As of the market close last Friday, November 3, we’ve now seen earnings releases from companies that make up 85% of the tech sectors’ market cap in the S&P 500. There have been some beats and some misses, as well as some market moving narratives, from the widely anticipated launch of Apple’s iPhone X to the unexpected drop in production of Tesla’s Model 3 sedan.
But before we take a look at how some of the more widely held tech stocks have fared this earnings season, let’s look at the bigger picture.
Here’s some data for those tech companies already having reported, according to Zacks Investment Research:
- Year over year earnings are up 22.4%
- Revenues for the same period are up 9.3%
- 81.8% have beat EPS estimates
- 86.4% have beat revenue estimates
Perhaps more impressive is the fact that from looking at the average growth rates over the last four quarters there is a noticeable acceleration taking place in the tech space. This is reflected in the Nasdaq Composite Index (COMP), which closed at all-time highs last week. In addition, the S&P Technology Select Sector Index (IXT) is up 37.28% YTD compared to the S&P 500 Index’s (SPX) 15.59% increase.
Now let’s drill down on some of the more notable tech stocks and how their Q3 earnings fared. For each company, we look at its price performance since its most recent earnings release ("Performance Since Earnings"), its price performance year-to-date ("YTD Performance"), and its forward P/E, a ratio of the current share price to projected earnings estimates over the next year.
Note: all data is as of the close, Friday, November 3, 2017. Revenue and earnings per share (EPS) data from Thomson Reuters and the Earnings Analysis tab on the thinkorswim® platform from TD Ameritrade. Performance data from Morningstar.
Beat Earnings: Revenue $52.6 billion vs. $51.2 billion estimated. EPS $2.07 vs. $1.87 estimated.
Performance Since Earnings: +2.59%
YTD Performance: +50.52%
Forward P/E: 15.5
The iPhone X hit stores on Friday, which means their sales are not reflected in the latest earnings. Instead, it was the iPhone 8 and iPhone 8 Plus that were the stars, “instantly” becoming Apple’s top-two selling products at launch according to CEO Tim Cook. Still, Cook says that initial orders for the iPhone X are “very strong.”
On the earnings call, Cook said service revenue hit an all-time high—on track to double by 2020—and sales in China hit $9.8 billion, up 12% from a year ago. Friday's rally in AAPL shares pushed its market cap above the $900 billion mark.
Beat Earnings: Revenue $10.3 billion vs. $9.88 billion estimated. EPS $1.59 vs. $1.29 estimated.
Performance Since Earnings: -2.01%
YTD Performance: +56.51%
Forward P/E: 26.9
Facebook’s stock had risen 7% in the five days before earnings, and despite beating estimates, fell after announcing as investors focused on CEO Mark Zuckerberg’s comments regarding combating fake news and hate speech on the platform.
“We’re serious about preventing abuse on our platforms,” said Zuckerberg. “We’re investing so much in security that it will impact our profitability.” Those measures may mean a 45 to 60 percent rise in expenses in 2018, according to company estimates.
Beat Earnings: Revenue $43.7 billion vs. $42.7 billion estimated. EPS $0.52 vs.$0.01 estimated.
Performance Since Earnings: 14.3%
YTD Performance: +48.24%
Forward P/E: 94.4
Amazon beat on all metrics buoyed by strong North American sales and continued growth in Amazon Web Services, which jumped 43%, making the cloud business the company’s most profitable unit.
The acquisition of Whole Foods, which was completed in late-August, contributed $1.3 billion in sales and added 87,000 employees, taking Amazon’s total workforce to 160,000.
The company gave positive guidance for the fourth quarter, estimating revenue to come in between $56.0 billion and $6.05 billion.
Alphabet (GOOG, GOOGL)
Beat Earnings: Revenue $27.77 billion vs. $27.2 billion estimated. EPS $9.57 vs. $8.43 estimated.
Performance Since Earnings: +5.9%
YTD Performance: +32.50%
Forward P/E: 24.0
One takeaway from Alphabet’s earnings release is that ad prices went down more than expected and traffic costs spiked, but higher than expected click volume internationally – particularly in China – boosted revenue, contributing to their earnings beat.
Though the company still makes most of its money from ads, their Google business has “other” revenue streams, including hardware sales from its Pixel 2 phone and Google Home, as well as non-hardware businesses like Google Shopping, YouTube, Google Play, Maps, and Chrome.
