We are in the midst of a most interesting week of the Wall Street earnings season. All of the US mega-cap companies will report earnings this week. Investors have already been offered a report from Tesla that turned out to be better than expected and stock moved 2% higher in the after-hours trading yesterday. Reports from Apple, Alphabet and Microsoft will be released today after the Wall Street session closes. Let's take a look at how Big Tech performed following earnings releases in the previous quarters.
How Big Tech and Tesla performed after earnings releases?
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Open real account TRY DEMO Download mobile app Download mobile appWe have performed a quantitative analysis on how shares of 6 US companies - Tesla, Apple, Alphabet, Microsoft, Amazon and Facebook. Goal of the analysis was to determine whether there is any clear pattern in post-earnings performance of those companies. We have looked at the past 3 years, or 12 quarters. To be more precise we have looked at average post-earnings performance in this 12-quarter period as well as average performance during the most recent 4 quarters (pandemic period). As one can see in a table below, there was not really any clear pattern when it comes to share price performance during the 1- and 7-day period following earnings releases.Calculating an average for the whole group of 6 stocks showed that those companies tend to post moderate gains following earnings releases.
However, what one may find interesting is that average 1- and 7-day returns for a group of 6 companies is actually lower during the post-pandemic period. Tech companies were clear outperformers of the post-pandemic period and shares of Tesla also rallied massively. One possible explanation behind this change is that markets become less dependent on data after a pandemic has begun.
Average post-earnings 1- and 7-day rates of return for US Big Tech companies and Tesla were lower in the post-pandemic period. Source: Bloomberg, XTB Research
Apple, Alphabet and Microsoft to report today
Investors will be offered reports from 3 Big Tech companies today after the Wall Street session closes. Let's take a quick look at what the market expects from Apple (AAPL.US), Alphabet (GOOGL.US) and Microsoft (MSFT.US).
When it comes to Apple (AAPL.US), market consensus points to 56% YoY increase in EPS, to $1.013. Revenue is seen rising by 23.7% YoY, to $73.815 billion. Analysts expect strong sales of iPhones as well as over 20% growth in services revenue. However, focus will most likely be on the company's forward guidance. More precisely, whether and to what extent shortages on the semiconductor market are impacting operations. When it comes to the past 12 earnings releases, Apple has 6 times traded higher during the session following release and 6 times has traded lower. However, in case of performance during the 7-day period following earnings release the company has in most cases traded higher.
In the case of Alphabet (GOOGL.US), the market expects a 113.1% YoY jump in EPS, to $22.11. Revenue is expected to jump 45.8%, to $46.08 billion. Massive jump in earnings and sales is expected to be driven by recovery in ad revenue, which has suffered at the beginning of the coronavirus pandemic. Apart from ad revenue, investors will also focus on growth in the cloud segment after Alphabet has won some contracts in the field recently. Just as it is the case with Apple, Alphabet shares have also seen positive 1-day reaction to 6 out of 12 past earnings releases. 7-day rates of return were positive in 9 out of 12 cases, with 2 out of 3 negative returns being book during the post-pandemic period.
Last but not least, Microsoft (MSFT.US) is also set to report earnings today after session close. Company is expected to report a 31.6% YoY jump in EPS, to $1.921. Revenue is expected to increase 16.4% from Q2 2020, to $44.256 billion. Microsoft has fared very well during the pandemic as a boost in popularity of work-from-home schemes benefited demand for its products and cloud services. A point to note is that accounting changes are expected to boost operating margin by 3-4% this quarter. Microsoft generated positive 1-day returns following 11 out of 12 most recent earnings releases. However, 7-day returns were positive in 8 out of 12 cases, with 3 negative 7-day returns being achieved during the pandemic period.
Apple (AAPL.US) has recovered from recent correction and reapproached all-time highs in the $150 area. Stock is expected to launch today's trading little change. Should the company repeat its past post-earnings performance and move higher, the next resistance to watch can be found near exterior 127.2% retracement of the early-2021 correction ($153 area). Source: xStation5
