Happy Sunday!
Huge earnings week this week, signalling the continued flattening (or declining) trend for many companies. However, things don’t seem quite as bleak as analysts expected, with quite a lot of earnings beating expectations for Q1. Naturally, there were a few stock casualties!
I’ve covered a handful of the biggest earnings for the week, below.
Let’s get right into it.
Key Events
UK Announces New AI Development Funding
On Monday, it was announced by Rishi Sunak that a £100 million fund would be created to develop the “safe and reliable” use of artificial intelligence in the UK economy. He claimed that AI, such as ChatGPT and Google Bard, can be used for a wide range of tasks across the economy. Supposedly, the money is intended to ensure domestic capabilities and to encourage adoption. The UK government believe that adopting AI will boost the global gross domestic product by 7% within the next 10 years.
The announcement was greeted with mixed feelings, due to the UK falling behind in recent decades regarding technology and innovation. The UK also has minimal to no regulation in place for AI adoption, so there’s a question of safety. Then, of course, there’s the question of whether any MPs, let alone the PM, even understand the fundamentals behind AI.
The Banking Crisis Aftershocks Continue
The effects of the recent banking crisis are still being felt, it seems. Many banks have been reporting huge reductions in their deposits, as customers flee for (what they perceive to be) safer options. First Republic Bank, for example, announced that it will cut up to 25% of its staff after $72bn deposits lost. This is almost half of the bank’s entire deposits withdrawn in a quarter, leaving around $100bn at the bank
It’ll be interesting to see where things go from here. Will customers continue to withdraw their money? At what point will the banking sector truly stabilise? How many banks will fail/go bankrupt before this happens?
Stock Market News
Company Job Cuts Continue
We’ve had another bout of companies announcing job cuts and/or the shutting of premises this week. Here are just a few:
- 3M – Reducing its workforce by around 10%, or 6,000 employees
- Ocado – Announced that its Hartfield Fulfilment Centre will close, with 2,300 jobs at risk. This facility alone handles around 20% of Ocado’s weekly orders
- Prezzo – Announced the closure of 46 restaurants, with 810 jobs at risk
Bed Bath & Beyond (BBBY) – Bankruptcy Filing
Bed Bath & Beyond, one of the original big box retails, announced this week that is has filed for bankruptcy protection. This follows years of falling sales, mounting losses and several failed turnaround plans.
As such, the company is beginning the process of liquidating its stores and winding down operations.
Alphabet (GOOGL) – Q1 Earnings
A somewhat surprising quarter for Alphabet, beating on both revenue and earnings. Or, perhaps expectations were simply low? Regardless, Alphabet saw continued growth in its cloud segment despite the poor macroeconomic backdrop. This was the first profitable quarter for cloud, also; an important milestone.
Key Points:
- Revenue of $69,787m, up from $68,011m (+2.6%) a year ago
- Google services revenue of $61,961m, up 0.8% year-over-year
- Google cloud revenue of $7,454m, up 28.1% year-over-year
- Other bets revenue of $288m, down 34.5% year-over-year (this segment is volatile)
- Hedging gains of $84m
- Gross profit of $39,175, up from $38,412m (+2.0%) a year ago
- Operating profit of $17,415m, down from $20,094m (-13.3%) a year ago
- In part due to one-off costs relating to the reduction of headcount in the quarter
- Profit before tax of $18,205m, compared to $18,934m a year ago
- Profit after tax of $15,051m, compared to $16,436 a year ago
- Basic earnings per share of $1.18
- Google cloud became profitable on an operating profit basis for the first time
- A further $70bn of stock repurchases have been approved
Microsoft (MSFT) – Q1 (Fiscal Q3 2023) Earnings
Another surprising result here, with Microsoft beating expectations across the board. While personal computing revenues were still lower than in recent years, they seem to be stabilising over this and the previous quarter. As with Alphabet, Microsoft’s current main growth driver is cloud revenue, which continues to grow steadily.
