Amazon’s quarterly release made up for the preceding period’s disappointment. The report not only checks all the appropriate boxes for Q2, but it sent a clear all-is-well signal about Q3 as well. This became doubly important for the market to see after what we heard from Walmart a few days back. Reading the Amazon release almost feels like they operate in a parallel universe where logistical challenges don’t exist and customers aren’t pressured by inflation.
Among the Big 5 Tech players – Apple, Microsoft, Alphabet, Meta and Amazon – Amazon, Apple and Microsoft really stood out for the resilience and stability of their business. No company is completely immune from cyclical forces and we saw some of that with advertising spending trends in the Alphabet and Meta quarterly reports. But even after conceding that point, it is hard not to be impressed with the strength of the Apple, Amazon and Microsoft numbers.
Apple made $19.44 billion in earnings on $83 billion in revenues in Q2. Earnings were down -10.6% from the year-earlier level as a result of all-around higher expenses, China troubles, cyclical weakness in product categories like Mac and iPad and currency translation issues. But Apple was nevertheless able to provide reassuring guidance for the September period even though all of these headwinds will still be very much with us.
As a contrast to Apple and what it had to deal with, we also saw Exxon come out with $17.55 billion in earnings on $115.7 billion in revenues. Exxon is the quintessential old-economy operator that is currently enjoying a very favorable commodity-price environment.
Apple brought in $19.44 billion in a seasonally weak quarter; it had earned $25 billion in 2022 Q1 and $34.6 billion in 2021 Q4. Even the ‘cyclically exposed’ Alphabet brought in $16 billion in earnings in Q2.
On an unrelated note, we generally see the likes of Exxon as having ‘more money than god’ when the boundless riches are actually with these Tech titans.
Total Q2 earnings for the ‘Big 5 Tech’ players are down -20% from the same period last year on +6.8% higher revenues and a 585 basis-points (bps) compression in net margins. Q2 net margins are down for each of the 5 Tech leaders, with the biggest declines at Meta and Alphabet at -1255 and -851 bps, respectively.
This big picture view of the ‘Big 5’ players as well as the sector as a whole shows a decelerating growth trend. That said, unlike this ‘quarterly view’, the annual picture shows a lot more stability.
(Above are excerpts from equity research notes by Zacks Investment Research, Inc.)