Earnings from Microsoft and Alphabet send Nasdaq lower

Two US mega-tech companies - Alphabet (GOOGL.US) and Microsoft (MSFT.US) - released earnings reports for calendar Q3 2022 yesterday after the close of the market. Releases were seen as disappointing and sent shares of both companies over 6% lower in the after-hours trading, exerting pressure on US indices also, especially Nasdaq-100 (US100). Let's take a closer look at both reports.

Alphabet - signs of slowing ad spending emerge

Quick look at results

• EPS: $1.06 vs $1.25 expected

• Revenue: $69.09 billion vs $70.76 billion
  - Google ad revenue: $54.48 billion vs $56.98 billion expected
  - YouTube ad revenue: $7.07 billion vs $7.46 billion expected
  - Google Cloud revenue: $6.87 billion vs $6.61 billion expected

• Operating Income: $17.14 billion vs $19.71 billion expected
  - Google Services: $19.78 billion vs $23.03 billion expected
  - Google Cloud: -$0.69 billion vs -$0.81 billion

• Capital Expenditure: $7.28 billion vs $7.65 billion expected

Alphabet missed market expectations on both sales and profit. The report came in-line with reports from other ad revenue-reliant companies, like for example Snap, that pointed to deterioration in ad spending. Uncertain macroeconomic outlook as well as spiraling inflation is making companies reconsider their spending policies and Alphabet's executives noted that slow down in ad spending is becoming evident. Company also said that it will control its costs more and slow hiring, a sign that it expects challenging times ahead. On a bright side, Alphabet's Google Cloud segment reported higher-than-expected revenue and smaller-than-expected loss. Nevertheless, this segment is relatively small and accounts for around 10% of total revenue.

Shares of Alphabet (GOOGL.US) dropped over 6% in the after-hours trading and are holding onto this loss in the premarket trade today. Share price jumped and tested the $105.00 resistance zone yesterday, marked with previous price reaction and the 50-session moving average (green line). However, current premarket quotes suggest that the stock may be testing recent lows soon.

Source: xStation5

Microsoft - strong results but guidance disappoints

Quick look at results

• EPS: $2.35 vs $2.29 expected

• Revenue: $50.12 billion vs $49.56 billion expected
  - Productivity and Business Processes: $16.47 billion vs $16.11 billion expected
  - Intelligent Cloud: $20.33 billion vs $20.31 billion expected
  - More Personal Computing: $13.33 billion vs $13.08 billion expected

• Operating Income: $21.52 billion vs $21.29 billion expected

• Capital Expenditure: $6.28 billion vs $6.52 billion expected

Unlike in the case of Alphabet, Microsoft beat market expectations in almost every metric. CapEx came in slightly below market forecast but sales and profits outperformed. Revenue beats were recorded in every major segment with Intelligent Cloud being having a top share in total revenue. Nevertheless, Microsoft shares also moved lower in the after-hours trading. While results were better-than-expected, Microsoft has still posted weakest quarterly revenue growth in five years. Moreover, the company provided weak guidance for the final calendar quarter of 2022. Microsoft expects total revenue to reach $52.35-53.35 billion, much below $56.05 billion expected by the market. Also revenue growth in its cloud-computing Azure services business is expected to be 5 percentage points slower than in calendar Q3, meaning a growth of 37% YoY - a rather lackluster result for the segment. Part of the weaker business outlook comes from rising energy costs as Microsoft had to spend additional $800 million so far this year on powering data centers.

Microsoft chart (MSFT.US) looks strikingly similar to the Alphabet chart. The company also climbed yesterday to test the resistance zone marked with previous price reaction and the 50-session moving average (green line). Current premarket quote suggests that a test of the $235.00 swing area will be made at the launch of the Wall Street session today. A recent upward correction failed to break above a local high the beginning of October, meaning that the downtrend structure on Microsoft is left intact.

Source: xStation5