Key Points:
- Revenue of $52,857m, up from $49,360m (+7.1%) a year ago
- Productivity and business processes revenue of $17,516m, up 10.9% year-over-year
- Intelligent cloud revenue of $22,081m, up 16.3% year-over-year
- More Personal computing revenue of $13,260m, down 9.1% year-over-year
- Gross profit of $36,729m, up from $33,745m (+8.8%) a year ago
- Operating profit of $22,352m, up from $20,364m (+9.8%) a year ago
- Profit before tax of $22,673m, compared to $20,190m a year ago
- Profit after tax of $18,299m, compared to $16,728m a year ago
- Basic earnings per share of $2.46
- Dividend of $0.68 per share announced, to be paid on 8th June 2023
GlaxoSmithKline (GSK) – 26th April
A reasonable report from GSK, beating analyst expectations for the quarter. The company also reaffirmed its previous guidance for 2023, signalling that steady growth has not been too hindered by the overall macroeconomic environment. GSK continue to become more efficient with the aim of maximising operating profit, while also ensuring plenty of new products are in the works.
Key Points:
- Revenue of £6,951m, down from £7,190m (-3.3%) a year ago
- Gross profit of £5,008m, up from £4,473m (+12.0%) a year ago
- Operating profit of £2,082m, down from £2,293m (-9.2%) a year ago
- Profit before tax of £1,907m
- Profit after tax of £1,631m
- Basic earnings per share of 36.8p
- Dividend of 14p per share announced, to be paid on 13th July 2023
- GSK reaffirms its guidance of 6% to 8% revenue growth for the full year, with adjusted operating profit to increase by between 10% and 12%
Snapchat (SNAP) – Q1 Earnings
While the majority of tech stocks have seen better-than-expected results this quarter, Snapchat falls behind, missing expectations across the board. Despite a relatively minor miss on revenue and earnings, the stock plummeted ~25% in after-hours trading. This is due to the declining revenues, and the fact that the advertising market is going through a slump currently. Companies across the world are cutting costs, thus are spending less on advertising. Snapchat is in a poor position compared to its competitors due to its smaller reach and influence globally.
However, it’s not all doom-and-gloom. Snapchat are still producing positive cashflow. The company are adapting their advertising market and partnering with big brands to show off its quickly-evolving AR capabilities. With $1,579m in cash and cash equivalents, Snapchat also has plenty of money to operate for years to come, while continuing to innovate (though, some projects have been shelved for now).
Key Points:
- Revenue of $989, down from $1,063m (-7.0%) a year ago
- Gross profit of $549m, down from $642m (-14.5%) a year ago
- Operating loss of ($365m), compared to an operating loss of ($272m) a year ago
- Loss before tax of ($322m), compared to ($351m) a year ago
- Loss after tax of ($329m), compared to ($360m) a year ago
- Basic loss per share of ($0.21)
- No guidance provided for Q2 2023
- Free cashflow of $103m, compared to $106m a year ago
- Cash and cash equivalents of $1,579m, compared to $1,423m on 31st December 2022
Amazon (AMZN) – Q1 Earnings
A mixed report for Amazon. While beating analysts’ estimates on revenue, investors are concerned by the slowing down of growth in its AWS segment; its most profitable business. During the earnings call, Amazon’s senior management reiterated that cloud growth will continue to slow down in the near-term, amplifying these fears. AWS sales grew 16% in Q1, year-over-year, much slower than in previous quarters/years.
Key Points:
- Revenue of $127,358m, up from $116,444 (+9.4%) a year ago
- Gross profit of $59,567, up from $49,945m (+19.3%) a year ago
- Operating profit of $4,774m, up from $3,669m (+30.1%) a year ago
- Profit before tax of $4,119m, compared to a loss of ($5,265m) a year ago
- Profit after tax of $3,172, compared to a loss of ($3,844m) a year ago
- Basic earnings per share of $0.31
- Guidance for Q2 2023 suggests revenue of between $127,000m and $133,000m. For the same period, operating profit is expected to come in between $2,000m and $5,500m
Next Week
US FOMC Meeting
On Wednesday, we’ll get the next Federal Reserve press conference, where any decisions regarding interest rates will be announced.
At present, it’s expected that the Federal Reserve will raise interest rates by 0.25%, bringing the Fed Funds rate to between 5.00% and 5.25%.
This is likely to be a huge catalyst for the stock market. If there is talk of a pause in interest rate hikes, then it’s likely a rally will ensue. However, if the narrative is still hawkish and the Fed talks about additional rate hikes, stocks may well plummet. It’s widely considered that interest rates are already too high, and any further hikes will cause a sharp recession.
Company Earnings
Here’s a list of the company earnings I’ll be covering next week (subject to change):
- Lloyds Banking Group (LLOY) – 3rd May
- Etsy (ETSY) – 3rd May
- Apple (AAPL) – 4th May
- Coinbase (COIN) – 4th May
Let me know your thoughts on this week’s events, in the comments below!
