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.”