Spare Change, Big Numbers

There’s $4.49 trillion in dry power sitting mostly idle in money market funds.

That pile of “sideline cash” is a fixture of any generic bull case. Toss in an acronym or two (e.g., “TINA”) and you’re an honorary analyst.

But just in case deeply negative real rates aren’t enough to coax every last penny of those trillions off the sidelines and into equities, Robinhood is working on a new feature that will let its product customers invest their literal pennies. The spare change plan would be called “round up investments.” Media reports suggested it was included in an app update rolled out to beta testers this month.

The same “hidden code” tipped another not-at-all-surprising surprise: “Round up investments” might be accompanied by a rewards program for users. Maybe it’ll be like one of those gas station milk cards, where once you buy seven gallons, you get the eighth free, only here you’d get 1/18th of a GameStop share.

“The code in the Robinhood app doesn’t indicate where the spare change will come from,” Bloomberg said, adding that apps offering similar “services” usually link to the victim’s debit or credit card. Now you can round that $44.95 you borrowed at 21% to buy groceries up to $45, and as long as the five cents you invested in a fractional share of AMC turns into a shiny new quarter, you’ll be sittin’ pretty. Plus, as a shareholder, you’ll be entitled to free popcorn. You can’t lose.

Incidentally, “honorary” may be as good as it gets when it comes to being an analyst these days. Becoming a real one is getting harder, or else people are getting stupider. The pass rate for the CFA Level 1 exam in May was just 25%. That was the lowest in 58 years or, for those who find numbers difficult (e.g., CFA Level 1 candidates), the lowest ever.

A spokesperson for the CFA Institute said Tuesday that “the degree of difficulty of the May Level I exam was consistent with previous Level I exam administrations.”

So, yeah, people might be getting stupider. I’m just kidding. I mean, people are getting stupider. But the low pass rate was apparently attributable to irregular study and testing timelines due to the pandemic.

As Bloomberg noted, “candidates on average study 300 hours for each level and take four years to complete the series.” For that kind of effort, you might be better off becoming a Level 3 sommelier instead. You won’t make as much, but drinking expensive wine will be part of your job description. Then again, drinking expensive alcohol is a job requirement on Wall Street too. Decisions, decisions.

Now to serious matters. US tech shares slid sharply Tuesday ahead of earnings from Alphabet, Microsoft and Apple. At one point, the Nasdaq 100 was down more than 2%. I don’t generally document the price action in mega-cap US tech on days when one (or more) of the “Big Five” are reporting after the bell. The numbers can render otherwise good color immediately stale.

Alphabet beat handily on the top line. Q2 revenue of $61.88 billion was ahead of the $56.23 billion analysts expected. The ex-TAC number was $50.95 billion, also a beat. The breakdown showed services and cloud both beat easily. EPS of $27.26 made a mockery of consensus ($19.35) and came in more than $4 above the top-end of the range. Operating income of $19.36 billion was more than $4 billion ahead of estimates, and at 31%, operating margins were a 500bps beat.

Microsoft beat too. Revenue of $46.15 billion was better than the $44.26 billion the Street wanted, and EPS of $2.17 was a beat ($1.92). Both the top and bottom line were ahead of the most optimistic analyst estimates, as was operating income.

What does all of that mean? Well, presumably a lot to analysts — the CFAs, I mean. For you, and for any erstwhile strivers who gave up in May to pursue a more exciting career pumping penny stocks on Reddit with people who’ll soon be “rounding up” pennies on Robinhood, it means very little. As is the case every, single quarter, big tech earnings are just a compendium of huge numbers. I’ve said this before, and I still think it’s mostly true: I’m not sure there’s much use in “analyzing” quarterly reports from the FAAMG cohort. They’re doing well. That’s really all you need to know. And you already knew it. Because chances are, you accessed Apple’s investor relations page by Googling it on your iPhone. Or some other combination of instinctual taps and clicks that generated some extra spare change for Silicon Valley.

Oh, and “one more thing.” Apple raked in $81.4 billion in revenue last quarter. Consensus was looking for $73.82 billion. The highest estimate was $78.10 billion. Products revenue of $63.95 billion was a beat ($58.2 billion), so was iPhone revenue ($39.57 billion versus an expected $34.56 billion), so was Mac revenue ($8.24 billion versus an expected $7.99 billion), so was iPad revenue ($7.37 billion versus an estimated $7.13 billion), so was wearables, home and accessories ($8.78 billion versus an expected $7.62 billion) and services revenue of $17.49 billion was a record. EPS of $1.30 was 18 cents above the highest estimate.

“Our record June quarter operating performance included new revenue records in each of our geographic segments, double-digit growth in each of our product categories and a new all-time high for our installed base of active devices,” CFO Luca Maestri beamed.

Tim Cook touted “a period of unmatched innovation” during which Apple “shar[ed] powerful new products with users, at a time when using technology to connect people everywhere has never been more important.”

Cook promised the company would “press forward to infuse everything we make with the values that define us.” Or maybe he meant Apple would infuse the values that define us with everything the company makes. Either way works.