Happy Sunday!
I’m down in Los Angeles this weekend because I’m going to the Taylor Swift concert tomorrow! Super excited because I think it’s pretty inspiring to go to a performance where the singer is at the top of their game. I’ve been to a couple TS concerts in the past, and the production value is top-notch, and honestly, it is quite inspiring to go to one.
In general, I’m just impressed and inspired by people who are excellent at their craft - it motivates me to improve my own. I’m sure you’ve experienced that feeling when you see someone perform live, whether it’s a symphonist, a professional basketball player, or an artist. Seeing Stephen Curry warm up at a Warriors game or hearing about the training regimen of Kobe Bryant is always motivating and inspiring.
We can all take away something from those that fire on all cylinders and hopefully apply it to our lives. I know this intro was not the most financial-related, but we do have a great Sunday edition for you today… we’re talking about WFH, Amazon Earnings, and the elephant in the room - Apple’s recent earnings.
Enjoy!
— Humphrey, Tim & Rickie
Market Report
The Work From Home Debate Rages On
New research by economists from MIT and UCLA revealed that full-time remote workers are 18% less productive than those in the office. The study found two-thirds of this productivity drop-off was apparent from the first day of work. Interestingly, remote workers who favored working from home were less productive than those who preferred being in the office. The researchers acknowledge the need to consider factors like existing familiarity with the work and the company culture when assessing productivity in remote work situations.
This latest study feeds into the ongoing debate on the effectiveness of remote work versus in-office. JPMorgan Chase CEO Jamie Dimon's belief is that remote work is ineffective, while Airbnb CEO Brian Chesky takes a pro-flexibility stance.
Some analysts have noted that reduced productivity could be an acceptable trade-off for companies that save significantly on real estate costs due to remote work…
What do you think? Do you mind yourself more productive at home or in the office?
As of writing, 423 companies representing 87% of S&P 500 earnings have reported earnings, surpassing estimates by 2% at $53.87, a year-on-year decrease of 6%. The earnings beat was driven by cost-cutting and margin optimization, with a 1% beat on sales.
Consumer discretionary stocks had the most substantial top and bottom-line beats, with a 3% and 20% increase, respectively, supported by selective reductions in expenses, layoffs, and other margin preservation strategies. This could suggest a shift in demand from services to goods, which bodes well for the goods-focused S&P 500 compared to the services-oriented Russell 2000.
One interesting stat that caught my eye was that capital expenditures increased by 9% YoY, marking its ninth consecutive quarter of growth. This capex strength is likely due to a decade of underinvestment, reshoring, and a competitive race in automation and AI.
Moving forward, factors such as continued fiscal spending, easy comps, a weak USD, and signs of a soft landing could lead to positive growth in the second half of 2023.
Amazon Earnings
Amazon reported solid earnings as revenues grew 11% while expense growth slowed to 7.5%, the lowest since 2012. The cloud business also beat expectations and appeared to be stabilizing. As consumer confidence increases with receding recession fears, Amazon is reinvesting, doubling its same-day order facilities and improving its grocery operation with fresh food delivery for non-Prime shoppers.
The company projected revenue to range from $138 billion-$143 billion in Q3. Its increasingly profitable services and advertising sectors for independent merchants saw notable growth, with ad sales and seller services revenue increasing by 22% and 18%, respectively, to $10.7 billion and $32.3 billion. These segments contributed to growth in Amazon's seller-services revenue, with CFO Brian Olsavsky noting that products from independent merchants made up 60% of all sales on the site.
Despite initial concerns, Amazon Web Services (AWS) showed promising results, with revenue growing 12% to $22.1 billion. According to the CFO, the unit's growth rates stabilized during the quarter, and it was developing a healthy customer pipeline with various generative AI products. The company's ability to increase sales and profits after recent challenges signal a promising path for continued growth in retail, advertising, and cloud computing.
Apple Earnings
Apple reported a 1.4% decline in revenue for the fiscal third quarter, marking its third consecutive quarter of falling sales due to a widespread industry slump affecting demand for phones, tablets, and computers. Despite this, the company's revenue of $81.8 billion surpassed Wall Street estimates due to record-setting service sales. However, weaker than expected iPhone demand and a stronger dollar, which affected overseas revenue, resulted in overall disappointing results.
The report indicates that the iPhone, Apple's largest revenue generator, could not escape the downturn. iPhone sales slipped by 2.4% to $39.7 billion in the third quarter, underperforming the $39.8 billion estimate.
On a brighter note, China presented a positive trend compared to other tech companies. Wearables, such as the Apple Watch and AirPods, saw strong sales in the region, with the iPhone being described as "the heart of our results there" by CEO Tim Cook. Moreover, with the impending release of the iPhone 15 and new Apple Watches, the company expects a different picture in the current quarter.
Apple projects an improvement in the year-over-year performance of the iPhone and services in the current quarter, outperforming the Mac and iPad divisions, which are predicted to decline by double digits. The company is also looking to advance in the field of generative AI, with reports suggesting that Apple has developed its own large language model similar to OpenAI's ChatGPT and is preparing for a generative AI push in the coming year.
Apple's iPad segment saw a 20% sales decline last quarter, generating $5.79 billion against a forecast of $6.33 billion. This was attributed to a lack of new updates for the tablets since last year, with no significant changes planned until 2024. The Mac, despite a 7.3% sales decrease to $6.84 billion, still outperformed the average estimate of $6.37 billion. Services revenue, however, saw a promising increase of 8.2% to $21.2 billion, surpassing estimates and driven by over a billion paid subscriptions.
Forecast Ahead
The Big Number
Rankings of the states were decided by five weighted categories:
Affordability (40%)
Well-being (25%)
Healthcare quality and cost (20%)
Weather (10%)
Crime (5%)
Overcome the Sunday Scaries
Memes of the Week
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