😱🧑‍💻 ROUGH Tech Earnings Week

Oct 30, 2022

Welcome to the Sunday Primer,

Meta got absolutely obliterated with the push into the metaverse and Elon Musk finally took over Twitter! Let that sink in (no, literally let it in: see the tweet at the end of the newsletter). Big Tech offered us a mixed bag after a big earnings week but the outlook ahead doesn’t look very hot.

Let’s get to business.

- Humphrey, Rickie & Tim

Market Report

U.S. business activity contracted in October for a fourth-straight month as concerns about inflation and slowing demand weighed on output. Companies attributed the decline to weak client demand, rising interest rates, and stubborn inflation.
We also got Q3 U.S. GDP numbers, which revealed that the economy grew at an annualized rate of 2.6%. Within the data, it’s clear that the rotation of household spending remains ongoing, with spending on goods falling for the third consecutive quarter amid modest growth in services spending.
This past week was also a massive earnings week for big tech! Let’s break it down.
- Meta Platforms (META): Beat revenue estimates but missed on earnings. Meta has been investing a LOT into the metaverse and outlined a plan for $96 - $101 billion in expenses in 2023. Wall Street is NOT happy with the continued push into the metaverse during a time when capital preservation is being emphasized. As of writing (Oct. 27th), Meta is down 25% today and at its lowest share price since 2016…
- Alphabet (GOOGL): Missed both revenue and earnings estimates. While revenue from search and the cloud continued to expand, YouTube revenue declined from the previous year as advertisers pulled back on ad spending. Long term, Alphabet should be just fine. Nielsen recently reported that YouTube was the leader in streaming TV viewership in the U.S. in September for the first time. On average, global viewers are watching 700 million-plus hours of YouTube content on TV daily.
- Microsoft (MSFT): Beat both revenue and earnings estimates. Revenue from Microsoft Cloud increased 24% over the past year while Personal Computing (hardware) decreased marginally. Despite concerns of companies pulling back on enterprise application spending amid recession fears, spending still seems relatively strong.
- Apple (AAPL): Beat both revenue and earnings estimates. Apple’s revenue beat was driven by better-than-expected results for two segments: Macs ($11.5bn vs. consensus of $9.2bn) and Wearables/Home/Accessories ($9.6bn vs. consensus of $8.8bn). While it didn’t offer any guidance for the next quarter, it stated that it expects revenue growth to decelerate.
- Amazon (AMZN): Missed revenue estimates but beat earnings estimates. While Prime Day in July was strong, management saw a slowdown in September and likely a soft Prime Event in October. Amazon’s guidance for the next quarter was extremely conservative but makes sense given how higher energy costs are and the shift to leisure spending impacting the retail outlook.

Forecast Ahead

Federal Open Market Committee + Interest Rate Decision (November 1st - 2nd)

Policymakers will be meeting and are expected to raise the fed funds rate by another 75 basis points as it continues to fight sticky inflation. The Fed has raised rates at the fastest pace in over 40 years, raising interest rates by 300 basis points since March. Fed officials are projecting a year-end federal funds rate of roughly 4.5%.

Corporate Earnings (Throughout Week)

November 1st - SoFi (SOFI), Uber (UBER), Pfizer (PFE), Marathon Petroleum (MPC), Eli Lilly (LLY), Simon Property Group (SPG), Advanced Micro Devices (AMD), Airbnb (ABNB), Electronic Arts (EA), Mondelez International (MDLZ), MicroStrategy (MSTR), Caesars Entertainment (CZR), Clorox Co (CLX), Match Group (MTCH)
November 2nd - CVS Health (CVS), Progressive Corp (PGR), Humana (HUM), Ferrari (RACE), Roku (ROKU), Qualcomm (QCOM), Marathon Oil (MRO), Etsy (ETSY), eBay (EBAY), Fastly (FSLY), MGM Resorts (MGM), Fortinet (FNT), Robinhood (HOOD), Zillow (ZG), Sunrun (RUN), CF Industries (CF)
November 3rd - Peloton (PTON), Moderna (MRNA), Datadog (DDOG), Crocs (CROX), Barrick Gold (GOLD), Royal Caribbean (RCL), Marriott (MAR), Kellogg (K), Under Armour (UAA), Cigna (CI), PayPal (PYPL), Block (SQ), Coinbase (COIN), Starbucks (SBUX), Twilio (TWLO), Cloudflare (NET), DoorDash (DASH), Expedia (EXPE), Warner Bros. Discovery (WBD), Opendoor (OPEN), Atlassian (TEAM)
November 4th - DraftKings (DKNG), fuboTV (FUBO), Dominion Energy (D), Hershey (HSY)