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Zacks Earnings Trends Highlights: Microsoft, Amazon and Alphabet
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For Immediate Release
Chicago, IL – January 26, 2023 – Zacks Director of Research Sheraz Mian says, "Looking at 2022 Q4 as a whole, aggregate S&P 500 earnings are currently expected to be down -7.2% on +3.9% higher revenues."
Digging into the Early Q4 Earnings Scorecard
Note: The following is an excerpt from this week's Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
For the 96 S&P 500 companies that have reported Q4 results, total earnings are down -6.0% from the same period last year on +5.5% higher revenues, with 71.9% beating EPS estimates and 67.7% beating revenue estimates.
Looking at 2022 Q4 as a whole, aggregate S&P 500 earnings are currently expected to be down -7.2% on +3.9% higher revenues. Excluding the Energy sector's strong contribution, Q4 earnings for the rest of the index are expected to be down -11.1% on +3.2% higher revenues.
For 2023 Q1, S&P 500 earnings are currently expected to be down -4.6% on +2.8% higher revenues. This is down from -4% on January 6th and -2.9% in mid-December 2022.
Earnings estimates for full-year 2023 have been coming down as well. From their peak in mid-April 2022, the aggregate total for the year has been cut by -10.6% for the index as a whole and -12.8% excluding the Energy sector's contribution.
Looking at the calendar-year picture, total S&P 500 earnings are on track to be up +4.2% in 2022 and expected to increase +1.1% in 2023. On an ex-Energy basis, total 2022 index earnings would be down -2.5% (instead of +4.2%, with Energy).
We are starting to see clear signs of growth moderation at the consumer and the business end. It isn't a precipitous fall, but it is nevertheless a pronounced deceleration in the growth trend.
We saw this in the soft guidance from Microsoft (MSFT - Free Report) with the software giant's December-quarter revenues growing at their lowest pace in years. The engine of Microsoft's growth lately has been its cloud business where growth slowed down considerably as customers have become cautious in their IT spending plans. These cloud developments provide negative read-throughs for other cloud players, including Amazon (AMZN - Free Report) and Alphabet (GOOGL - Free Report) .
We knew already that global PC shipments were down more than -25% in December quarter and the market expected Microsoft's results to reflect that development. In the December quarter, Microsoft's personal computing revenue was down -19% and sales related to its Windows operating system were down -39% from the year-earlier level.
None of this is a surprise given macroeconomic developments in the wake of the Fed's extraordinary tightening cycle that many in the market see as nearing completion over the next few months. After all, GDP growth estimates for the current and coming quarters have been steadily coming down, with full-year 2023 GDP growth now barely in positive territory.
We have been pointing out for a while now how estimates for this year have been steadily coming down for months now, in anticipation of this macroeconomic development.
As noted earlier, the current aggregate earnings total for the index approximates to an index 'EPS' level of $219.09, down from $242.98 in mid-April, 2022.
The Overall Earnings Picture
Earnings next year are expected to be up only +1.1%. This magnitude of growth can hardly be called out-of-sync with a flat or even modestly down economic growth outlook. Don't forget that headline GDP growth numbers are in real or inflation-adjusted terms while S&P 500 earnings discussed here are not.
As mentioned earlier, 2023 aggregate earnings estimates on an ex-Energy basis are already down by almost -13% since mid-April. Perhaps we see a bit more downward adjustments to estimates over the coming weeks, after more companies report Q4 results and provide guidance along the lines of what we saw with Microsoft. But we have nevertheless already covered some ground in taking estimates to a fair or appropriate level.
This is particularly so if whatever economic downturn lies ahead proves to be more of the garden variety rather than the last two such events. Recency bias forces us to use the last two economic downturns, which were also among the nastiest in recent history, as our reference points. But we need to be cautious against that natural tendency as the economy's foundations at present remain unusually strong.
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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/performancefor information about the performance numbers displayed in this press release.
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Zacks Earnings Trends Highlights: Microsoft, Amazon and Alphabet
For Immediate Release
Chicago, IL – January 26, 2023 – Zacks Director of Research Sheraz Mian says, "Looking at 2022 Q4 as a whole, aggregate S&P 500 earnings are currently expected to be down -7.2% on +3.9% higher revenues."
Digging into the Early Q4 Earnings Scorecard
Note: The following is an excerpt from this week's Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
We are starting to see clear signs of growth moderation at the consumer and the business end. It isn't a precipitous fall, but it is nevertheless a pronounced deceleration in the growth trend.
We saw this in the soft guidance from Microsoft (MSFT - Free Report) with the software giant's December-quarter revenues growing at their lowest pace in years. The engine of Microsoft's growth lately has been its cloud business where growth slowed down considerably as customers have become cautious in their IT spending plans. These cloud developments provide negative read-throughs for other cloud players, including Amazon (AMZN - Free Report) and Alphabet (GOOGL - Free Report) .
We knew already that global PC shipments were down more than -25% in December quarter and the market expected Microsoft's results to reflect that development. In the December quarter, Microsoft's personal computing revenue was down -19% and sales related to its Windows operating system were down -39% from the year-earlier level.
None of this is a surprise given macroeconomic developments in the wake of the Fed's extraordinary tightening cycle that many in the market see as nearing completion over the next few months. After all, GDP growth estimates for the current and coming quarters have been steadily coming down, with full-year 2023 GDP growth now barely in positive territory.
We have been pointing out for a while now how estimates for this year have been steadily coming down for months now, in anticipation of this macroeconomic development.
As noted earlier, the current aggregate earnings total for the index approximates to an index 'EPS' level of $219.09, down from $242.98 in mid-April, 2022.
The Overall Earnings Picture
Earnings next year are expected to be up only +1.1%. This magnitude of growth can hardly be called out-of-sync with a flat or even modestly down economic growth outlook. Don't forget that headline GDP growth numbers are in real or inflation-adjusted terms while S&P 500 earnings discussed here are not.
As mentioned earlier, 2023 aggregate earnings estimates on an ex-Energy basis are already down by almost -13% since mid-April. Perhaps we see a bit more downward adjustments to estimates over the coming weeks, after more companies report Q4 results and provide guidance along the lines of what we saw with Microsoft. But we have nevertheless already covered some ground in taking estimates to a fair or appropriate level.
This is particularly so if whatever economic downturn lies ahead proves to be more of the garden variety rather than the last two such events. Recency bias forces us to use the last two economic downturns, which were also among the nastiest in recent history, as our reference points. But we need to be cautious against that natural tendency as the economy's foundations at present remain unusually strong.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. 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.