration of Audiobooks for US listeners during the quarter. This adds another major vertical to its platform (in addition to music and podcast streaming) as the company seeks to differentiate itself from its competitors.

SPOT’s share price has fallen 16% since its results, dropping to a new all-time low of $78.50.