Beat Earnings: Revenue $2.98 billion vs. $2.97 billion estimated. EPS 37 cents vs. 32 cents estimated.
Performance Since Earnings: -1.03%
YTD Performance: +61.56%
Forward P/E: 83.9
Netflix has been growing, adding 5.3 million subscribers in Q3, but what may be more significant is that 4.45 million of those new subscribers came from international markets. Continuing with that theme, the company announced that it will release its first original Italian and German shows next quarter.
Overall, subscriptions are up 49% year-over-year and the company feels that they can continue to drive growth—despite subscription plan rate hikes—by investing in new content, to which they have allocated between $7 billion and $8 billion toward for Q4.
Missed Earnings: Revenue $2.98 billion vs. $2.92 billion estimated. EPS $2.92 loss per share vs. $2.42 estimated.
Performance Since Earnings: -4.6%
YTD Performance: +43.24%
Forward P/E: N/A
Tesla stunned investors by reporting a wider loss than expected, though they did beat on revenue. Some of the trouble seems to center around production of its Model 3 car—considered by many to be a key to the company’s success.
In their shareholder letter, the company said they expected to produce 5000 cars per week by the first quarter of 2018—half of what it had previously projected. Much of this delay is attributed to challenges related to battery manufacturing.
The letter gave some color on the issue, stating “We continue to make progress resolving early bottlenecks related to these issues, and there remain no fundamental problems with our supply chain or any of our production processes.”
The company says that production delays are not likely to affect consumer demand, however, the stock was down 5% after the announcement.
Beat Earnings: Revenue $19.15 billion vs. $18.6 billion estimated. EPS $3.30 vs. $3.28 estimated.
Performance Since Earnings: +3.4%
YTD Performance: -6.03%
Forward P/E: 10.8
The tech giant offered investors a mixed bag as revenues declined for the 22nd consecutive quarter, but still beat on earnings per share and revenue.
Investors reacted similarly, initially sending the stock up over 10% higher in the days following the announcement, before giving back much of that gain.
One potential bright spot for Big Blue is the increase in cloud revenue, which came in at $4.1 billion, up over 20% from last year.
Beat Earnings: Revenue $24.54 billion vs. $23.53 billion estimated. EPS 84 cents vs. 72 cents estimated.
Performance Since Earnings: +6.8%
YTD Performance: +37.29%
Forward P/E: 22.9
The big news out of Microsoft’s earnings announcement is that Azure, its commercial cloud business, hit the company’s self-imposed revenue goal, coming in at $20 billion. That’s a 90% year over year increase and at this pace it looks as if cloud services could account for more than 20% of Microsoft’s total revenue by Q1 of 2018.
Most of the company’s other products – which include Windows, LinkedIn, and gaming hardware and software – were flat to slightly up in revenue, though analysts will be closely watching their Xbox brand when the One X console is released in early November.
Guidance for the upcoming quarter fell in line with analysts’ expectations.
Beat Earnings: Revenue $16.15 billion vs. $15.71 billion expected. EPS $1.01 vs. 80 cents estimated.
Performance Since Earnings: +12%
YTD Performance: +29.98%
Forward P/E: 14.7
The chipmaker beat earnings estimates and raised its full-year forecast to $3.25 per share on $62 billion in revenue, up from $3.00 and $61.3 billion respectively. As the company has been shifting its focus from the consumer PC market, it has seen strong demand from its client computing group.
The company also says it is aggressively pursuing opportunities in the artificial intelligence and cloud computing space.
Beat Earnings: Revenue in line with estimate at $589.6 million. EPS 10 cents vs. 6 cents estimated.
Performance Since Earnings: +16%
YTD Performance: +22.09%
Forward P/E: 45.3
Twitter investors got some very good news out of the company’s earning call.
“This quarter we made progress in three key areas of our business,” said CEO Jack Dorsey. “We grew our audience and engagement, made progress on a return to revenue growth, and achieved record profitability.”
That showed up in beats on both earnings per share and revenue estimates. Adding to the good news, the company raised its next quarter guidance to between $220 and $240 million. If Twitter hits the top end of that range, it could be the company’s first profitable quarter under GAAP accounting rules.
Though nothing is certain in the market and macroeconomic events can change the prevailing mood, with the bulk of tech earnings already out—and the mostly positive bias in the space—the sector looks like it is set to continue its upward trend going into the end of the year.
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