Apple, Amazon Results Leave Macro Questions Unanswered

Amazon delivered disappointing revenue guidance after the bell Thursday, underscoring the notion that even the mightiest American corporates may struggle to meet lofty expectations in an exceptionally challenging operating environment.

Andy Jassy cited the pandemic and the war in Ukraine while describing “unusual” headwinds to growth. The company sees net sales of between $116 billion and $121 billion in Q2, suggesting the top line will be short of consensus even in a best case scenario. Headed into Q1 results, Wall Street expected $125 billion in revenue for the quarter ahead.

As for Q1, revenue of $116.4 billion was merely in line. Notably, it was the second consecutive quarter during which revenue grew less than 10%. Q2’s guidance suggests the streak will continue. Amazon has never logged consecutive quarters of sub-10% top line growth.

It’s not particularly difficult to spin a dour narrative. Not necessarily about Amazon, but about mega-cap tech more generally. For years, the assumption among market participants (and analysts) was that peak growth for America’s tech titans was decades away. Even if organic growth slowed, they could always grow through acquisitions, bulls said. Most of that is probably a semblance of true, but the bigger you get, the harder it is to move the needle with acquisitions. Buying comparatively small companies isn’t necessarily a scalable solution to a growth problem unless you can consistently acquire the fastest-growing new entrants, a strategy which risks running afoul of regulators, especially in the current political climate.

The assumption of perpetually robust growth (alongside a favorable macro backdrop for growth stocks), served as the justification for sky-high multiples. Although Facebook’s results weren’t terrible this quarter, last quarter’s debacle was a wake up call: Investors can no longer take stratospheric growth for granted. Netflix’s stunning projection for two million lost subscribers in the current quarter was yet another blow to the perpetual growth narrative. One could say the same of PayPal.

More narrowly, Amazon’s slowing revenue growth might be viewed as evidence of a weaker consumer just as recession fears crescendo. Of course, it’d be foolish to overstate the case. Amazon is still Amazon. AWS revenue grew 37% YoY in the first quarter, and as Jassy was keen to remind the market, the company’s consumer business has grown 23% annually over the past two years. It grew so fast during the pandemic that Amazon was forced to double the size of a fulfillment network built over a quarter century in just 24 months. The downside is that, if demand slows, Jassy could have an overcapacity problem. Indeed, CFO Brian Olsavsky suggested Amazon does, in fact, have too much warehouse space and more workers than it needs.

Whatever the case, there are more questions than answers. For once, that’s not just boilerplate copy. Make a list of macro questions you think are relevant for the C-suite and then go listen to some earnings calls. Answers for most of your questions aren’t forthcoming.

Still, you can count on Apple. An admittedly cursory glance at the company’s results (also out Thursday after the bell) suggested Tim Cook delivered on virtually every metric. The company beat on the top and bottom lines. Revenue for iPhones, Macs and iPads all beat estimates comfortably, although iPad sales slipped from Q2 2021 despite a bevy of new iterations. Services revenue rose more than 17% YoY. Wearables posted a slight miss.

Apple’s $97.3 billion in revenue was the most ever for a March quarter and easily beat estimates ($94 billion). Cook lauded the company’s “relentless focus on innovation” on the way to stating the obvious in amusingly unequivocal terms: Apple has “the best products and services in the world,” he said.

The company’s installed base hit an all-time high, services revenue of $19.82 billion was a record and Apple boosted buybacks by $90 billion and hiked its dividend, in line with precedent.

However, the company again declined to provide guidance, and later said China’s efforts to contain COVID will impact the current quarter. In all likelihood, the cautionary remarks will weigh on the stock, given the premium placed on any kind of guidance, official, implied or off-the-cuff. On the call, Apple said supply chain constraints may cost the company as much as $8 billion in revenue this quarter. “We are not immune to these challenges,” Cook said, of the fraught macro backdrop, including the war and ongoing chip shortages.

Cook also nodded to Apple’s reputation which, as far as big-tech companies go, remains generally favorable. “We are committed, as ever, to being a force for good in the world,” he said. “Both in what we create and what we leave behind.”

Somehow, I doubt that renewed commitment to virtue will offset any additional hints of prospective supply chain disruptions.

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