📈🤑 Major Earnings Week Recap!
Happy Sunday!
We’ll be returning back to our regularly scheduled Hump Days newsletters on Sundays, Wednesdays, and Thursdays this week with some minor changes to the format. The break was well needed but we’re really looking to get back to regularly uploading videos and writing newsletters again!
This week, we have some really interesting earnings week coverage on some huge companies. Hope you enjoy!
- Humphrey, Tim & Rickie
Market Report
This week, we decided to recap some company earnings from last week. We hope this saves you some time from doing the research on your own. Enjoy!
Microsoft reported slower quarterly sales growth and projected a continued slowdown in its Azure cloud-services business, despite strong interest in its AI powered products. While overall results topped analysts' expectations, Azure revenue growth slipped to 27% from 31% in the previous quarter. Microsoft expects further slowdown in Azure gains in the upcoming quarter but plans to increase spending on expanding data centers for new cloud services.
Despite the slower growth, Azure sales in 2023 represented more than half of the company's total cloud-related revenue of $110 billion, marking a significant milestone. Azure OpenAI, Microsoft's cloud service offering businesses the use of OpenAI's artificial intelligence tools, played a significant role in this growth, now serving 11,000 customers up from 4,500 reported in mid-May. However, Microsoft’s Office productivity suite, including AI, is not yet broadly available and overall spending on Azure services and Office applications has slowed down after years of increasing corporate investments.
The software giant is investing heavily in expanding data centers and buying chips necessary to run complex AI systems, raising prices for some of its products to offset these investments. The company has spent $13 billion on OpenAI, overhauling most of its products around OpenAI's latest language model, GPT-4. The future growth of Microsoft's new AI investments, however, could take a few quarters to materialize, according to Wall Street analysts.
Alphabet, Google's parent company, reported second-quarter revenue surpassing analysts’ expectations, primarily driven by advertising on Google's search platform, which continues to perform strongly despite competition from AI chatbots. Excluding partner payouts, Alphabet's sales stood at $62 billion for the quarter, with search advertising accounting for $42.6 billion, marginally higher than analysts’ average estimate.
Despite the recent slowdown in advertising affecting social media companies more severely, Google's flagship search business has managed to stay resilient. Even with competition from Microsoft Corp. and OpenAI's ChatGPT, Google's own chatbot, Bard, maintains its position, though it is not as widely used yet. Google's healthy growth from YouTube and search puts the company in a robust position to defend its dominance in the digital advertising market while progressing towards an AI-powered future.
Google also reported profits in its cloud unit, amounting to $395 million on sales of $8.03 billion, surpassing analysts' estimates. Despite being smaller than Amazon's and Microsoft's cloud businesses, Google's cloud unit is seen as a promising growth area as its search business matures and the demand for computing infrastructure increases alongside the tech industry's investment in AI.
Visa reported stronger card-spending growth than Wall Street anticipated due to sustained consumer demand for travel and dining last quarter. Visa announced that payments volume for the third quarter increased by 9% to $3.17 trillion, exceeding the average estimate of $3.14 trillion predicted by Bloomberg analysts. The company's performance was bolstered by continued expenditure by cardholders on travel and entertainment, with U.S. consumer confidence reaching a multi-year high in July, stimulated by a robust job market and easing inflation.
The company's revenue for the period rose by 12% to $8.1 billion, surpassing the $8.06 billion analysts had predicted, while adjusted net income was $4.5 billion, or $2.16 per share, 5 cents better than estimates. Despite central banks continuing to raise interest rates, Visa's CFO Vasant Prabhu assured investors that they do not anticipate a slowdown and that consumers remain resilient.
Meta Platforms, previously known as Facebook, reported strong Q2 results and offered an optimistic outlook for the current period. The company indicated that advertising revenue and subscriber growth exceeded expectations. Meta's strategy of focusing on Reels, short-form videos that compete with TikTok, has drawn advertisers and stimulated user engagement, with the company predicting a revenue growth of as much as 20% for the current quarter.
Meta has also managed to reduce costs significantly through job cuts and restructurings, boosting investor confidence despite plans to increase spending in strategic areas like AI and virtual reality over the next two years. Q2 revenue rose 11% to $32 billion, surpassing average analyst projections of $31.1 billion, and Q2 net income was $7.8 billion or $2.98 per share, slightly above the average estimate of $2.92 per share.
The company's new ventures include the Reality Labs division, tasked with bringing CEO Mark Zuckerberg's vision of the metaverse to life. Despite the division expected to incur higher losses due to product development and technology expansion costs, the company remains committed to its metaverse plans. Instagram's new competitor to Twitter, Threads, may also boost Meta's business in the long term. Although Threads is currently ad-free, analysts predict it could generate approximately $8 billion in annual revenue over the next two years and reach nearly 200 million daily active users.
McDonald’s reported Q2 sales and profits that outpaced analysts’ predictions, though it cautioned of slower growth later in 2023 due to challenging economic conditions. The fast-food giant's comparable-store sales increased 11.7%, surpassing the predicted 9.4%, primarily driven by menu price hikes and a rise in guest counts in the U.S. Earnings per share reached $3.17 also exceeding expectations. Despite the promising results, the company foresees slower expansion later in the year, partly due to waning inflation leading to fewer price hikes.
The company's offerings continue to appeal to consumers during economic uncertainty, with growth observed even as it increases prices for its food items. McDonald’s U.S. delivery service also experienced growth, despite being pricier than in-person dining. According to CEO Chris Kempczinski, lower-income consumers continue to visit the chain, albeit with smaller order sizes, while some diners are opting for McDonald’s over full-service or casual dining options.
Ford Motor is dialing back on its plans to scale up EV production, citing a price war for battery-powered cars. The company stated it will need an extra year to achieve its target of an annual production rate of 600,000 EVs, which is now projected for 2024, and has abandoned its aim to produce 2 million EVs annually by the end of 2026. The automaker also predicts higher losses from EVs this year, rising to $4.5 billion from a previous estimate of $3 billion, more than doubling last year's losses. Despite these setbacks, Ford is maintaining its goal of an 8% return on battery-powered models within three-and-a-half years.
The company's electric vehicle unit, Model e, reported a loss of $1.08 billion in Q2 alone, surpassing the anticipated $871.9 million deficit. Ford's EV sales dipped during the quarter as it scaled up production at factories in Michigan and Mexico, leading to an increase in EV inventory and a subsequent price cut for the electric F-150 Lightning pickup, causing a significant drop in market value. Ford CEO, Jim Farley, emphasized that the new wave of customers are not willing to pay the high prices early adopters were willing to shell out for EVs. Amid these challenges, Ford's traditional gasoline-powered models continue to be its main earnings source, with strong demand for its Ranger and other pickups, SUVs, and commercial vans, enabling the company to exceed Q2 profit expectations and elevate its full-year forecast.
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