Head of Equity Strategy
Summary: This week is the busiest during the earnings season with around 500 companies reporting earnings amid a major focus on tech. But after Alphabet and Amazon failed to deliver, can Facebook and Apple reboot sentiment?
This week is the busiest during the Q3 earnings season with around 500 companies reporting earnings among the 2,000 we track globally. The US earnings season is halfway through with positive upside surprises to both revenue and earnings. However, last week’s disappointing guidance from Amazon and Alphabet caused nervousness among investors.
Are US technology companies finally falling down to earth in terms of growth? One thing is certain, US technology companies are still growing faster than the average and profitability is better. This week Apple reports FY18 Q4 numbers (ending September) and expectations are high. If Apple fails to deliver we might see further repricing in US technology stocks. Meanwhile in Europe operating income (EBITDA) growth is flat y/y and revenue is barely above zero growth with only 0.6% y/y growth.
This week’s earnings most important earnings for markets are Facebook, Apple and Alibaba. Below is a short description of what to look for in those earnings releases.
Facebook
The world’s largest social media company has had a volatile year with the Cambridge Analytic scandal and recent security breach. Q3 EPS estimates have fallen 11% the past six months to $1.88 which translates into a low 3% y/y earnings growth which is the lowest since 2015. However, revenue growth is still expected at high 34% y/y as the company continues to steal market share in online and mobile advertising. Facebook’s issues as 2019 approaches are lower trust in the brand, less engagement on the Facebook platform and higher operating costs associated with security. Last quarter the CEO Mark Zuckerberg shocked the market with a clear statement that profit margins would come down following the Cambridge Analytica scandal. The company cost guidance is the most important key metric to follow in the Q3 earnings release. Facebook reports Q3 earnings on Tuesday after the market close.
Apple
The iconic consumer electronics brand has defied sceptics as the company has reignited growth. Consensus EPS estimates are looking for EPS $2.77 up 34% y/y and revenue of $61.4bn up 17% y/y as consumers continue to buy into the brand. Investors will focus on any news on recent new product releases that are going into markets late October and is expected to fuel sales into December’s holiday season. Apple’s latest product upgrades have pushed on the average selling price which has fuelled profit growth. So far the strategy has worked but we expect growth numbers to mature in the iPhone segment. Increasingly the Services and Other Products segments will be important profit engines for the company. Apple reports FY18 Q4 earnings on Thursday after the market close.
Alibaba
With Chinese equities in a bear market and valuation on Chinese technology companies under pressure there will be intense focus on Alibaba set to report earnings on Friday before the US market open. Analysts have grown increasingly negative on the company’s Q3 earnings with estimates now looking for EPS to decline 12% y/y but with still healthy revenue growth of 57% y/y. Our take is that the market is likely too optimistic on revenue growth given weakness in the Chinese economy. Our view is that Alibaba’s size makes it vulnerable to current developments in China.
Overall, Apple has the potential to support sentiment while both Facebook and Alibaba could disappoint as both face increasing headwinds.
The table below shows the most important earnings releases this week.
A new fragmented world order can render some of today's infrastructure obselete, but it also calls for massive new investments across the globe, which requires a new set of strategic and tactical investment strategies.
Steen Jakobsen,
Chief Investment Officer
As globalisation turns to fragmentation, China seems set on playing a role in the global economy, while simultaneously working towards proofing its own economic situation from external shocks and crises.
Redmond Wong,
Market Strategist
The recent bank runs and ensuing challenges are reminicent of something we've seen before. Will it end like the S&L crises of 1986 and 1995?
Chris Dembik,
Head of Macroeconomic Research
Equity markets need to recalibrate to another - fragmented - global world. What's your view on equities in this market - are they going up or down?
Peter Garnry,
Head of Equity Strategy
With every development comes new opportunites, some of which could be in India. Have you considered the country as a part of your diversification strategy?
Charu Chanana,
Market Strategist
A collar is an option strategy that allows some protection while maintaining some upside potential. What investment would you like to use a collar strategy for?
Hans Oudshoorn,
Trainer Academy
There are arguments to be made for many commodities to have upside. Which are you paying the most attention to this quarter?
Ole S. Hansen,
Head of Commodity Strategy
In a very challenging macro environment, which currencies do you think will come out on top?
John J. Hardy,
Head of FX Strategy
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)
