Over the next three days, investors will be bombarded with June quarter earnings reports from the industry’s biggest players.
(symbol: MSFT) and
(GOOGL) will communicate the results. Wednesday,
(META) will be in the spotlight, but we’re also getting results from
(SHOP), among others. On Thursday, the pace picks up, with results of
There are specific scenarios for each of these companies, but this is a quarter where the focus is on the big picture. Here are some key issues to watch over the next few days:
How bad is the online advertising environment? Last week,
(SNAP) stock plummeted nearly 40% in a day after Snapchat parent simply posted terrible June quarter results, while declining to provide guidance for the September quarter. These results raised new concerns on the state of online advertising. These are really three separate but interrelated issues. Apple’s crackdown on sharing information about the sites and apps iPhone users visit continues to make targeting more difficult. Additionally, advertising budgets tend to shrink during economic downturns, and digital advertising is no exception. And third, competition for advertising dollars is growing, particularly from TikTok, but also from Amazon and Apple, both of which have smaller but growing advertising arms. And keep in mind that not all advertising-focused online businesses will be affected to the same degree: the consensus on the street is that display ads on Meta might be more vulnerable than advertising on Google Search.
Will cloud spending hold up? The three largest public clouds are Microsoft Azure, Google Cloud, and Amazon Web Services. Until very recently, the thinking on the street was that these companies would weather any downturn as companies in the midst of “digital transformation” shift more of their IT budgets to the cloud. But there’s a risk here that cloud customers will cut spending — or at least slow spending growth — as the economy slows. Among other things, these cloud companies serve social networks, video streaming sites and e-commerce services, all of which have seen their business slow. Any serious failure in this area, especially by Azure and AWS, would not be welcomed by investors.
What are the prospects for e-commerce? Shopify results on Wednesday could provide a first look how poorly Amazon’s e-commerce arm performed in the June quarter. The good news is that expectations are low – Amazon will almost certainly post a year-over-year decline in revenue from its online store. Comparisons with last year’s more robust environment for online retail remain difficult. Retailers, online and offline, will be looking for clues about the state of consumer demand in the run up to higher interest rates, soaring inflation and spreading fears of recession.
The almighty dollar: One of the reasons why most of Street’s estimates for the June quarter seem too high is the huge appreciation of the greenback against other currencies around the world. Many companies had expected the currency to be a headwind in the 2-4 percentage point range, but the impact of the surging dollar will be far greater than that for many.
International Business Machinery
) had projected a decline in the currency of 3 to 4 points, for example, and reported a success of 6 percentage points. The other side of the coin that gets less attention is that European companies are benefiting from a huge tailwind on currencies, as income received in dollars translates into more euros. For most companies, “constant currency” revenue is greater than GAAP earnings; the reverse is true for European firms, such as
(SAP), which received an increase of 8 percentage points to June quarter earnings.
How bad is the demand for PCs and smartphones? Recent data from market research companies like IDC and
as well as comments from
(MU), suggest that sales of PCs and smartphones has softened considerably, and for several reasons. Consumers charged new devices during the pandemic, which at this point do not need to be replaced. And worries about recession, inflation and a slightly tighter job market are triggering consumer anxiety and a more conservative approach to shopping. We’ll get new data on this front from Microsoft, Intel, Qualcomm and Apple, as well as the peripherals company
(LOGI), which publishes its results early Tuesday.
What about business IT demand? Both IBM and SAP said demand remains generally strong, although there are crosswinds and complications, including the industry’s withdrawal from the Russian market and ongoing currency issues. There should be updates on that front from Microsoft’s results on Tuesday, with more data to follow on Wednesday from
(NOW). Shares of the cloud-based software provider sold off recently when CEO Bill McDermott appeared on CNBC and warned that more time was needed to strike deals in Europe.
A few other things to watch out for:
) announce a deal? The ATM and point-of-sale terminal maker considered strategic alternatives and is expected to report results on Wednesday. An announcement is expected soon; the company could become private.
Will Meta reduce expenses? One way CEO Mark Zuckerberg could reignite interest in the company he founded would be to scale back his aggressive spending plans for the Metaverse. It seems like a good time to focus on the core business.
Will Amazon CEO Andy Jassy show up on the company’s earnings call? The CEOs of
IBM, Microsoft, Apple, Meta, Intel and Alphabet all participate in quarterly earnings calls. But former Amazon CEO Jeff Bezos skipped his company’s calls, and so far new CEO Andy Jassy is following the same pattern. It would be a good quarter for him to show up.
Write to Eric J. Savitz at email@example.com