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Previewing Big Tech Ahead of Huge Week for Wall Street
Snap shares took a big hit after coming out with quarterly numbers that many in the market see as offering clues to the outlook for digital advertising spending in the current uncertain macroeconomic environment.
The shock from the Instagram rival has put the spotlight on other Tech leaders that are on deck to report June-quarter results this week. Alphabet and Microsoft are set to report after the market's close on Tuesday (7/26), with Instagram parent Meta Platforms' ready to release its results after the closing bell on Wednesday (7/27), while Apple and Amazon offer up their quarterly financial information after the close on Thursday (7/29).
Wall Street analysts have been falling over each other to downgrade Snap shares after the disappointing print on Thursday. The Wall Street analysts' move brings to mind the saying about closing the barn doors after the horses have left. Another way to look at this mass rush to the exits could be the contrarian capitulation signal. Snap shares lost more than -30% of their value following the disappointing result, but they were already down more than -70% this year before the Q2 report came out.
Snap is a relatively modest player in the digital ad space, with Alphabet and Meta as the undisputed leaders of that market. Advertising spending is cyclical and should intuitively start weakening as the aggressive Fed tightening cycle takes effect.
To that extent, Alphabet and Meta are as exposed to these macro trends as Snap and others are. That said, the bottom-up nature of Google's search-driven ad platform likely gives it more 'stickiness' than a mere social media platform. You can see this in the performance variance between these operators in the above chart.
Advertisement spending by businesses is not the only category that will be under threat during an economic slowdown or a recession.
Tech giants like Microsoft, Alphabet and Amazon (through its Amazon Web Services or AWS arm) receive a ton of money from other companies for software and services. It is reasonable to expect those receipts to take a hit as customers get cautious in the face of macroeconomic challenges.
We will see what we hear from these companies in their Q2 releases, but historically software spending doesn't get cut to the same extent as ad spending. Microsoft, Amazon (AWS), and Alphabet are the leaders in the cloud computing space.
Revenue growth is expected to remain strong, with cost pressures weighing on earnings expectations. Needless to add that these Tech leaders are faced with compressed margins.
Whether the growth trend for these companies is decelerating or not is a function of your holding horizon. These companies are impressive growth engines in the long run, even if those estimates for 2023 and 2024 come down in the days ahead.
Ad spending may be coming down as this week's reports from Meta and Alphabet will reconfirm, but no one is suggesting that they are expected to lose share to your local newspaper's classified section. As the macroeconomic clouds clear, as they eventually will, these digital platforms will be there to capture those spending dollars.
Beyond the big 5 Tech players, total Q2 earnings for the Technology sector as a whole are expected to be down -8.9% from the same period last year on +2.8% higher revenues.
This big picture view of the 'Big 5' players, as well as the sector as a whole shows a decelerating growth trend. That said, unlike this 'quarterly view,' the annual picture shows a lot more stability.
Q2 Earnings Season Scorecard
Through Friday, July 22nd, we have seen Q2 results from 106 S&P 500 members or 21.2% of the index's total membership. Total earnings for these companies are down -6.9% on +7.2% higher revenues, with 71.7% beating EPS estimates and 63.2% beating revenue estimates.
The Finance sector has been a big drag on the 'headline' year-over-year growth rate for the companies that have reported already. Second quarter earnings growth for the Finance sector companies that have reported already are down -26.3% from the same period last year.
Excluding this Finance sector's drag, Q2 earnings growth for the rest of the index improves to +12.2%.
The EPS and revenue beats percentages are still tracking on the low side relative to historical periods.
This Week's Docket
We get into the heart of the Q2 reporting cycle this week, with almost 800 companies on deck to report quarterly results, including 171 S&P 500 members. In addition to the aforementioned Tech giants, this week's line-up includes a who's who of America Inc., ranging from Boeing and Pfizer to Coke, GM, and a host of other marquee players.
By this time next week, we will have seen Q2 results from 55% of the S&P 500 members and will have a reasonably good sense of the earnings lay of the land.
The Current Earnings Backdrop
The +3.7% earnings growth expected in 2022 Q2 is solely due to strong gains in the Energy sector. On an ex-Energy basis, Q2 earnings growth drops to a decline of -5%.
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Alphabet, Microsoft, Meta, Apple and Amazon are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – July 25, 2022 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Alphabet (GOOGL - Free Report) , Microsoft (MSFT - Free Report) , Meta Platforms (META - Free Report) , Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) .
