Apple, Amazon and Meta beat estimates, as Meta delivers vintage results

Amazon was the first of the Magnificent 7 to report earnings on Thursday evening, and the news was good. Its net sales surged by $169.96bn, higher than the $166.2bn expected by analysts. Online sales posted income of $70.54bn, up 9.3% YoY, while Amazon Web Services saw net sales of $24.20bn, a touch below expectations of $24.22bn expected, but up 13% YoY. Amazon posted decent growth on all elements of its business. While the focus was on the AWS, and its links to the AI theme, the market was also interested in its e-commerce business, and these results suggest that the global consumer remains in good shape. North American net sales rose by 13% YoY, to $105.51bn, while international sales rose by 17% to $40.24bn.

Amazon shares are surging in post-market trade and are up more than 8%. The driver of these gains is the increase in operating margin. The market had expected 6.17%, this came in at 7.8%. Not only are Amazon boosting sales, but they are also doing it profitably, which suggests that Amazon could be entering a new era. Earnings per share was $1, smashing estimates of $0.78. It’s forecasts for Q1 are also decent, it is expecting net sales of $138bn - $143bn, which is above analyst estimates of $142.01bn. Operating income for Q1 is expected to be $8bn - $12bn, the median estimate was $9.12bn. Although this is a wide range, the top end is higher than analyst estimates, which should also cheer the market.

Coming into these results, Wall Street was optimistic about Amazon, and they were right to be so. Amazon has multiple businesses and many moving parts, and they all performed well. Overall, these results show that Amazon is a compelling profit story for Q4 and beyond. It also suggests that global consumer spending and corporate spending could hold up into 2024, which is positive for Amazon’s stock price and for the market more generally.

Meta delivers the Carlsberg of earnings

Meta also hit the right notes with its earnings report for the last quarter, and its stock price is surging in post market trade and is up more than 14%. Meta delivered a near perfect earnings report. It smashed expectations, and delivered Q4 revenue of $40.11bn, vs expectations of $39bn. It also forecast Q1 revenue of $34.5bn - $37bn, analysts had expected Q1 revenue of $33.6bn. Added to this, operating income is expected to come in at $8-$12bn, which is also higher than Wall Street estimates. Meta also announced that Facebook grew its Daily Average Users (DAUs) to 2.11bn, which beat analyst estimates and is the first quarter of growth in DAUs for some time.

Meta delivered a double whammy of celebrations for investors. It announced its first dividend of $0.50 per share in March, and it said that it will issue regular quarterly dividends going forward. It also announced a $50bn buyback authorisation, which is what investors have been calling for in recent years. Meta has delivered for its shareholders, and its sweeteners make it look more like an old-fashioned oil major rather than a tech company.

Meta said that the company would continue to lose money in its Reality Labs division that makes the Metaverse. However, helping to neutralise the bad news was the $1bn in sales that Reality Labs generated for the first time. If Carlsberg did earnings results, this is what they would look like, and investors are happy.

Apple slips as China growth slows

Apple slipped behind Microsoft as the world’s most valuable company, last month and its earnings report for last quarter explains why. It reported its first sales gain in a year, with iPhone revenue coming in at $69.7bn, vs estimates of $68.55bn. However, revenue in China was weaker than forecast at $20.8bn vs. $23.5bn estimated. This was a decline of 13% YoY. Earnings per share also beat estimates at $2.18 vs $2.11, as iPhone and Mac revenue rose YoY. However, compared to Amazon and Meta, which saw strong growth across their business and product lines, this was not the case for Apple. It reported YoY losses for iPad revenues and wearables, including the Apple Watch, although this was to be expected due to a ban on sales from the International Trade Commission after the Apple Watch’s blood oxygen sensor was found to have infringed on the intellectual property of a competitor. Analysts were focussed on the health of the iPhone business, which has picked up, and also trends in Chinese consumption of Apple products. The latter has disappointed estimates, and there is a fear that ‘patriot sentiment’ in China may continue to hurt Apple sales in the country in future, and Q4 revenue in China was the lowest since 2020. The fact that Apple is losing market share to local suppliers does not bode well for future sales growth in the region.

Apple’s share price is lower in post market trade and is down by 1%, as the market digests news that revenues in China have fallen. Apple does not provide forward guidance, which leaves its stock price exposed to further losses in the near term.

A stock pickers market?

Overall, these results show that there is a big divergence in earnings reports for the last quarter, even within the Magnificent 7. As we progress through Q1 2024 this is becoming a stock pickers market, which could have big ramifications for equities in the medium term.