Alphabet, Microsoft Bear-Market’s Leading Earning Season

(Bloomberg) — Investors face a week of success or failure for some of Wall Street’s most influential tech stocks in a historic year for the group marked by a dip in bear market territory.

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Superlatives followed one after another on the 2022 road trip. Shares of Meta Platforms Inc. lost. 61%, its biggest drop since the company went public a decade ago. Apple Inc. is preparing. and Alphabet Inc. and Amazon.com Inc. and Microsoft Corp for the steepest declines since the global financial crisis.

The Nasdaq 100 rose 0.6% on Tuesday.

Now, those companies are set to report quarterly results this week with forecasts showing earnings decline by the most in at least three years. The quintile combined makes up about 40% of the weight of the Nasdaq 100, which has lost $6 trillion in value this year due to massive interest rate increases by the Federal Reserve and the growing possibility of a recession.

“It’s essential to sentiment around technology, no doubt,” said Neil Campling, an analyst at Mirabod Securities. “Investors are now focused on the bottom line and want evidence of lower costs, disciplined spending, and no pursuit of revenue growth at any cost.”

Here’s a look at the major tech stocks due to be released this week and what investors are watching.

the alphabet

Investors are concerned about the strength of the advertising market in a weaker economy, a topic underscored by Snap Inc.’s weak growth. last week. However, analysts still plan to achieve full-year revenue growth for Alphabet of about 12%, slightly faster than the S&P 500, with double-digit increases also expected for the next three years.

Any indication after the market close on Tuesday that this outlook is too optimistic could push the stock lower. Keybanc Capital Markets on Monday lowered its estimates for parent Google, and now expects revenue to increase by just 5% for the year.

Arguably, the stock’s weakness made Alphabet a bargain, trading at just 17 times estimated earnings, discounted from its 10-year average and the Nasdaq 100 overall.

Microsoft

The software giant, which also announced after Tuesday’s close, is trading at 23 times earnings, a slight increase over its average over the past decade.

While demand for cloud and commercial software products is expected to always be, even in a recession, the 9.4% quarterly revenue growth projected by analysts will be its slowest pace since 2017.

“The big question mark is, what impact will Microsoft have from a slowing economy and weaker PC?” Wiley Angell, chief market strategist at Ziegler Capital Management. “However, given the overall stability of revenue and stock valuation, I think this is the time to evaluate it.”

ID pads

After a stock plunge that wiped out $579 billion from Meta’s value this year, some investors want to hear Mark Zuckerberg announce in earnings Wednesday that he’s pulling back on spending to push the company into the metaverse. This expensive gambit still has to generate meaningful revenue at a time when investors focus on cutting costs.

Facebook’s parent has been cornered by stunted user growth, competition from TikTok, and Apple’s privacy policy that has reduced its ability to target ads. Also, facing the same weak ad market that put pressure on Snap.

Full-year revenue is expected to decline 0.7%, making it the only company among the five companies expected to post a decline. This is also set to be the first year of lower revenue in the company’s history. Meta shares are trading near their lowest recorded levels, although that wasn’t enough to tempt the bulls.

Amazon.com

Amazon reports Thursday afternoon, and the report will be scrutinized as leading across industries. The e-commerce business will highlight consumer power, especially in the holiday shopping season, while the Amazon Web Services cloud computing division gives a glimpse into how IT spending has stopped.

Investors are likely to focus on Amazon’s progress in cutting costs, given the recent preference for profitability over growth. Amazon is trading at more than 40 times estimated earnings, more than double the Nasdaq 100 index, albeit less than its long-term average.

Amazon is the first idea for JPMorgan Chase & Co. Among Internet stocks, it considers the valuation attractive. While analyst Doug Anmuth sees some risks – including currency headwinds and slowing discretionary spending – he writes that it “becomes a cleaner story through 2022 as revenue growth accelerates and operating income margins expand through 2023”.

apple

The iPhone maker was a relative winner in 2022, down 15%. Investors have been drawn to it because its steadily growing balance sheet and strong fortress give it safe haven status.

However, that could leave the stock vulnerable when a report is made on Thursday. Bloomberg News recently reported that it is backing away from plans to ramp up production of new iPhones due to demand trends. The stock is also trading at 23 times forward earnings, above its long-term average and the market in general.

“Apple certainly doesn’t seem to be priced into the recession, and short-term complications can be challenged, given what we’re hearing about market softness,” Angel said. “However, earnings stability should continue to stabilize the stock, while providing a higher floor for the multiplier.”

Technical chart for today

The most important technical stories

  • Apple has raised prices for its music and TV+ services for the first time, citing rising licensing costs, a move that risks giving competitors an advantage in the highly competitive streaming industry.

  • WhatsApp, the instant messaging service owned by Meta Platforms Inc. It fixed an issue that caused widespread outages, with tens of thousands of users reporting problems.

  • Amazon workers seeking union membership at a company warehouse in Southern California have given up trying to hold an election, a setback for a fledgling Amazon workers union after its defeat at a New York facility last week.

  • The United States has revealed charges that two Chinese intelligence officers tried to obstruct a criminal investigation of Huawei Technologies, and that others were working on behalf of a “foreign power” to try to buy technology and recruit spies.

  • SoftBank Group Corp-backed Jellysmack, which helps creators become YouTube and TikTok stars, is launching a spending spree to grow in Asia, after cutting staff this year.

– With the help of Subrat Patnaik.

(Updates to open market.)

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