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The quarterly report fromSnap Inc. last week forced us once again to look for clues to help determine the outlook for digital advertising spending in the current uncertain macroeconomic environment. The rude shock from the Instagram rival puts the spotlight on other Tech leaders that are on deck to report September-quarter results this week.
Reporting this week are the 'Big 5 Tech players' – Alphabet and Microsoft after the market's close on Tuesday (10/25), Instagram parent Meta Platforms after the close on Wednesday (7/26), Apple and Amazon after the close on Thursday (7/27).
Estimates for these companies came down in the wake of Snap's Q2 disappointment and their own June-quarter results. One takeaway from the last round of earnings releases from these digital advertising platforms was that advertising customers don't see Snap, Meta and Alphabet exactly the same way.
There are other factors at play here on top of the softening macro backdrop, including the impact of changes to Apple's operating system (iOS), that suggest we should be careful in using the Snap disappointment as a read-through to these other digital platforms.
Spending by businesses under the advertisement category is not the only spending category that is exposed to negative macroeconomic developments. 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 Q3 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 recapture those spending dollars.
Beyond the Big 5 Tech players, total Q3 earnings for the Technology sector as a whole are expected to be down -14.1% from the same period last year on +1.8% 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.
Q3 Earnings Season Scorecard
Including all of the results through Friday, October 21st, we now have Q3 results from 99 S&P 500 members that combined account for 23.6% of the index's total market capitalization.
We get into the heart of the reporting cycle this week, with results from more than 650 companies due out, including results from 160 S&P 500 members. In addition to the aforementioned 'Big 5' Tech players, this week's line-up has representation from practically every sector.
For the 99 index members that have reported results already, total earnings are down -4% from the same period last year on +7.3% higher revenues, with 76.8% beating EPS estimates and 64.6% beating revenue estimates.
The EPS and revenue beats percentages were notably on the weak side earlier in the reporting cycle. But they are very much within the historical range by now.
The Earnings Big Picture
2022 Q3 earnings are expected to be up +0.9% on +9.1% higher revenues.
Don't forget that it is the strong contribution from the Energy sector that is keeping the aggregate Q3 earnings growth in positive territory. Excluding the Energy sector, Q3 earnings for the rest of the S&P 500 index would be down -5.7% from the same period last year.
As we have consistently been pointing out, estimates are coming down, both for the current period (2022 Q4) as well as full-year 2023.
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.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/performancefor information about the performance numbers displayed in this press release.
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Alphabet, Microsoft, Meta Platforms, Apple and Amazon are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – October 24, 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) .
Here's What to Expect from Big Tech Earnings
The quarterly report fromSnap Inc. last week forced us once again to look for clues to help determine the outlook for digital advertising spending in the current uncertain macroeconomic environment. The rude shock from the Instagram rival puts the spotlight on other Tech leaders that are on deck to report September-quarter results this week.
Reporting this week are the 'Big 5 Tech players' – Alphabet and Microsoft after the market's close on Tuesday (10/25), Instagram parent Meta Platforms after the close on Wednesday (7/26), Apple and Amazon after the close on Thursday (7/27).
Estimates for these companies came down in the wake of Snap's Q2 disappointment and their own June-quarter results. One takeaway from the last round of earnings releases from these digital advertising platforms was that advertising customers don't see Snap, Meta and Alphabet exactly the same way.
There are other factors at play here on top of the softening macro backdrop, including the impact of changes to Apple's operating system (iOS), that suggest we should be careful in using the Snap disappointment as a read-through to these other digital platforms.
Spending by businesses under the advertisement category is not the only spending category that is exposed to negative macroeconomic developments. 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 Q3 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 recapture those spending dollars.
Beyond the Big 5 Tech players, total Q3 earnings for the Technology sector as a whole are expected to be down -14.1% from the same period last year on +1.8% 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.
Q3 Earnings Season Scorecard
Including all of the results through Friday, October 21st, we now have Q3 results from 99 S&P 500 members that combined account for 23.6% of the index's total market capitalization.
We get into the heart of the reporting cycle this week, with results from more than 650 companies due out, including results from 160 S&P 500 members. In addition to the aforementioned 'Big 5' Tech players, this week's line-up has representation from practically every sector.
For the 99 index members that have reported results already, total earnings are down -4% from the same period last year on +7.3% higher revenues, with 76.8% beating EPS estimates and 64.6% beating revenue estimates.
The EPS and revenue beats percentages were notably on the weak side earlier in the reporting cycle. But they are very much within the historical range by now.
The Earnings Big Picture
2022 Q3 earnings are expected to be up +0.9% on +9.1% higher revenues.
Don't forget that it is the strong contribution from the Energy sector that is keeping the aggregate Q3 earnings growth in positive territory. Excluding the Energy sector, Q3 earnings for the rest of the S&P 500 index would be down -5.7% from the same period last year.
As we have consistently been pointing out, estimates are coming down, both for the current period (2022 Q4) as well as full-year 2023.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>> Breaking Down the Rough Start to Q3 Earnings Season
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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/performancefor information about the performance numbers displayed in this press release.