Earnings Watch: Can Uber stop the bleeding; Amazon spending pays off

Equities 5 minutes to read

Peter Garnry

Head of Equity Strategy

Summary:  The earnings season continues at full speed with more earnings from outside US being released. Among US technology companies the two most anticipated earnings are from Alphabet and Uber. We take a look at Uber's outlook and their need to soon show a path to profitability. Amazon reported earnings last night with shares up 10% as earnings smashed expectations and guidance was strong.


The earnings season continues with on balance good numbers and the outlook remains cautiously optimistic. As we wrote yesterday’s equity update earnings are looking good in the US and Europe, so the Q4 earnings season is a positive for supporting current equity levels.

Next week 343 companies out of the around 2,000 companies we track during earnings season will report earnings. The 30 largest companies reporting are listed below.

Mon: Google

Tue: BP, Gilead Sciences, Sony, Mitsubishi UFJ Financial, Walt Disney, Fiserv, Chubb, ConocoPhillips

Wed: Novo Nordisk, Siemens, BNP Paribas, GlaxoSmithKline, Qualcomm, Merck, Vinci

Thu: Total, Uber Technologies, Toyota, NTT, Estee Lauder, Philip Morris, S&P Global, T-Mobile, L’Oreal, Bristol-Myers Squibb, Sanofi, Becton Dickinson, Cigna

Fri: AbbVie

Uber needs to deliver to avoid negative spiral

Uber reports earnings on Thursday and the risks are high for the on-demand transportation company which is expected to have had a negative $4bn free cash flow in 2019. Revenue growth is expected to decline to 15% from 42% in 2018 showing the intense competition globally for Uber but also market saturation in key cities and maybe also that the hype is done. Uber is still struggling with negative margins and a bumpy road to profitability.

Financial Times broke the story yesterday that Softbank had pushed Uber and DoorDash to consider merging their food delivery businesses in order to get scale and become profitability. The talks have not materialized in a merger but it underscores the increasing demand from investors for these new technology platform companies to show a path to profitability. Shares are down 19% from the IPO price last year but were down as much as 42% at the lows in November. Much is at stake for Uber next week. We remain skeptical that the business is viable, but luckily for Uber the Fed’s monetary policy will keep rates low for longer which makes it easier for the company to refinance and convince equity investors to finance the company if needed.

Source: Saxo Group

Amazon spending spree pays off

Shares have been more or less flat for almost two years and investors were worried about Amazon’s spending spree, increased competition in cloud infrastructure, integration of Whole Foods acquisition and weak international business. But Amazon delivered in Q4 with revenue reaching $87.4bn slightly beating estimates while EPS at $6.47 smashed estimates of $4.11. Shares were up 11% in extended trading to new record levels for the stock.

Source: Saxo Group

On the positive side Prime membership grew to 150 million, best quarterly free cash flow ever at $14.3bn, higher margins in AWS and slower growth in delivery costs. On the negative side volume in AWS was on the weak side suggest competition from especially Microsoft, which also recently won a big cloud deal with Pentagon beating Amazon, is heating up. For now margins are improving in AWS but over time these could come down as the market matures. International revenue growth at 14% was also a disappointment and shows that Amazon’s brand is not as strong in non-US markets as in its home market.

Amazon generated $21.7bn in free cash flow in 2019 which translate into around 2% free cash flow yield which is still aggressive as it’s lower than Facebook which has a much higher margin business and higher growth rates. Analysts expect Amazon to double its free cash flow to $40bn in 2021 and if that is indeed possible then with low rates on the horizon Amazon will continue to attract investors.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide and Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.