Earnings Watch: Why this is the crunch week of the season Earnings Watch: Why this is the crunch week of the season Earnings Watch: Why this is the crunch week of the season

Earnings Watch: Why this is the crunch week of the season

Equities 5 minutes to read
PG
Peter Garnry

Head of Equity Strategy

Summary:  Q4 earnings are rolling in with around 11% of the S&P 500 companies having reported already. This week is a bumper one for technology with earnings from Apple, Facebook, Microsoft, Alibaba and Amazon.


This week is one of the busiest or the current season with around 331 companies reporting earnings out of the 2,000 companies we track during the period. US earnings have so far been good against estimates, which is not a big surprise given the lagging nature of earnings. As the chart below suggests, the EBITDA (operating income) growth is slowing, based on the initial data but  is still around +5% y/y. 
Apple

Growth uncertainty rose dramatically in Q4 for Apple as one supplier after another reported weakness related to the tech giant. It was therefore not that shocking when the CEO, Tim Cook, announced after New Year that demand was much weaker than estimated and especially that coming from China. Apple reports FY19 Q1 earnings tomorrow after the close with analysts expecting EPS $4.17 up 7% y/y but the consensus estimate is down 14% in the past six months.

Revenue is expected at $84bn down 5% y/y. The big focus point for investors will be any update on Chinese demand constituting around 20% of overall revenue. With the smartphone market saturating faster than expected globally and users extending the average lives of their phones, Apple has to focus on the two businesses Services and Other Products (which is mostly the Apple Watch) contributing around 22% of total revenue. Future growth is likely to come from these two streams. Within the next five years Apple will have to decide whether it wants to descend into a stable and predictable technology company with average valuation and low growth or bet big for a renewed growth path build on some new product category.

Facebook

2018 was annus horribilis for Facebook that seems to be going from one scandal to the next. Despite all the trouble revenue is still up 42% the past year (12-month trailing numbers) as Facebook’s industry power continues to take market share in online advertising. Operating margins are no longer expanding as the company is forced to invest heavily in moderators monitoring content on the platform.

The company reports Q4 earnings on Wednesday after the close with analysts expecting EPS $2.52 up 5% y/y and revenue of $16.4bn up 26% compared to a y/y growth rate of 47% in FY17 Q4. Investors will focus on the growth impact in 2019 from the transition to unify Messenger and WhatsApp with Instagram to deliver Live Stories across all channels as the News Feed is maturing faster as a growth channel due to recent changes following last year’s data scandals.

Alibaba

The Chinese economy is arguably slowing down and this is hurting online retail sales in the process. Alibaba has so far reported better numbers than JD.com which has been rewarded by investors, but it also is the biggest risk to Alibaba going into the Q4 earnings report.

JD.com numbers suggest a bigger slowdown than what Alibaba has previously communicated so we see downside risk to Alibaba’s Q4 numbers. Alibaba reports Q4 earnings on Wednesday before the market opens with analysts expecting EPS CNY 11.47 up 8% y/y and revenue of CNY 119.5bn up 44% y/y. As the estimates suggest the company is experiencing margin pressure due to bigger offline investments, this obviously will be a big focus point for investors and analysts during the conference call.

Amazon

The previously almost indestructible e-commerce and cloud giant Amazon had one of its roughest quarters in Q4 due to economic slowdown concerns but also increased nervousness over the putative slowdown in its international business relative to its US business.

The international business is also increasingly bleeding with negative operating income the past three fiscal years as the company has ramped up investments. Investors will focus on the Whole Foods integration, AWS growth and the international e-commerce business. With AWS now at $27bn in revenue in the past 12 months and driving the majority of the operating income for Amazon there has been increasing talks about a spin-off given that AWS has very little stand-alone synergies with the rest of the business. Amazon reports Q4 earnings on Thursday after the close with analysts expecting EPS $7.79 up 111% y/y and revenue of $77.9bn up 19% y/y.
 
Source: Bloomberg and Saxo Bank
Disclaimer

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

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 may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

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

The information or the products and services referred to on this site 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 are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

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