:quality(70)/cloudfront-eu-central-1.images.arcpublishing.com/irishtimes/IHANOPDKR4TFCKH6M22RRJGIN4.jpg)
Amazon, Alphabet, Apple and Facebook will all report their September quarter earnings within moments of each other on Thursday, slipping out ahead of next week's US presidential election.
The companies have grown used to sharing the stage recently. Each faces growing antitrust concerns at a time when they have cemented their dominance during the pandemic, while their group appearances to testify in Washington DC - such as at Wednesday's Senate hearing on changes to their legal protections - are becoming a regular occurrence.
But despite the scrutiny, their businesses have marched on. All four have comfortably outperformed the S&P 500 this year. Amazon, the biggest mover, is up almost 70 per cent versus the index’s 1.5 per cent gain. In assessing this round of earnings, investors will be eyeing any sign that suggests a permanent shift rather than a short-term pandemic boost. In particular, they will be looking at the resilience of the advertising model that underpins so much of the internet economy.
Alphabet
Little more than a week after being accused by the US government of illegally squeezing out competitors in the search market, Google’s parent, Alphabet, is expected to report a return to growth that bucks a wider downturn in global advertising markets.
:quality(70)/cloudfront-eu-central-1.images.arcpublishing.com/irishtimes/TFIBPS7XSJMZFPYPMECFZOTEAU.jpg)
:quality(70)/cloudfront-eu-central-1.images.arcpublishing.com/irishtimes/25W42AECI2AJU6DEZPFGBOXS3Q.jpg)
:quality(70)/cloudfront-eu-central-1.images.arcpublishing.com/irishtimes/N3POVFCXXZA7OAZYOUF6VMHNW4.jpg)
:quality(70)/cloudfront-eu-central-1.images.arcpublishing.com/irishtimes/TSEGYRK7HKZJULQQGBLVJRAHSY.jpg)
The internet search giant suffered its first-ever revenue decline in the second quarter. But the 2 per cent fall pointed to a shallower than expected trough in the midst of the pandemic, and the company was reporting more stable conditions by the end of June.
For the third quarter, Wall Street is expecting revenue to grow 6 per cent to $42.8 billion (€36.6 billion), with earnings per share rising 10 per cent to $11.18. The rebound is expected to be led by strength in product listing ads, as more merchants turn to online to boost sales during the pandemic, as well as a partial recovery in pricing compared to the preceding quarter.
Google's overall growth rate has also benefited from businesses that have been largely immune to the downturn: cloud computing, where revenue is expected to grow more than 40 per cent, as well as consumer spending on things such as mobile apps, YouTube subscriptions and digital gadgets.
Key data point: Google's search advertising fell 10 per cent in the second quarter: a return to growth, even at the 2-3 per cent rate Wall Street is expecting, would show it has turned the corner. Richard Waters
Amazon
Investors were blown away by Amazon’s second quarter, in which it doubled its quarterly profits, handling the pandemic demand with aplomb and beating earnings expectations by 600 per cent.
Similar fireworks are not to be expected again this time. Elevated demand is predicted - there is still a pandemic - but forecasts are tempered by the modest return to some physical shopping, as well as Amazon’s decision to push back its Prime Day event from its usual third quarter and into the holiday season instead. Analysts predict a 30 per cent year-on-year revenue growth in the third quarter, versus more than 40 per cent in the second.
Still, the great unknown for Amazon investors, said Jefferies analyst Brent Thill, is whether the boosted revenues from the pandemic will sustain throughout the next year and beyond. Jefferies polling suggested new habits have formed, with more than 60 per cent of consumers saying they plan to continue spending more on ecommerce beyond the pandemic, most of it on Amazon.
It will be worth looking out for how the group is leveraging this attention. As well as its own retail sales, the company's advertising business, where it sells prime real estate to sellers who want to appear against popular product searches, has grown 40 per cent per quarter for the past four quarters. It is a small but increasingly meaningful part of Amazon's revenue, generating more sales than its physical stores, including Whole Foods, over the past three quarters. Dave Lee
Key data point: The group's "Other" revenue, which is mostly made up of advertising, will give an indicator as to how valuable visibility has become in Amazon's crowded shop window.
Apple
For Apple, the September quarter is generally the least important of the calendar year, as investors turn their attention to the Christmas rush when iPhone sales have their best run of the year. This is especially the case in 2020, as the delay of the iPhone 12 launch to October meant that no orders were taken in the September quarter.
Analysts are expecting Apple to bring in $64 billion of revenue - the same as a year ago, with lower iPhone sales offset by growing momentum in services and other hardware.
Morgan Stanley analyst Katy Huberty warned, however, that $60 billion is more likely. She argued other analysts are likely playing down the impact of the delayed iPhone launch, which could lead to an earnings miss.
Instead, the focus will be on guidance for the quarter ahead, as investors and analysts look for clues that the iPhone 12 could spur a “supercycle” of smartphone upgrades on the back of its 5G capabilities and Apple’s newest chipset, the A14 bionic.
"Guidance will be the most important part of Apple's fiscal Q4 earnings as the market seeks validation of expectations for a strong response to the iPhone 12 launch," said Geoff Blaber, analyst at CCS Insight. "We believe there is pent-up demand for upgrade." Patrick McGee
Key data point: Apple's guidance for the fourth quarter, if indeed they offer any. Mr Blaber predicted Apple will earn a record $93 billion-$95 billion in holiday-quarter revenues, up from $91.8 billion in the last quarter of 2019.
Impressive earnings from Snap last week suggest the market for social media advertising may be bouncing back - revenues at the Snapchat parent jumped more than 50 per cent, year-on-year.
But that may have been partly a migration: a highly-publicised advertiser boycott of Facebook, the impact of which we will get a chance to assess with these results, was probably to Snap’s gain.
With more than 1,000 brands pulling back spending on the platform, Facebook’s investors may be satisfied with a more modest improvement on the second quarter, when revenue grew 11 per cent year-on-year.
Meanwhile, a greater number of small businesses turning to the platform because of the pandemic may have helped boost ad sales - possibly helping to balance out the loss of the likes of Ford, Coca-Cola and Verizon. Wall Street is expecting revenue for the quarter to be up 12 per cent on last year.
The ad boycott was provoked by Facebook's policies on political advertising, just one of the multitude of criticisms facing the company as it hurtles towards the election. Four years ago, it was accused of allowing disinformation campaigns to swing the vote in the direction of Donald Trump, president. In this quarter, we could see signs of how costly it has been trying to prevent the same thing happening again. Dave Lee
Key data point: How many people are turning to Facebook during this pandemic? At its last earnings call, the company warned that loosening lockdown restrictions would mean daily and monthly active users would decline, quarter-on-quarter.
- Copyright The Financial Times Limited 2020
:quality(70)/cloudfront-eu-central-1.images.arcpublishing.com/irishtimes/VR3765MFOBH2NMV2QNICYDF67M.png)