Q4 earnings take, cloud business slowdown, and next week’s earnings Q4 earnings take, cloud business slowdown, and next week’s earnings Q4 earnings take, cloud business slowdown, and next week’s earnings

Q4 earnings take, cloud business slowdown, and next week’s earnings

Equities 10 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  The earnings and outlook from Apple, Alphabet, and Amazon were not impressive and investors pushed the shares across all three companies down in extended trading weighing on Nasdaq 100 futures reversing from their intraday high yesterday. For Apple it was the weak iPhone business, and for Google it was the cloud and advertising, while Amazon cannot escape the general slowdown. In today's equity note we also take a look at the Q4 earnings season, the cloud business slowdown, and what earnings to watch next week.


Disappointing earnings from Apple, Alphabet, and Amazon

The three technology giants Apple, Alphabet, and Amazon all failed to extend the momentum in technology stocks last night in Nasdaq 100 futures as they all disappointed relative to expectations. Apple’s miss on revenue and earnings were driven by weaker than expected revenue in the iPhone business which was mostly related to supply chain issues according to the company, but the other side of the story is that demand is weakening for consumer electronics due to inflationary pressures. Alphabet’s results across its advertising businesses also disappointed and costs remain a key issue for the technology group. Amazon beat on Q4 revenue and earnings, but missed against estimates on its Q1 outlook as the business is losing momentum in its online and cloud business. In this morning’s Quick Take we provide a bit more colour on the earnings releases including our views on other markets.

Nasdaq 100 futures have reversed from their intraday high yesterday trading below yesterday’s close as well with yesterday’s open at 12,528 being a key support level to watch should equities slide further in today’s session. With earnings from these giants a considerable share of the US market value has reported earnings and thus we can begin making some preliminary conclusions on the Q4 earnings season. The big winner so far has been European equities with earnings up 4.8% q/q and now surpassing S&P 500 in terms of growth in earnings since Q3 2019 and getting closer to Nasdaq 100. Earnings are down 3.3% q/q in S&P 500 and up 1.7% q/q in Nasdaq 100 suggesting the broader US equity market is giving back a bit of the earnings growth in Q3 while the technology sector is stabilising. Chinese earnings are down 7.6% y/y have deteriorated substantially since 2021 and are down more than 20% since the quarters before the pandemic.

Nasdaq 100 futures | Source: Saxo

Is the high growth era of cloud over?

One the things that caused both Alphabet and Amazon to disappoint, and also recently Microsoft, was the disappointment in the cloud business which is seeing a significant slowdown in growth. In Q4 2016 the cloud business for Google, Amazon, and Microsoft was a combined $38bn annual revenue business and has grown considerably to a $188bn annual revenue business in Q4 2022. No wonder investors have been betting on these three companies. Cloud has made its inroad into the business world. The selling points have been easy to deploy the technology infrastructure, it scales fast, the up-time and IT security are always excellent. Recently several businesses are beginning to complain about the costs of cloud computing and the lack of transparency in the cost structure for using the three companies’ different machine learning applications on top of just the cloud infrastructure (computing power).

The general slowdown in enterprise technology spending is quite evident now in the cloud business of Google, Amazon, and Microsoft with the revenue growth getting a healthy boost during the pandemic hitting peak growth at 34% y/y in Q3 2021. This growth rate has since slowed to 18.8% y/y in Q4 2022 on a trajectory to the lowest annual growth since Q1 2017. It begs the question of whether the explosive growth of cloud computing is finally coming to an end and thus pulling a growth engine out of these major technology companies. The operating margin has also steadily been declining due to higher operating expenses from among other electricity which has become more expensive due to the energy crisis. While both Amazon and Microsoft are running very profitable cloud businesses, Google’s cloud business lost $480mn in Q4 2022 and improvement from the $1.7bn operating loss in Q1 2020, but still unacceptable from an investor point of view. The reason is most likely that Google is subsidising the cloud business from its ads business to keep prices low to get market share as Google is by far the smallest cloud business of the three.

Next week’s earnings focus: Walt Disney, Siemens, and Toyota

The Q4 earnings season is not over yet with 243 companies in the S&P 500 Index having reported earnings. Next week’s earnings calendar will provide plenty of information for investors to chew on. The list below highlights the absolute most important earnings to watch and out of those the three most key earnings are from Walt Disney, Siemens, and Toyota.

The entertainment giant Disney is expected to report revenue growth of 7% y/y and EPS of $0.76 up 21% y/y and a lot of focus will be on Nelson Peltz, the activist investor that has gone into the company, and his quest for higher streaming profitability and potentially changing the asset portfolio of Disney. Siemens, one of Europe’s largest industrial companies, is expected to show revenue growth of 11% y/y and unchanged operating income compared to a year ago as cost pressures remain a key challenge for Siemens. Last quarter the order book and net new orders looked healthy, so the question is whether this will flow through into the outlook for 2023. Toyota is expected to report revenue growth of 19% y/y as demand for cars have come back, but the real interesting focus point on Toyota is further details on the new CEO’s aggressive move towards offering many more fully electric vehicles rather than hybrids. Toyota has recently indicated that they have made errors in their technology bet and looking to aggressively invest in battery EVs.

  • Monday: Activision Blizzard, IDEXX Laboratories
  • Tuesday: Carlsberg, BNP Paribas, Siemens Energy, SoftBank Group, Nintendo, BP, Linde, Vertex Pharmaceuticals, KKR & Co, Fortinet, DuPont, Illumina, Enphase Energy
  • Wednesday: A.P. Moller – Maersk, Vestas Wind Systems, TotalEnergies, Societe Generale, Deutsche Boerse, Adyen, Equinor, Yara International, Walt Disney, CVS Health, Uber Technologies
  • Thursday: KBC Group, Brookfield, Thomson Reuters, L’Oreal, Vinci, Credit Agricole, Siemens, Toyota Motor, NTT, Honda Motor, AstraZeneca, Unilever, British American Tobacco, ArcelorMittal, DNB Bank, Volvo Car, Zurich Insurance Group, Credit Suisse, AbbVie, PepsiCo, Philip Morris, PayPal, Cloudflare
  • Friday: Enbridge, Constellation Software

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)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992