31 July 2020

Tech Giants Report Strong Earnings Amid Lockdown

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News shaping
the markets today

     

What’s happening: The world's biggest tech firms - Apple, Alphabet, Amazon and Facebook, reported stronger-than-expected results for their latest quarter after the closing bell on Thursday.

What happened: While the pandemic has caused widespread business disruption, the technology behemoths exhibited resilience and generated billions of dollars.

The results reported by the leading tech companies were particularly impressive, as they came in a quarter when the US recorded the sharpest economic contraction in decades. The earnings call came on the heels of a Congressional hearing, during which the tech giants were grilled about their market power and monopolistic practices.

Why it matters: On Wednesday, the CEOs of Apple (Tim Cook), Alphabet (Sundar Pichai), Amazon (Jeff Bezos) and Facebook (Mark Zuckerberg) testified in front of the US House Antitrust Subcommittee, where they were bombarded with questions about their approach to competition, pricing and acquisitions as well as how they ensured data privacy.

Investors may ignore this antitrust hearing, although it is the biggest of its kind, and focus on the solid results reported by the tech giants.

Apple Inc: The shift to work- and learn-from-home helped the company record growth in the sales of devices, especially Macs and iPads. The iPhone maker’s revenues grew 11% to $59.7 billion, surpassing the consensus estimates of $52.25 billion. The company’s earnings came in at $2.58 per share, beating expectations of $2.04 per share. Apple also generated record operating cash flows of $16.3 billion in the quarter.

Alphabet: The Google parent recorded its first year-over-year decline in quarterly revenue since becoming a publicly listed company in 2004. Alphabet’s revenues declined 2% to $38.3 billion, while profits tumbled around 30% to approximately $7 billion. However, the overall results handsomely beat expectations.

Amazon.com: With a spike in online shopping, Amazon hired around 175,000 workers during the quarter to increase its deliveries. The ecommerce giant's sales climbed 40% to $88.9 billion, ahead of aggressive expectations of $81.53 billion. The company’s profits doubled to reach $5.2 billion.

Facebook: The social media company said its daily active users had grown by 12% to 1.79 billion. Facebook’s revenues grew 11% to $18.69 billion, better than the consensus view of $17.40 billion. Earnings came in at $1.80 per share, convincingly beating analyst expectations of $1.39 per share.

How shares responded: Following the release of quarterly results, Apple’s stock jumped 6.4% in after-hours trading, while shares of Amazon rose 5% and Facebook by 6.5%. Alphabet’s shares remained subdued, rising only 0.5% in extended trading.

What to watch: With tech majors exceeding consensus expectations, the US stock indices, especially the tech-laden Nasdaq 100, are expected to open today’s session on a stronger note. Markets expect some of these tech stocks to reach their 52-week highs today.

The Markets Today

     

European stocks will be in focus today, ahead of a basket of economic reports scheduled for release during the day.

Context: European markets closed lower on Thursday following a record contraction in the US GDP (gross domestic product). Investors also digested earnings reports from major companies.

Details: The US economy recorded its worst contraction in the second quarter, with nearly a third of the GDP being wiped off. Meanwhile, weekly jobless claims rose for the second week, although the figure came in slightly better than feared.

Following its two-day policy meeting, the US Fed held its interest rates unchanged and announced plans to continue with its bond buying program.

Earnings remained in focus for investors, with Credit Suisse posting 24% growth in net income. Shares of Lloyds plummeted around 8% after the British domestic bank recorded a pretax loss.

Shares of Renault fell by 9% after the French company reported a net loss of €7.3 billion for the first half of the year. Volkswagen’s stock lost 6% after the company reported an operating loss of €800 million in the first half of the year, with a 27% decline in vehicle deliveries.

Markets continued to access the rising covid-19 numbers, with Brazil recording a record 69,000 new cases on Wednesday.

The pan-European Stoxx 600 closed lower by 2.2% on Thursday, with bank stocks being among the major losers, falling more than 4%.

London’s FTSE 100 declined by 2.3%, while the German DAX 30 index lost 3.5% in the previous session.

What to watch: Investors await Eurozone’s GDP and inflation rate reports. The Eurozone economy, which contracted by 3.6% in the first three months of the year, is expected to shrink 12% in the second quarter. Consumer price inflation is expected to decline to 0.2% in July, from 0.3% in June.

Investors will continue to monitor the covid-19 figures, with the total number of cases surpassing 17.2 million globally.

Other Markets: US indices trading closed mostly lower on Thursday, with the Dow Jones index and S&P 500 down by 0.85% and 0.38%, respectively. However, the Nasdaq 100 closed higher by 0.43%.

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What else to watch today

     

France’s GDP growth rate, annual inflation rate and household consumption expenditure, Germany's retail sales, UK’s nationwide house price index, Switzerland's retail sales, Spain’s GDP annual growth rate and current account, Italy’s GDP, inflation rate and retail sales, Canada’s GDP, industrial product price index, raw materials price index and government budget value as well as the US personal spending, personal income, employment cost index, Chicago PMI, University of Michigan's consumer sentiment Index and Baker Hughes crude oil rigs.

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