Friday, October 30, 2020

Tech Giants Report Blowout Quarter, But Shares Subdued

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News shaping
the markets today

     

What’s happening: The world’s biggest tech companies, including Apple, Amazon, Google parent Alphabet, Facebook, and Twitter, reported upbeat third-quarter results after the closing bell on Thursday.

What happened: Big tech companies generated strong profits again, in the work- and learn-from-home environment amid the pandemic. The companies also benefited from a rebound in economic activity with easing restrictions.

Despite the fantastic results, only Alphabet’s shares gained in after-hours trading, while the other stocks traded in the red.

Why it matters: Various companies reported an improvement in performance in the third quarter, with the government providing stimulus and the lifting of restrictions on economic activities. The tech giants have been the best positioned in the pandemic, recording gains even during the lockdown period. The recent quarter continued that positive momentum, with all five companies reporting better-than-expected sales.

Apple: Apple exceeded market estimates driven by a rise in sales of its iPads and Mac laptops. However, the company’s iPhone sales were unable to match expectations with Apple delaying the release of iPhone 12 and a 29% decline in revenues in its second-biggest market, China. The company reported earnings of 73 cents per share, exceeding estimates of 71 cents per share, while revenues came in at $64.70 billion, also surpassing the consensus view of $63.7 billion. 

Amazon: Profit margins at Amazon Web Services edged lower during the quarter. The company warning investors that higher coronavirus-related spending might impact its profits for the holiday quarter. Amazon missed operating income expectations for the third quarter despite reporting strong overall profit and sales. Amazon’s quarterly earnings came in at $12.37 per share on sales of $96.1 billion.

Facebook: The social media giant saw an unexpected decline in users in the US and Canada, despite witnessing growth in the overseas markets. Facebook cautioned of “a significant amount of uncertainty” next year, due to regulatory changes and uncertain spending trends amid the pandemic. The company posted profits of $2.71 per share, surpassing expectations of $1.90 per share and revenue of $21.47 billion, beating the consensus estimate of $19.8 billion.

Alphabet: After reporting a decline in the June quarter due to lower spending from advertisers amid the pandemic, Alphabet staged a return to growth in the latest quarter. The company also reported 32% growth in sales at YouTube. The company's revenue grew 14% to $46.2 billion, while profits surged 59% to $11.2 billion, or $16.40 per share. Both metrics easily exceeded market expectations.

Twitter: Twitter recorded upbeat results for the quarter driven by a rise in advertising spend. Twitter’s average daily users climbed 29% to 187 million, but the number fell short of analyst expectations of 195.6 million. The company expressed uncertainty around advertiser spend going forward due to the upcoming elections. Twitter’s quarterly earnings came in at 19 cents per share on sales of $936.2 million, with both figures easily surpassing estimates.

How shares responded: Alphabet’s shares gained 6.5% to reach $1,658 in after-hours trading. Meanwhile shares of Amazon fell 1.9%, Apple was down 4.2%, Facebook shed 2.7% and Twitter’s stock tumbled 17.6% in extended trading.

What to watch: With most tech companies mentioning an uncertain environment, investors could remain cautious in the crucial holiday season. On the other hand, the resurgence in covid-19 cases globally could benefit tech companies in case governments reimpose restrictions.

The Markets Today

     

The Canadian dollar will be in focus today, ahead of GDP data from the country.

Context: The Canadian dollar traded mostly flat versus the greenback on Thursday, after rebounding from its previous four-week low level.

Details: The US reported upbeat economic data in the prior session, which helped offset fears of rising covid-19 cases. The economy grew at a record pace in the third quarter, following last quarter’s sharp contraction. The country’s unemployment claims also declined last week.

With the US being an important market for Canada, the news of economic growth supported the loonie. However, the Canadian dollar could not consolidate its gains, with low oil prices exerting pressure. Oil, one of Canada’s main exports, fell 3.3% to close at $36.17 per barrel on Thursday as sentiment was hurt by the potential impact of renewed lockdowns.

At one point, the Canadian dollar dipped to a four-week low of 1.3389 versus the greenback. However, it recovered shortly to end the day flat at 1.3315.

What to watch: Investors await a basket of economic reports from Canada, including GDP, industrial product price index and government budget value. The Canadian economy, which grew 3% in July, is expected to grow 0.9% in August. The industrial product price index is likely to rise 0.1% in September.

Other Markets: US trading indices closed higher on Thursday, with the Dow Jones index, S&P 500 and Nasdaq 100 up 0.52%, 1.19% and 1.64%, respectively.

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What else to watch today

     

France’s consumer prices and household consumption expenditure, Spain’s GDP and current account, Turkey’s tourist arrivals, Germany's gross domestic product, Italy's unemployment rate, consumer prices and GDP, Eurozone’s GDP growth, consumer prices, unemployment rate, Brazil’s unemployment rate and budget value, Mexico’s GDP, South Africa's balance of trade, Russia’s money supply M2 as well as the US personal income, personal consumption expenditure, employment cost index, Chicago PMI, consumer confidence and Baker Hughes crude oil rigs.