Microsoft down, Meta up

Hey Superheroes,

We had Microsoft, Apple, Amazon and Meta from the Big Tech release quarterly earnings this week. Among all the other major names, we also saw chipmakers AMD and Intel, and our homegrown Atlassian, report their numbers.

On the economic front, AU inflation came in as expected – 3.80% in the 12 months to the June quarter.

The U.S. Federal Reserve announced its decision to keep the Fed Funds Rate within the range of 5.25%-5.50%, citing that a rate cutting cycle may begin as early as September. 

It’ll be interesting to see what the RBA cash rate decision will be next Tuesday.

Earnings from Big Tech

Before we get to the actual numbers, here are their biggest share price movements in the hours following their reports (or in the after hours market for Apple and Amazon, both of which reported earlier today). 

• Microsoft: -7.1%
• Meta: +10.8%
• Apple: +0.6% 
• Amazon: -6.9%

🤔 What happened with Microsoft?

Here’s how Microsoft performed compared to analyst expectations:

• Revenue: $64.7 billion vs. $64.4 billion expected (↑0.47%)
• EPS: $2.95 vs. $2.93 expected  (↑0.68%)

Overall, Microsoft performed slightly better than analyst expectations. Revenue increased by 15% year-on-year, with earnings also growing by 9% over the same period.

But despite both the earnings outperformance and Microsoft’s growth across all segments, its shares dropped as much as 7.1% following the report. Why? Experts believe it may be due to Microsoft’s cloud segment, Azure, growing by 29% year-on-year – with Wall Street expecting a slightly better 31%.

Azure hasn’t underperformed expectations since 2022, hence the reaction. Additionally, Wall Street has high expectations for the cloud division, given it’s where Microsoft competes with Google Cloud and Amazon Web Services. Microsoft is also known to have been pouring capital into AI, the results of which should be seen in Azure’s numbers.

Despite the initial drop, Microsoft shares have since recovered to trade flat for the week. 

👀 Meta jumped up to 10%

Here’s how Meta performed compared to analyst expectations:

• Revenue: $39.07 billion vs. $38.31 billion expected (↑1.98%)
• EPS: $5.16 vs. $4.73 expected (↑9.1%)

Meta saw Q2 2024 revenue grow by 22% from a year ago. This marks its fourth consecutive quarter with over 20% growth. EPS also jumped 73%, rising from $2.98 per share in the same period last year.

Another highly important metric for Meta is advertising revenue, which rose by a relatively impressive 22% year-on-year. In comparison, Google only saw an 11% increase in ad sales last quarter.

Meta is now expected to have higher capex for the year as Meta pumps investment into its AI R&D. Mark Zuckerberg voiced his belief that Meta AI is set to be the most used AI assistant by the end of the year.

And apparently, the Ray-Ban x Meta AI sunglasses are seeing some good traction.

📱 Earnings beat despite slower iPhone sales

Here’s how Apple performed compared to analyst expectations:

• Revenue: $85.8 billion vs. $84.5 billion expected (↑1.54%)
• EPS: $1.40 vs. $1.35 expected  (↑3.7%)
• Gross margin: 46.3% vs. 46.1% expected (↓0.2%)

Apple also reported better than expected revenues across all its segments except Mac, which came slightly lower than estimates.

As usual, the iPhone remains the largest slice of the pie – having generated 46% of Apple’s total sales for the quarter. However its total dollar value shrank 1%, year-on-year.

On the bright side, Apple’s iPad division grew 24% year-on-year, while its Services revenues grew by 14%.

🛒 Amazon’s lower revenue, lower guidance

Here’s how Amazon performed compared to analyst expectations:

• Revenue: $148 billion vs. $148.6 billion expected (↓0.41%)
• EPS: $1.26 vs. $1.03 expected (↑22%)
• AWS Revenue: $26.3 billion vs. $26 billion expected (↑1.2%)
• Advertising: $12.8 billion vs. $13 billion expected (↓1.6%)

While Amazon’s online store sales grew by 5% year-on-year, Amazon’s Finance Chief believes that the revenue miss is due to customers choosing to buy cheaper products, causing a lower average selling price (ASP).

AWS revenues grew by a solid 19% from a year earlier – however this comes at a slower rate than rivals Microsoft Azure and Google Cloud.

Amazon now expects revenue for the current quarter to come in at around $156.25 billion, below the average analyst estimate of $158.24 billion.

Following the news, Amazon shares slumped in afterhours trading. 

🔦  Some other things we’re shining the Spotlight on:

• REX IS GROUNDED: Regional Express (REX), the carrier of 5% of Australia’s domestic passengers, entered into voluntary administration this week. All Rex flights have been grounded and 18% of its workforce has been stood down since the news came out. Its shares are now in a trading halt. 
• TEAM NEEDS MORE WORK: Despite double digit revenue growth and free cash flows of over US$1.4 billion, Atlassian recorded full year losses of US$300m. Its shares fell 14% in the after hours market. 
• THAT’S SOME BAD INTEL: Intel missed last quarter’s earnings expectations by over 80%, plus guided a quarterly net loss of $0.03 per share the following quarter – a far cry from estimates of $0.31 per share. Intel now plans 15,000 job cuts. Shares are now down 19% in the afterhours market.

Palantir, Uber, Disney and Alibaba are among those reporting next week.

Keep up to date on the markets by following us on Instagram, @superheroau!