The quarterly report from Snap (SNAP - Free Report) 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 (GOOGL - Free Report) and Microsoft (MSFT - Free Report) after the market’s close on Tuesday (10/25), Instagram parent Meta Platforms (META - Free Report) after the close on Wednesday (7/26), Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) 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.
The chart below shows the year-to-date stock market performance of the Zacks Technology sector (the red line; down -38.8%), the S&P 500 index (down -22.7%), Apple (blue line; down -12.9%), Alphabet (orange line; down -25.3%), Meta (green line; down -49.6%), and Snap (purple line; down – 78.3%).
I deliberately kept out Apple, Microsoft and Amazon from the chart to reduce clutter in the visual, but those stocks are down -18.9%, -29.9%, and -30.6%, respectively. As we can intuitively appreciate, these three Tech leaders aren’t as exposed to the ongoing softening trend in digital advertising spending as Snap, Meta and Alphabet.
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.
Take a look at the chart below that shows current consensus expectations for this group for the current and coming periods in the context of what they were able to achieve in the preceding period.
We have highlighted the expected -11.7% earnings decline on +9.2% higher revenues for this group of 5 Tech leaders in 2022 Q2.
As you can see here 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.
The chart below shows the group’s earnings and revenue growth on an annual basis.
Look at the chart and note the growth trend from 2022 to 2023. In other words, 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.
The chart below shows the sector’s Q3 earnings and revenue growth expectations in the context of where growth has been in recent quarters and what is expected in the coming four periods.
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, as the chart below highlights.
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.
Here is how the 2022 Q3 earnings and revenue growth rates for these 99 companies compares across different periods.
Here is how the 2022 Q3 EPS and revenue beats percentages for these 99 companies compare across different periods.
The EPS and revenue beats percentages were notably on the weak side earlier in the reporting cycle. But as you can see above, they are very much within the historical range by now.
The Earnings Big Picture
To get a sense of what is currently expected, take a look at the chart below that shows current earnings and revenue growth expectations for the S&P 500 index for 2022 Q3 and the following three quarters.
As you can see here, 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.
The charts below show how earnings growth expectations for 2022 Q4 have evolved in recent weeks. The left-hand side chart shows S&P 500 earnings growth expectations in the aggregate, while the left-hand side chart shows the same data on an ex-Energy basis.
The chart below shows the aggregate 2023 earnings estimate on an ex-Energy basis.
The chart below shows the overall earnings picture on an annual basis.
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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The quarterly report from Snap (SNAP - Free Report) 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 (GOOGL - Free Report) and Microsoft (MSFT - Free Report) after the market’s close on Tuesday (10/25), Instagram parent Meta Platforms (META - Free Report) after the close on Wednesday (7/26), Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) 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.
The chart below shows the year-to-date stock market performance of the Zacks Technology sector (the red line; down -38.8%), the S&P 500 index (down -22.7%), Apple (blue line; down -12.9%), Alphabet (orange line; down -25.3%), Meta (green line; down -49.6%), and Snap (purple line; down – 78.3%).
I deliberately kept out Apple, Microsoft and Amazon from the chart to reduce clutter in the visual, but those stocks are down -18.9%, -29.9%, and -30.6%, respectively. As we can intuitively appreciate, these three Tech leaders aren’t as exposed to the ongoing softening trend in digital advertising spending as Snap, Meta and Alphabet.
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.
Take a look at the chart below that shows current consensus expectations for this group for the current and coming periods in the context of what they were able to achieve in the preceding period.
We have highlighted the expected -11.7% earnings decline on +9.2% higher revenues for this group of 5 Tech leaders in 2022 Q2.
As you can see here 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.
The chart below shows the group’s earnings and revenue growth on an annual basis.
Look at the chart and note the growth trend from 2022 to 2023. In other words, 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.
The chart below shows the sector’s Q3 earnings and revenue growth expectations in the context of where growth has been in recent quarters and what is expected in the coming four periods.
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, as the chart below highlights.
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.
Here is how the 2022 Q3 earnings and revenue growth rates for these 99 companies compares across different periods.
Here is how the 2022 Q3 EPS and revenue beats percentages for these 99 companies compare across different periods.
The EPS and revenue beats percentages were notably on the weak side earlier in the reporting cycle. But as you can see above, they are very much within the historical range by now.
The Earnings Big Picture
To get a sense of what is currently expected, take a look at the chart below that shows current earnings and revenue growth expectations for the S&P 500 index for 2022 Q3 and the following three quarters.
As you can see here, 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.
The charts below show how earnings growth expectations for 2022 Q4 have evolved in recent weeks. The left-hand side chart shows S&P 500 earnings growth expectations in the aggregate, while the left-hand side chart shows the same data on an ex-Energy basis.
The chart below shows the aggregate 2023 earnings estimate on an ex-Energy basis.
The chart below shows the overall earnings picture on an annual basis.
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
Free Report Reveals How You Could Profit from the Growing Electric Vehicle Industry
Globally, electric car sales continue their remarkable growth even after breaking records in 2021. High gas prices have fueled his demand, but so has evolving EV comfort, features and technology. So, the fervor for EVs will be around long after gas prices normalize. Not only are manufacturers seeing record-high profits, but producers of EV-related technology are raking in the dough as well. Do you know how to cash in? If not, we have the perfect report for you – and it’s FREE! Today, don't miss your chance to download Zacks' top 5 stocks for the electric vehicle revolution at no cost and with no obligation.
>>Send me my free report on the top 5 EV stocks<<
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