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Microsoft Passes Apple As World’s Most Valuable Company Amid Stellar Earnings

Microsoft Passes Apple As World’s Most Valuable Company Amid Stellar Earnings

Earnings season is here with us once again, with nearly a quarter of S&P 500 companies having reported third-quarter 2021 earnings. According to the latest FactSet update, 84% of S&P 500 companies have beat earnings estimates while 75% have exceeded revenue expectations.

Once again, the pivotal tech sector has delivered bumper earnings, with the sector’s 32.1% earnings growth rate for the third-quarter being the 4th highest among the 11 market sectors. 

At the industry level, all six industries in this sector are reporting improvement in earnings, with four industries reporting double-digit earnings growth: Technology Hardware, Storage, & Peripherals (64%), Semiconductors & Semiconductor Equipment (52%), Electronic Equipment, Instruments, & Components (24%), and IT Services (18%). 

At the company level, Apple Inc. (NASDAQ:AAPL) is expected to be the largest contributor to year-over-year earnings growth, with blended earnings for the tech sector dropping to 25.4% from 32.1% when you exclude Apple. The smartphone giant has a consensus EPS Estimate of $1.24 (+69.9% Y/Y) and a revenue estimate of $84.94B (+31.3% Y/Y).

Three of the five famous FAANG group of companies have reported third quarter numbers with Apple and Amazon Inc. (NASDAQ:AMZN) scheduled to report on October 28 after the market closes.

Here’s a peek into how the leading tech companies have performed this earnings season.

#1. Facebook

Social media giant Facebook Inc. (NASDAQ:FB) has reported third quarter revenue of $29.01B, good for 35% Y/Y growth but $510M below Wall Street’s consensus . The company has also reported net income of $9.19B (+17%) while EPS of $3.22 (+19%) beat by $0.05.

Other key metrics came in as follows:

  • Monthly active users of 2.91B vs. 2.92B consensus.
  • Daily active users of 1.93B vs. 1.92B consensus.
  • Average Family service users per day of 2.81B vs. 2.77B consensus.
  • Average Family service users per month of 3.58B vs. 3.52B consensus.

FB said it expects fourth quarter 2021 total revenue to be in a range of $31.5 billion to $34 billion vs. $34.82B consensus, with the lower outlook reflecting the significant uncertainty  the company is facing in the fourth quarter in light of continued headwinds from Apple's iOS 14 changes, and macroeconomic and COVID-related factors. 

FB’s latest earnings have been well received on Wall Street, with Rosenblatt Securities raising the shares to buy from neutral as the stock appears to be oversold in the near term. 

"We see limited downside near-term at ~1.0x the S&P NTM P/E, with +20% upside on more stable near-term expectations," Rosenblatt analyst Mark Zgutowicz wrote in a note.

Rosenblatt has maintained its $400 price target on Facebook, good for 28.1% upside.

#2. Netflix

Video streaming giant Netflix Inc. (NASDAQ:NFLX) has reported third quarter 2021 earnings, yet an otherwise successful quarter in terms of content and subscriber growth has failed to lift the shares of one of the most popular internet companies on the planet.

Netflix reported Q3 GAAP EPS of $3.19, 83% higher than Q3 2020 EPS and $0.63 better than the Wall Street consensus while revenue of $7.48B marked a +16.1% Y/Y improvement and was in-line with the Wall Street consensus. Global streaming paid net additions came in at 4.38M, multiples better than the company’s 1.54M guidance while Global Streaming Paid Memberships of 213.56M beat the Wall Street consensus of 209.18M consensus. Netflix also provided mildy upbeat Q4 guidance as follows: Revenue of $7.71B vs. $7.68B consensus, EPS of $0.80 vs. $1.13 consensus, Global Streaming Paid Memberships: 222.06M vs. 221.2M consensus, Global streaming paid net additions 8.5M vs. 8.32M consensus.

The guidance means that Netflix is set to finish the year with at least 222.06 million global streaming paid memberships.

A few days earlier, Netflix revealed that it expected a $900M windfall from its latest megahit Squid Game.Netflix subscribers have spent nearly 2B hours watching the show, more than triple  the total hours watched for second-placed Bridgerton.

#3. Alphabet

Alphabet Inc. (NASDAQ:GOOG,GOOGL) has been seeing choppy trading after the internet search giant beat expectations on top and bottom lines with its Q3 earnings, where it has yet to characterize any hit from Apple's privacy changes on the ad business.

Revenues rose a healthy 41% Y/Y to $65.12 billion, nearly $2 billion better than expected,marking the biggest quarterly revenue gain by the company in 14 years.

Revenue by segment: 

  • Google search and other, $37.93 billion (up 44%)
  • YouTube ads, $7.2 billion (up 43%); Google Network, $8 billion (up 39.8%)
  •  Google other, $6.75 billion (up 23.2%)
  • Google Cloud, $4.99 billion (up 44.9%)
  • Other Bets, $182 million (up 2.2%).

Operating income jumped to $21 billion from $11.2 billion in last year’s comparable quarter, while operating margin rose to 32% from 24% leading to net income soaring 68% to $18.94 billion. 

Operating income by segment: 

  • Google Services, $23.97 billion (up 65.9%)
  •  Google Cloud, -$644 million (vs. year-ago -$1.2 billion)
  • Other Bets, -$1.29 billion (vs. year-ago -$1.1 billion).

Total traffic acquisition costs, though, rose considerably to $11.5 billion from $8.17 billion. It appears that investors are fretting about Apple’s latest privacy policy changes requiring a double opt-in for ad tracking which have dinged earnings at Snap Inc. (NYSE:SNAP). Apple Chief Financial Officer Ruth Porat sought to reassure investors saying the changes had a "modest impact on YouTube revenues, primarily in direct response advertising." 

She also alluded to the fact that Google's own privacy stance means it sees the impact differently than rivals: "As you all know well, focusing on privacy has been core to what we've been doing, consistently." Chief Business Officer Philipp Schindler agreed: Apple App Tracking Transparency is just "one aspect" of the ad business, "and we've been investing in privacy-protecting technology for years."

#4. Microsoft

Enterprise software company Microsoft Inc. (NASDAQ:MSFT) has reported FY 2022 Q1  revenue of $45.3B, good for 21.8% Y/Y increase and $1.3B better than expectations. 

Revenue by segment:

  • Productivity and Business Processes of $15.04B vs. $14.71B consensus.
  • Intelligent Cloud of $16.96B vs. $16.58B consensus.
  • More Personal Computing of $13.31B vs. $12.68B

GAAP net income was $20.5 billion (+48%) while GAAP diluted earnings per share of $2.71 (+49%) topped Wall Street consensus by $0.64.

Microsoft also provided upbeat FY 2022 Q2 guidance as follows:

  •  Productivity and Business Processes revenue between $15.70B-15.95B
  • Intelligent Cloud, $18.10B-18.35B
  • Personal computing, $16.35B-$16.75B
  • Total revenue comes to $50.15B-$51.05B vs. the consensus of $48.92B.


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