As earnings season ramps up, investors closely watch the “Magnificent Seven,” a group of high-profile tech companies that play a pivotal role in market dynamics. This week, three of these tech giants—Amazon.com, Inc. (AMZN), Apple Inc. (AAPL), and Meta Platforms, Inc. (META)—are set to report their quarterly earnings.
On July 30, the Nasdaq Composite declined sharply ahead of Microsoft Corporation (MSFT) earnings. Microsoft shares fell nearly 7% in extended trading on Tuesday as disappointing cloud results overshadowed better-than-expected revenue and earnings.
For the fourth quarter that ended June 30, 2024, MSFT’s revenue increased 15% year-over-year to $64.70 billion. That slightly surpassed the consensus revenue estimate of $64.44 billion. The company’s top segment, Intelligent Cloud, which includes its Azure services, reported $28.52 billion in revenue. It was up around 19% but fell short of analysts’ expectations of $28.68 billion.
Microsoft’s cloud business holds significant importance for Wall Street, as the company competes with Amazon Web Services and Google for AI workloads. All three firms heavily invest in enhancing AI capabilities, aiming to attract startups and large corporations as generative AI models advance rapidly.
In addition, MSFT posted fourth-quarter net income and earnings per share of $22 billion and $2.95, up 10% year-over-year. That compared to analysts’ EPS estimate of $2.94.
Mega-cap tech stocks had surged tremendously on high hopes for growth driven by artificial intelligence (AI). The upcoming earnings reports from major tech giants, including AMZN, AAPL, and META, will have far-reaching implications for the market. Positive results could reinvigorate confidence in Big Tech, while disappointing numbers might accelerate the shift to underperforming sectors like mid- and small-cap stocks.
Moreover, the earnings season coincides with a pivotal Federal Reserve meeting. Fed officials are expected to hold rates steady but may signal a potential rate cut in September following better news on inflation and signs the labor market is cooling. This decision will add another layer of complexity to market dynamics, influencing investor sentiment and market movements.
Key Earnings Reports: What to Watch For
Amazon.com, Inc. (AMZN)
With a $1.89 trillion market cap, Amazon.com, Inc. (AMZN) engages in the retail sale of consumer products, advertising, and subscription services via online and physical stores. The company operates through North America, International, and Amazon Web Services (AWS) segments.
Amazon’s second-quarter earnings, scheduled to be released on August 1, will shed light on consumer spending and enterprise cloud adoption. Investors will be keen to see how AWS is performing, as it is a significant revenue driver for the company. In the last reported first quarter, AWS segment sales rose 17% year-over-year to $25 billion.
“The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate (now at a $100 billion annual revenue run rate); our Stores business continues to expand selection, provide everyday low prices, and accelerate delivery speed (setting another record on speed for Prime customers in Q1) while lowering our cost to serve; and, our Advertising efforts continue to benefit from the growth of our Stores and Prime Video businesses,” said Andy Jassy, AMZN’s President and CEO in first-quarter earnings release.
“It’s very early days in all of our businesses and we remain excited by how much more we can make customers’ lives better and easier moving forward,” Jassy added.
For the second quarter 2024 guidance, the tech giant’s net sales are expected to be between $144 billion and $149 billion, or grow between 7% and 11% compared to the second quarter of 2023. AMZN’s operating income is anticipated to be between $10 billion and $14 billion, compared with $7.7 billion in the second quarter of 2023.
Notably, on July 18, Amazon announced record-breaking sales for the 2024 Prime Day shopping event. During the 48-hour event, Prime members shopped millions of deals with over 35 categories and purchased more items than any prior Prime Day shopping event. Rufus, the company’s new AI-powered conversational shopping assistant, has assisted millions of customers quickly and easily navigating Amazon’s extensive selection.
Analysts appear bullish about the e-commerce giant’s prospects. Street expects AMZN’s revenue and EPS for the second quarter (ended June 2024) to increase 10.6% and 56.9% to $148.62 billion and $1.02, respectively. Moreover, the company topped consensus revenue and EPS estimates in all four trailing quarters, which is remarkable.
Shares of AMZN have surged about 14% over the past six months and more than 19% year-to-date. However, the stock has plunged around 6% over the past month.
Solid AWS growth in the second quarter and resilient consumer spending might justify increasing exposure to Amazon. However, slowing growth or rising costs could suggest reducing positions or hedging.
Apple Inc. (AAPL)
Apple Inc. (AAPL), valued at a $3.36 trillion market cap, is a global leader in consumer electronics, software, and services. Apple is renowned for its innovative products, including the iPhone, its flagship product which accounts for a significant portion of the company’s revenue, Mac computers, iPad, Apple Watch, AirPods, and services like the App Store, Apple Music, iCloud, and more.
