Earnings season is headed toward an end just as we’re headed toward Thanksgiving.
While the finally tally of beats and misses is yet to be determined for the entirety of the S&P 500, one area we can hone in on is the tech sector.
Here are the verdicts for the names that truly matter…
Why the Big Five?
- Apple (3.73%) and Microsoft (2.35%) rank #1 and #2, respectively, in weighting in the S&P 500 Index.
- Amazon (1.36%), Facebook (1.33%) and Alphabet (2.36% for both classes of stock) represent over 5% weighting in the S&P 500, with Amazon #8, Facebook #10, and Alphabet #11 and #12.
- Apple has the highest market capitalization in the world.
- Facebook just passed legendary stalwart companies Wal-Mart (NYSE:WMT) and General Electric (NYSE:GE) in market capitalization, setting a record for shortest time to a $250 billion capitalization.
Amazon joined Facebook’s party by also whizzing past Wal-Mart in capitalization, becoming the most valuable retailer by market cap.
The Big Five now hold over $250 billion in cash among them. That’s just ginormous.
So what did we find out from these more-than-just-important companies in the their latest quarterly results?
Let’s take a look…
One Chart Tells the Story
Here’s how each of these companies did in their latest quarters, with the figures provided by BusinessInsider:
All five companies handily exceeded revenue and earnings estimates. Each managed to generate one key statistic that stood out to indicate an extremely strong performing sector or business, and each saw very nice stock price momentum heading out of their announcements.
A big question, of course, is how the results were viewed out there in the markets from the analysts, industry specialists, and investment pros who make their living giving you the skinny on an investment in any of these companies.
Now, before we get to the bullish sentiment, understand that even with these outstanding results, there’s a bit of rain on each parade.
Indeed, InvestorPlace’s Alyssa Oursler does a great job here of picking out some of the flaws in the announcements.
But for the most part, the reviews are in, and the plays are a hit.
Let’s see what’s out there…
Apple’s latest quarter saw it sell 47.5 million iPhones, and included in that mark is a nice run in China, which everyone believed was a dead zone for growth.
Right now, the iPhone is the bell cow for Apple, and continued increases mean more to its gross margins than any other product.
Motley Fool’s Ashraf Eassa believes continued improvements through the iPhone lineup will fuel even better margins. Meanwhile, Apple’s continued success is wearing down its competition, as pointed out at Wall Street 24/7.
Apple’s guidance for the near term is conservative, says Brian Nichols at InvestorPlace, but what might power the stock forward is the continued assault on share buybacks, with a repurchase program that, after spending $143 billion, still has $57 billion available under its $200 billion plan.
Apple’s quarter certainly deserves its kudos, as does our next Big Five member…
The big knock on Amazon has always been that they’re great at generating incredible ideas, but bad at making money—make that profits—for shareholders.
And yet they did, and in the face of estimated losses.
In fact, that makes two consecutive quarters of profitability, although this quarter was below its June 30-ending result.
But there is a pattern here, and its being driven by Amazon Web Services, which carries huge margins and growth for AMZN’s bottom and top lines, respectively.
Indeed, this video interview with Motley Fool analyst Sean O’Reilly neatly lays out the case on both levels.
Meanwhile Time pointed out that AMZN, which started AWS a decade ago, saw a 78% rise in revenue over the quarter, with operating profit at $521 million, a five-fold increase year-over-year.
AWS is now a $6 billion per year powerhouse. So yes, that Q3 beat may have been a bit of a surprise, but perhaps it’s more a sign of the future times.
Certainly, if the graph below is any indication, skeptical investors may rue their decision to stay away:
Meanwhile, over at Facebook…
Remember in the movie “The Social Network,” when Sean Parker, (Justin Timberlake) says to Mark Zuckerberg (Jesse Eisenberg) and Eduardo Saverin (Andrew Garfield), the main co-founders of Facebook, “A million dollars isn’t cool. You know what is? A billion.”
Congrats, Sean. You hit it on the head.
First and foremost, Facebook is now riding a streak of nine profitable quarters in a row, all of which beat Wall Street estimates.
But as InvestorPlace Editor Jeff Reeves is quick to add, what knocked it out of the park was the billion part: daily active users measured over 1 billion.
Facebook’s social media platform is the standard by whatever measure you’d like to debate.
But as Profit Confidential mentions, Facebook is more than just a social media group, it’s at the forefront of virtual reality technology and online publishing.
With its Instagram purchase, Facebook is also reimagining how video is integrated within its platforms. Oh, right… and how to make the next billion.
Meanwhile, over at Google…
Google’s mobile search business is booming, with the Android-centric world using Google’s platform more and more across its product mix.
In fact, Alphabet CFO Ruth Porat was more than happy to provide her take on the subject in the following statement:
“Our Q3 results show the strength of Google’s business, particularly in mobile search. With six products now having more than 1 billion users globally, we’re excited about the opportunities ahead of Google, and across Alphabet.”
Those products include Google Search, Maps, Chrome, YouTube, Android and Google Play. It’s a deep, deep bench of talent.
But it’s impossible for tech companies to sit on their laurels, so Google continues to invest in the future…
One of its latest forays is in the delivery arena. Its Project Wing, started in 2014, is looking at a 2017 target for using drones to deliver packages, according to William White at InvestorPlace.
But the real money—and there is still lots of it—will come from Google’s continued expansion of search, particularly in that growing mobile space.
Of course, it’s a crowded space, and our last Big Fiver actually missed out on most of the mobile fun.
However, Microsoft is making up for that in a pretty big way…
It took the fall of 10-year CEO Steve Ballmer to get Microsoft off the mat.
Out with Ballmer and in with superstar Satya Nadella, who has turned around Mr. Softy into a focused, driven—and maybe even innovative—giant once more.
Like Amazon, Microsoft’s investment in the cloud has turbocharged growth and profits—and with it, MSFT’s stock price.
But, for once in a decade, Microsoft isn’t really a one-trick (Windows) pony…
Growth and innovation in its Surface lineup, continued (but admittedly slow) market penetration from its Bing search engine, and its release of Windows 10 give it the broadest and perhaps brightest product mix in a very long time.
Long-time Microsoft advocate David Zeiler at Money Morning, writing in ETF Daily News, believes that Microsoft’s adoption of an Apple-type tech ecosystem will allow it to continue growing along with its stock price.
Bottom line: Microsoft’s strategy seems sound, and expectations for continued earnings beats are on solid footing.