Previewing Big Tech Ahead of Huge Week for Wall Street
Snap shares took a big hit after coming out with quarterly numbers that many in the market see as offering clues to the outlook for digital advertising spending in the current uncertain macroeconomic environment.
The shock from the Instagram rival has put the spotlight on other Tech leaders that are on deck to report June-quarter results this week. Alphabet and Microsoft are set to report after the market's close on Tuesday (7/26), with Instagram parent Meta Platforms' ready to release its results after the closing bell on Wednesday (7/27), while Apple and Amazon offer up their quarterly financial information after the close on Thursday (7/29).
Wall Street analysts have been falling over each other to downgrade Snap shares after the disappointing print on Thursday. The Wall Street analysts' move brings to mind the saying about closing the barn doors after the horses have left. Another way to look at this mass rush to the exits could be the contrarian capitulation signal. Snap shares lost more than -30% of their value following the disappointing result, but they were already down more than -70% this year before the Q2 report came out.
Snap is a relatively modest player in the digital ad space, with Alphabet and Meta as the undisputed leaders of that market. Advertising spending is cyclical and should intuitively start weakening as the aggressive Fed tightening cycle takes effect.
To that extent, Alphabet and Meta are as exposed to these macro trends as Snap and others are. That said, the bottom-up nature of Google's search-driven ad platform likely gives it more 'stickiness' than a mere social media platform. You can see this in the performance variance between these operators in the above chart.
Advertisement spending by businesses is not the only category that will be under threat during an economic slowdown or a recession.
Tech giants like Microsoft, Alphabet and Amazon (through its Amazon Web Services or AWS arm) receive a ton of money from other companies for software and services. It is reasonable to expect those receipts to take a hit as customers get cautious in the face of macroeconomic challenges.
We will see what we hear from these companies in their Q2 releases, but historically software spending doesn't get cut to the same extent as ad spending. Microsoft, Amazon (AWS), and Alphabet are the leaders in the cloud computing space.
Revenue growth is expected to remain strong, with cost pressures weighing on earnings expectations. Needless to add that these Tech leaders are faced with compressed margins.
Whether the growth trend for these companies is decelerating or not is a function of your holding horizon. These companies are impressive growth engines in the long run, even if those estimates for 2023 and 2024 come down in the days ahead.
Ad spending may be coming down as this week's reports from Meta and Alphabet will reconfirm, but no one is suggesting that they are expected to lose share to your local newspaper's classified section. As the macroeconomic clouds clear, as they eventually will, these digital platforms will be there to capture those spending dollars.
Beyond the big 5 Tech players, total Q2 earnings for the Technology sector as a whole are expected to be down -8.9% from the same period last year on +2.8% higher revenues.
This big picture view of the 'Big 5' players, as well as the sector as a whole shows a decelerating growth trend. That said, unlike this 'quarterly view,' the annual picture shows a lot more stability.
Q2 Earnings Season Scorecard
Through Friday, July 22nd, we have seen Q2 results from 106 S&P 500 members or 21.2% of the index's total membership. Total earnings for these companies are down -6.9% on +7.2% higher revenues, with 71.7% beating EPS estimates and 63.2% beating revenue estimates.
The Finance sector has been a big drag on the 'headline' year-over-year growth rate for the companies that have reported already. Second quarter earnings growth for the Finance sector companies that have reported already are down -26.3% from the same period last year.
Excluding this Finance sector's drag, Q2 earnings growth for the rest of the index improves to +12.2%.
The EPS and revenue beats percentages are still tracking on the low side relative to historical periods.
This Week's Docket
We get into the heart of the Q2 reporting cycle this week, with almost 800 companies on deck to report quarterly results, including 171 S&P 500 members. In addition to the aforementioned Tech giants, this week's line-up includes a who's who of America Inc., ranging from Boeing and Pfizer to Coke, GM, and a host of other marquee players.
By this time next week, we will have seen Q2 results from 55% of the S&P 500 members and will have a reasonably good sense of the earnings lay of the land.
The Current Earnings Backdrop
The +3.7% earnings growth expected in 2022 Q2 is solely due to strong gains in the Energy sector. On an ex-Energy basis, Q2 earnings growth drops to a decline of -5%.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>Q2 Earnings Season Off to a Solid Start Despite Recession Fears
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Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.