AAPL’s third-quarter earnings, scheduled for August 1, will reflect the performance of its key product lines. For the second quarter that ended March 30, 2024, the company posted revenue of $90.75 billion, down 4% year-over-year. However, the revenue surpassed analysts’ estimate of $90.45 billion. Also, iPhone sales fell 10% year-over-year during the quarter. The company realized $5 billion in delayed iPhone 14 sales from Covid-based supply issues.
Furthermore, the company’s net income was $23.64 billion for the third quarter, down 2% from the prior year’s quarter. Apple reported quarterly earnings per share of $1.53, compared to the consensus estimate of $1.51.
In the last quarter, the company announced that its Board of Directors authorized $110 billion in share repurchases, an impressive 22% rise from last year’s $90 billion share authorization. It’s the largest buyback in the company’s history.
Apple did not offer formal guidance, but CEO Tim Cook told CNBC’s Steve Kovach that overall sales are expected to grow in the “low single digits” for the June quarter.
During an earnings call with analysts, AAPL CFO Luca Maestri indicated that the company will deliver double-digit year-over-year growth in iPad sales for the to-be-reported quarter. Additionally, he noted that the Services division is projected to continue growing at the current high rate observed over the past two quarters.
Analysts expect AAPL’s revenue and EPS for the third quarter to increase 3.2% and 6.5% to $84.38 billion and $1.34, respectively. Additionally, Apple surpassed consensus EPS estimates in each of the trailing four quarters.
Over the past month, AAPL’s stock has soared more than 2.5%. Further, the stock climbed approximately 16% over the past six months and around 13% year-to-date. Robust sales across key product lines could indicate solid consumer demand, driving Apple’s shares. However, updates on supply chain challenges and mitigation strategies will be crucial in the upcoming earnings report.
Meta Platforms (META)
With a market cap of $1.18 trillion, Meta Platforms, Inc. (META), formerly known as Facebook, Inc., is a tech conglomerate with key products, such as Facebook, Instagram, WhatsApp, and Messenger. It operates in two segments: Family of Apps and Reality Labs.
META is expected to report its second-quarter 2024 earnings on July 31 after the market closes. Meta’s first-quarter revenue was $36.46 billion, compared to the consensus estimate of $36.22 billion. Its revenue was up 27.3% year-over-year. The company’s ad impressions delivered across its Family of Apps grew by 20% year-over-year, and the average price per ad grew by 6%.
Further, the company reported an EPS of $4.71 for the March quarter, exceeding analysts’ expectations of $4.36 and being up 114% year over year.
Meta Platforms no longer provide data on daily active users (DAUs) and monthly active users (MAUs). Instead, it reports a consolidated figure called family daily active people (DAP). DAP was 3.24 billion on average for March, an increase of 7% year-over-year.
In the last earnings release, Meta’s founder and CEO, Mark Zuckerberg, said, “It's been a good start to the year. The new version of Meta AI with Llama 3 is another step towards building the world's leading AI. We're seeing healthy growth across our apps and we continue making steady progress building the metaverse as well.”
In April, META announced the latest version of Meta AI with Llama 3, one of the world’s leading AI assistants. This version is free and readily available in several countries. Meta AI is available across its apps, including Facebook, Instagram, WhatsApp, and Messenger, to get things done, learn, create, and access real-time information. The new advances in Meta AI with Llama 3 are expected to extend META’s market reach and boost its profitability.
For the second quarter of 2024, META expects sales between $36.50 billion to $39 billion. The midpoint of the range, $37.75 billion, will represent nearly 18% year-over-year growth. Meanwhile, analysts anticipate the company’s revenue for the June quarter to increase 19.7% year-over-year to $38.31 billion, and the consensus EPS estimate of $4.78 indicates an improvement of 60.5% year-over-year.
Meta has raised investor expectations due to its improved financial performance in recent quarters, leaving little room for error. The stock is up about 2% over the past five days and nearly 30% year-to-date. In February 2023, META CEO Mark Zuckerberg announced it would be the “year of efficiency,” which sparked the rally.
At that time, Zuckerberg stated that the company would focus on eliminating unnecessary projects and reducing bloat, aiming to transform Meta into a “stronger and more nimble organization.” Consequently, the company cut about 21,000 jobs in the first half of 2023, with Zuckerberg indicating in February this year that hiring would be “relatively minimal compared to historical levels.”
The headcount decreased by 10% in the first quarter of 2024 compared to the previous year, bringing it down to 69,329 employees.
Meta’s capital expenditures for fiscal 2024 are projected to be between $35 billion and $40 billion, up from a prior forecast of $30 billion to $37 billion. This increase is attributed to accelerated infrastructure investments to support the company’s artificial intelligence (AI) roadmap, META said.
Bottom Line
As earnings reports from tech giants, including META, AAPL, and AMZN, approach, investors should prepare for potential market shifts. Investors can better position their portfolios by closely monitoring these results and considering broader economic signals, such as the Federal Reserve’s actions. A balanced approach with diversification, sector rotation, and hedging can help manage risks and capitalize on opportunities in this critical earnings season.
