Amazon and Apple closed the book on mega-cap tech earnings Thursday, as US equities looked to ride a rollicking post-FOMC rally to a second consecutive weekly gain.
Amazon is the subject of intense investor scrutiny on several fronts. In addition to giving market participants another window into the worried minds of inflation-weary consumers, the company’s results were eyed in the context of last quarter’s report, which foreshadowed an overcapacity problem now plaguing many of America’s largest retailers.
In April, CFO Brian Olsavsky suggested Amazon had too much warehouse space and more workers than it needed, after expanding rapidly in fulfillment to meet voracious demand in the aftermath of the pandemic. On Thursday, Andy Jassy said the company is “making progress on the more controllable costs we referenced last quarter.” He specifically mentioned improvements in fulfillment productivity. Although total employment at Amazon rose 14% from a year ago, the company shed workers in its warehouses and delivery network compared to Q1. Fulfillment expenses rose less than expected.
Net sales of $121.2 billion rose 7% YoY and beat estimates (figure below). If you exclude a 10% currency headwind, sales were 10% higher on a 12-month basis.
The company guided for between $125 billion and $130 billion in sales for the current quarter. Consensus was $127 billion. Amazon expects a 390bps FX drag. Operating income will be somewhere between nothing and $3.5 billion. So, just pick a number there.
Jassy touted an enhanced experience in Prime (after raising prices earlier this year), investments in “faster shipping speeds” and “unique benefits,” including free Grubhub for a year and an upcoming Lord of the Rings reboot. (Everyone loves Tolkien!)
Margins were better than expected (by more than 100bps), net sales for North America beat, subscription services revenue was a bit light ($8.72 billion versus $8.81 billion) and, crucially, AWS topped estimates, with net sales of $19.74 billion, up 33% YoY, the slowest pace since Q1 2021, but solid nevertheless. Total online store net sales were about a billion short of consensus at $50.86 billion.
Headcount fell by 99,000. Amazon showed a net loss for the quarter, but that was largely a function of a near $4 billion writedown on the Rivian stake. The shares jumped sharply after hours.
Those of you old enough to remember April may recall that Amazon suffered an epochal post-earnings wipeout that counted among the largest single-session value destruction events in US equity market history.
In a testament both to the environment and the clout of America’s tech titans, Amazon also boasts one the largest one-day value creation events ever. If the stock’s after hours gains held, Friday had the potential to be another day for the record books, the third for the company in 2022 (figure above).
Apple, meanwhile, matched estimates with $82.96 billion in revenue for fiscal Q3. That’ll work under the circumstances.
Investors will likely cheer iPhone sales of $40.67 billion. That was easily better than consensus, and singlehandedly drove a beat in products ($63.36 billion versus an estimated $62.44 billion). Mac revenue was very light and dropped 10% YoY. Wearables missed, and iPad sales were essentially in line.
Service revenue rose 12% to $19.6 billion, short of the $19.75 billion analysts would’ve preferred, but probably not short enough to outweigh the iPhone beat in the minds of investors. Greater China revenue was $14.6 billion, down -1.1% YoY. I’ll go out on a limb and say that could’ve been worse.
The shares came into earnings eying their largest monthly gain since 2020’s summer tech bonanza, when Apple surpassed Saudi Aramco to become the world’s most valuable company, hitting the vaunted $2 trillion market cap milestone shortly thereafter.
CFO Luca Maestri always does an admirable job of making it sound as though the company is hitting on all cylinders, although I guess that isn’t too difficult when your company is, in fact, mostly hitting on all cylinders, all the time.
“We set a June quarter revenue record and our installed base of active devices reached an all-time high in every geographic segment and product category,” Maestri said Thursday, adding that Apple “generated nearly $23 billion in operating cash flow, returned over $28 billion to shareholders, and continued to invest in long-term growth plans.”
Tim Cook offered the customary feel-good assessment. Apple, he said, is “constantly” innovating and pushing the limits of what’s possible in order to “enrich the lives” of the company’s customers.
Anything can happen once investors digest the calls, but as things stood shortly after earnings, Amazon and Apple both looked sturdy. When taken in conjunction with gains this week for Microsoft and Alphabet following their own reports, Facebook came away looking lost — a lonely avatar wandering through a virtual world where all the attractions are marked “under construction.”
I thought results from meg-cap tech might keep markets buoyant (they have), but I really didn’t see rates collapsing). Bonds and stocks are telling wo different stories and only one can be right. I think we see some of the air coming out of equities next week as non-tech reports; I have no idea what bonds are going to do.
Don’t forget, though, that falling bond yields are a big boon for long-duration equities, which still comprise a huge percentage of index market cap. So it’s actually pretty intuitive that you’d get a simultaneous rally even if you wanted to characterize the drop in yields as indicative of a recession that stocks should be reacting to by selling off. Five-year reals are 30bps lower (!) in two sessions, 10-year reals ~25bps lower. That’s rocket fuel for equities and especially high-multiple growth
If I understand you correctly: efficient markets are not allocating to bonds with low yields, instead money flows to the usual “perptual motion machines” (with dividends!)…
Big Tech are best positioned to weather a downturn: They have all the data and can turn on a dime, like Amazon cutting 99k jobs (sounds like a lot to a union even if it’s small compared to 1.5M employees).
I guess though the market is signaling it thinks the rate hikes are almost done and are looking through to growth? (Could it be the bottom, I guess only Inflation and the Fed really know?)
Looking at last 1 week’s performance, the mega techs are all green (save META) if you include aftermarket move in AMZN.
Interestingly, L1W looks just as or more positive for a lot of names, large and small, tech and otherwise. Looking at the sector ETFs, the best L1W performance is in XLU followed by XLRE XLE XLI XLP and only then do we get to XLK, about midpack.
I dipped a toe in some of the mega-techs a couple months ago. Comparing these fancy shiny names to the otherwise motley collection of names in the portfolios, AMZN (assuming aftermkt move holds) will have the best L1W perf – but not by that much. MSFT is +4.4% L1W, GOOG is still down a little. META is impressively bad.
Basically, this has been a broad move that was pretty forgiving, for relative performance – you didn’t have to own mega-tech to pace or beat SP500.
What does Mike Wilson think of all of this?
https://finance.yahoo.com/m/f07e6403-70ed-3e40-a80a-e321a2c59523/stock-market%E2%80%99s-post-fed.html
Amazon is cruising toward a half trillion in revenue and an operating profit that requires a magnifying glass to see. Frankly, I have never owned this because I can’t see the point. Investments are supposed to be supported by earnings. This one is mostly based on promises. Even if they net $8 bil for 12 mos, compared to revenue of 500 bil the margin would be just over 1%. Big whoop.
It’s mainly a play on cloud computing via AWS. (There are some nascent signs that the spectacular growth in cloud adaptation is slowing.) the retail side operates as a loss leader to some extent. I do think that they still have more upside from selling targeted advertising.
AMZN has always been a promise name, idea being that someday they will stop investing all margin into growth, and profits will appear. It has also been a cash flow name, rather than an EPS name.
Since 2020, revenue has grown hugely and AMZN has invested more hugely in capacity, so with revenue slowing it has too much capacity (heads, sq ft, capex).
On paper, AMZN can ease off expense and capex, and increase profit and cash flow very greatly, while remaining a growth name. Whether it will, we’ll see.
I started nibbling after the 1Q blowup, hoping that Jassy doesn’t have Bezos’ growth-uber-alles mindset.
I think AWS alone can’t drive the story from here.