Nasdaq gets some respite from mega-cap earnings | Calamatta Cuschieri

The US earnings season was in full swing last week, with three of the trillion-dollar market-cap companies – Microsoft, Tesla, and Apple, reporting their quarterly results.  These companies make up over a quarter of the Nasdaq’s total market capitalisation and serve as a bellwether for the overall earnings season.  The Index managed to end the week broadly flat but is still down by around 13% from the start of the year.

Microsoft announced its second-quarter earnings on Tuesday evening after the close of US markets.  The company was already in the news a couple of days before with its announced acquisition of Activision Blizzard for $69 billion.  Microsoft plans to expand its presence in the metaverse with the acquisition of the company responsible for games such as Call of Duty, Candy Crush and World of Warcraft.

While news of its latest acquisition took center stage, there was another focus that caught the attention of many investors.  In fact, the company reported that its cloud computing software, Azure grew by a notable 50% year-over-year to $18.33 billion in revenue.  However, these results were in-line with analysts’ estimates for $18.3 billion.

Overall, second quarter revenue rose by 20% over a 12-months period to $51.73 billion which topped analysts’ estimates for $50.88 billion.  Second quarter earnings increased by 22% year-over-year to $2.48 per share, up from $1.46 per share in the same period a year ago. 

Microsoft reported that demand is still strong despite the large market sell off.  The company has experienced its worst month since 2010 this January, down over 14%.  However, the stock started to turn around once news of a positive sales forecast for next quarter boosted morale, rallying 2.8%.

Tesla’s fourth-quarter earnings came out after the closing bell on Wednesday.  The company had an interesting quarter.  While its earnings were strong, its forward guidance did not meet analysts’ expectations.  Adjusted earnings per share of $2.54 topped expectations of $2.38.  Moreover, revenue came in at $17.72 billion, versus estimates for $16.64 billion.  During the earnings call, though, the company’s management stated that its factories have been below capacity for several months due to supply-chain issues that are unlikely to be resolved anytime soon.

This news spooked investors and the stock dropped about 12% on Thursday.  Despite the supply-chain issues, Tesla still expects above 50% sales growth for 2022.  Moreover, the company reported $17.6 billion in positive cash flow and a gross margin of 30.6% on its vehicles this quarter.

Tesla also noted during the earnings call that it would begin prioritizing the development of a humanoid robot project called Optimus in 2022.  It also unveiled a fleet of the “Tesla Semi” electric trucks and confirmed that production of the Model Y cars began at the Gigafactory in Texas.  The company once again delayed production of their Cybertruck due to the supply chain issues, with no real timeline given during the call.

Apple posted impressive first-quarter earnings for its fiscal year 2022 on Thursday, reporting their biggest single quarter revenue.  Sales of $123.94 billion were up 11.2% from a year ago and beat analysts’ expectations by $5.4 billion.  Earnings per share topped analyst’s expectations of $1.89 by 11.3%, coming in at $2.10 and growing 25% year-over-year.

iPhone revenue was up 9.%, Apple Watch and Airpods was up 13%, and Mac revenue was up 25% year-on-year.  The only figure that wasn’t positive in the report was iPad revenue, which was down 14% year-over-year.  Apple’s Services category, which includes Apple Music, iCloud and the App Store revenue, also beat expectations and was up 24% year-over-year.  Apple CEO Tim Cook noted during the earnings call that the company’s supply chain issues were improving, which sent the stock up 7% on Friday.

After a volatile start to the year, the good news is that earnings remain a key driver of a company’s market performance, as investors cheered Microsoft’s and Apple’s earnings results and turned away from Tesla following its weak guidance. 

Disclaimer: This article was written by Stephen Borg, Head of Private Clients at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd and is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.

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