Market commentary: Facebook, Sony, GlaxoSmithKline release results

On Wednesday US equities extended gains, while European stocks opened higher today with the Euro Stoxx 600 Index gaining 0.56% at beginning of the trading session before pairing same gains through the morning.

Yesterday, the Federal Reserve has restated its intention for push to interest rate hike before the end of the year following further improvements in the US labor market. The statements from the FED came a day before the release of the US GDP data for the second quarter of the year, with economists projecting that the world largest economy expanded around 2.5%, adding to the view that the first quarter poor performance was a one off event.

Investors continued to focus their attention on corporate earnings with three large names reporting their results between last night and early this morning.

After the closing of US markets on Wednesday, Facebook Inc., the largest social media company, released its quarterly results, beating analysts’ expectations on both profit and revenue. The California-based media giant posted revenues of $4.04 billion, up 38.8% over the same quarter a year earlier, and $50 million ahead of market’s projections.

As usual the largest revenue source for the company proved to be advertising which generated $3.83 billion, growing 43% year-on-year despite being hit by forex negative effects due to the strength of the US dollar. Facebook continued to increase its reliance on mobile and related revenues which accounted for 76% of all sales generated in the second quarter, up from 73% in Q1 and 62% a year ago.

At the same time, North America remained the largest geographic market for the company, generating about 50% of Facebook’s revenue over the latest quarter.

The company also reported an EPS of $0.50 per shares, beating analysts’ estimates by $0.03. Financially, the firm reported an operating margin of 55%, slightly higher than the 52% recorded in Q1, but lower than the 60% reported a year earlier due to heavy spending that is putting profitability under pressure. R&D spending increased substantially to 29% of revenue, 17% last year, with marketing costs also increasing 3% year-on-year and G&A costs remaining almost flat over the past 12 months.

Free cash flow was still at healthy levels, amounting to $1.33 billion, with the firm closing the second quarter of the year with a net $14.1 billion in cash and equivalents and still no debt.

Facebook shares rose 1.78% during Wednesday session, losing as much as 2.41% this morning in after-hours trading, with the stock likely to open lower this afternoon. While historically shares in the social media giant have declined after quarterly results, Facebook’s shares have appreciated 24.3% since the beginning of the year and 29% over the past 12 months, hitting a new high of $99.24 on 21st July.

Sony Corp., one of the largest Japanese listed companies, reported its quarterly results early this morning, posting a jump in net income to JPY 82.4 billion, more than twice as much as analysts had expected. The company confirmed its intention to start a new expansion phase, after focusing on cutting costs and moving away from phones and consumer electronics.

In Europe, GlaxoSmithKline Plc, UK largest pharmaceutical firm and drugmaker, reported earnings this morning that beat analysts’ expectations. The firm is currently navigating a difficult transition period, and posted revenues of GBP 1.3 billion, GBP 1.4 billion lower than a year ago.

Although experiencing declining revenue, the company reported a profit of 17.3 GBp a share, lower than 19.1 GBp posted last year, but ahead for analysts’ estimates of 16.9 GBp. Shares in GlaxoSmithKline opened marginally lower in London, and are currently trading flat on the day.

This article was issued by Paolo Zonno, Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.