Over the next three days, investors will be bombarded with earnings reports for the June quarter from the sector’s largest and most important players.
(ticker: MSFT) and
(GOOGL) will report results. On Wednesday,
(META) will be in the spotlight, but we also get results from
(SHOP), among other things. On Thursday, the pace increases, with results from
There are specific storylines for each of these companies, but this is a quarter when the real focus is on the big picture. Here are some key issues to track over the next few days:
How bad is the online advertising environment? Last week,
( SNAP ) stock fell nearly 40% in one day after Snapchat’s parent posted downright terrible results for the June quarter, while declining to provide any guidance at all for the September quarter. These results sparked new concerns just about the state of online advertising. There are really three separate but intertwined issues here. Apple’s crackdown on sharing information about which websites and apps iPhone users visit continues to make targeting more difficult. Advertising budgets also tend to shrink during economic downturns – and digital advertising is no exception. And three, competition for ad dollars is increasing, especially from TikTok, but also from Amazon and Apple, both of which have smaller but growing advertising arms. And remember that not all ad-driven online businesses will be affected to the same degree: the consensus on the street is that display ads on Meta may be more vulnerable than Google’s search advertising.
Will cloud spending stick around? The three largest public clouds include Microsoft Azure, Google Cloud, and Amazon Web Services. Until very recently, the thinking on the street was that these businesses would blow right through any downturn, as companies in the midst of “digital transformations” move more of their IT budgets to the cloud. But here’s a risk that cloud customers could cut their spending — or at least slow spending growth — as the economy slows. These cloud companies serve social networks, streaming video sites and e-commerce services, among others, all of which have seen their business slow. Any serious miss in this area – particularly by Azure and AWS – would not bode well for investors.
What is the outlook for e-commerce? Shopify’s results on Wednesday could provide an early look at how poorly Amazon’s e-commerce arm did in the June quarter. The good news is that expectations are low – Amazon will almost certainly show a year-over-year decline in revenue from its online store. Comparisons with last year’s more robust online shopping environment are still difficult. Retailers — online and offline — will be looking for clues about the state of consumer demand amid higher interest rates, soaring inflation and spreading fears of a recession.
The almighty dollar: One reason most Street estimates for the June quarter look too high is the huge strengthening of the dollar against the rest of the world’s currencies. Many companies had predicted that currency would be a headwind in the range of 2-4 percentage points, but the impact of the rising dollar is going to be far higher than that for many.
International Business Machines
), for example, had forecast a 3- to 4-point currency move, and reported a hit of 6 percentage points. The flip slide that gets less attention is that European companies get a huge currency tailwind, as revenues received in dollars translate into more euros. For most companies, “constant currency” earnings are higher than GAAP earnings; the opposite is true for European firms, which
(SAP), which received an 8 percentage point increase in earnings for the June quarter.
How bad is the demand for PCs and smartphones? Recent data from market research firms such as IDC and
along with comments from
(MU), suggests that sales of both PCs and smartphones have softened considerably, and for several reasons. Consumers loaded up on new devices during the pandemic, which at this point do not need to be replaced. And worries about recession, inflation and a slightly tighter labor market are triggering consumer anxiety, and a more conservative approach to purchases. We will get fresh data on this front from Microsoft, Intel, Qualcomm and Apple – and from the peripheral company
(LOGI), which reports results early Tuesday.
What about the company’s IT demand? IBM and SAP both said overall demand is strong, although there are headwinds and complications, including the industry’s retreat from the Russian market and ongoing currency issues. There should be some updates on this front from Microsoft’s results on Tuesday, with more data to follow on Wednesday from
(NOW). The cloud-based software provider’s stock recently sold off when CEO Bill McDermott appeared on CNBC and warned that it was taking longer to close deals in Europe.
A few other things to look at:
) announce a deal? The manufacturer of ATMs and retail terminals has considered strategic alternatives, and is scheduled to report results on Wednesday. An announcement is expected soon; the company could go private.
Will Meta cut expenses? One way CEO Mark Zuckerberg could revive interest in the company he founded would be to cut his aggressive spending plans for the metaverse. This seems like the right moment to focus on the core business.
Will Amazon CEO Andy Jassy appear on the company’s earnings call? Managing directors in
IBM, Microsoft, Apple, Meta, Intel and Alphabet all participate in quarterly earnings calls. But former Amazon CEO Jeff Bezos skipped the company’s talks, and so far new CEO Andy Jassy is following the same pattern. This would be a good quarter for him to appear.
Write to Eric J. Savitz at email@example.com