The second-quarter reporting cycle has crossed the halfway mark with 286 S&P 500 members, representing 68.8% of the index’s total market capitalization, having already reported their results.
Per the latest Earnings Preview, total earnings of these companies are up 11.3% on a year-over-year basis (74.5% of the companies beat EPS estimates) while total revenue is up 6.1% on a year-over-year basis (almost 69.2% of the companies also beat top-line estimates).
Earnings Expectations Soaring High
More than 1000 companies are set to report results this week (Jul 31- Aug 4), including 130 S&P 500 members. Total second-quarter earnings are now expected to increase 9.2% (up from the previous expectation of 8.6%) from the year-ago quarter on revenue growth of 5%.
With plenty of companies still to report, including 214 S&P members, actual second-quarter earnings growth could very well go above 10%, which will follow the 13.3% earnings growth in the preceding quarter.
Although the second-quarter growth is broad-based, contributions from Technology along with Finance and Energy are noteworthy.
More than 50% of the technology stocks (66.1% of the market capitalization) have already reported. Total earnings are up 18.8% on a year-over-year basis (87.1% beat EPS estimates) while total revenue is up 8.4% on a year-over-year basis (87.1% also beat top-line estimates).
Technology earnings are now expected to increase 13.9% from the year-ago quarter on revenue growth of 6.7%.
We note that the sector is benefiting from increasing demand for cloud-based platforms, growing adoption of Artificial Intelligence (AI) solutions, Augmented/Virtual reality devices, and Internet of Things (IoT) related software.
E-commerce stocks have also witnessed a boost driven by increased adoption of web-based selling and purchase activities
Notably, Emerging Markets Internet & eCommerce ETF (EMQQ), one of the most-tracked e-commerce ETFs, has gained 53.9% on a year-to-date basis, which is significantly better than the S&P 500’s gain of 11.9% and Technology Select Sector SPDR ETF’s (XLK) return of 19.1%.
Here we take a look at three software companies that are set to report their second-quarter earnings on Aug 2:
IAC/InterActiveCorp (IAC - Free Report) is unlikely to beat expectations as it has an unfavorable combination of a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
This is because, as per our proven model, a company needs to have both a positive Earnings ESP and a Zacks Rank #1(Strong Buy), 2 (Buy) or 3 to deliver an earnings surprise. You can see the complete list of today’s Zacks #1 Rank stocks here.
We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
We note that IAC/InterActiveCorp beat the Zacks Consensus Estimate in two of the trailing four quarters, resulting in an average negative surprise of 5.70%.
Notably, following the announcement of the reverse merger of the company’s HomeAdvisor division with Angie’s List (ANGI), its share price has increased almost 28%. Also the company’s video segment, Vimeo has significant growth opportunities. The publishing segment also looks promising backed by the extension of the Google deal.
IAC has outperformed the industry it belongs to on a year-to-date basis. While the industry has gained 50.8%, the stock returned 61.5% over the same time frame.
Similarly, Stamps.com Inc. (STMP - Free Report) is unlikely to beat estimates as it has an unfavorable combination of an Earnings ESP of 0.00% and a Zacks Rank #3. Notably, the company has beaten the Zacks Consensus Estimate in each of the preceding four quarters, delivering an average four-quarter positive surprise of 42.18%.
We note that Stamps.com’s revenue generation depends a lot on U.S. Postal Service. It might get affected due to the revocation of services due to certain changes in regulations. Also, rumors regarding Amazon’s termination of its partnership with the company as a direct buy postage provider pose concerns.
However, the addition of customer relationship management (CRM) and inventory management tools to the platform is a tailwind, which will help boost the top line.
Notably, its shares have gained 29.1% on a year-to-date basis compared with the industry’s rise of 50.8%.
Groupon Inc. (GRPN - Free Report) also does not look likely to beat estimates as it has an unfavorable combination of a Zacks Rank #3 and an Earnings ESP of 0.00%.
We believe Groupon’s exit from international markets, as part of its restructuring plans, a decline in operating expenses and operating loss indicate the successful implementation of the company’s streamlining initiatives. Shifting of Groupon Goods from a lower-margin focused business to a higher-margin business will boost profitability. (Read More: Groupon Q2 Earnings: Will it Pull Off a Surprise?)
Notably, Groupon has beaten the Zacks Consensus Estimate in all the four preceding quarters with an average positive surprise of 87.32%. However, the company has underperformed the industry on a year-to-date basis. While the industry gained 48%, the stock returned 13.3% over the same time period.
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