Blogue

30 October 2020

Solid earnings from tech companies

Par PRATTE

Market Brief

Markets had a rough start on Monday as the United States experienced its highest rate of daily coronavirus cases. The market decline came after data compiled by Johns Hopkins University was released that shows daily coronavirus cases in the United States have increased 68,767 people in the last seven days. On Sunday alone, more than 60,000 cases were reported as the country saw more than 83,000 new infections on Friday and Saturday, surpassing the previous record of around 77,300 cases set in July.

The Dow tumbled throughout the session, recording its worst drop since September. The index lost over 900 points to end up down 650 points. The NASDAQ closed 1.64% lower and the S&P 500 1.86%. Royal Caribbean lost over 9.7% and Delta fell 6.1%. Norwegian Cruise Line closed 8.5%, United Airlines slipped 7% while American Airlines was down 6.4%.

“This sell-off, whatever the rationale, was well telegraphed. It was the consensus that we were going to have a pullback before the election. A number of strategists suggested it. Technical indicators indicated we were going to have it,” Quincy Krosby, Prudential Financial chief market strategist, told CNBC.

Markets opened slightly higher on Tuesday; the Dow gained 19 points, the NASDAQ rose 0.4% and the S&P 500 by 0.1%. “COVID-19, the lack of a stimulus package in the United States and the nervousness over the US presidential election are having a cumulative effect on the market,” said Quincy Krosby of Prudential.

Tech stocks ended the session in the green; Facebook and Amazon both closed with gains of 2%, allowing NASDAQ to end on positive ground. “The idea behind NASDAQ is that if growth falters because of COVID, the market will rely on the strength of technology companies,” notes Quincy Krosby of Prudential Financial.

The Dow closed 222 points lower, the S&P lost 10 points while the NASDAQ finished with a gain of 72 points. The Dow closed 222 points lower, the S&P lost 10 points while the NASDAQ finished with a gain of 72 points. US graphics processor maker Advanced Micro Devices (AMD) has announced the purchase of rival Xilinx, a deal valued at $35 billion. Together, the two groups “will take advantage of opportunities emerging from the industry’s most important growth segments, from data centres to gaming, personal computers, communications, automotive, industrial, aerospace and defence,” underlines a press release. Xilinx stock closed 8.56% higher while AMD lost 4.07%.

Markets started Wednesday session lower. The rise in coronavirus cases is causing some concern in the face of a further economic slowdown. GM’s stock jumped 7% after the publication of its quarterly results, better than expected. Wall Street fell at the end of the day on Wednesday, as the three major indexes recorded their biggest daily decline since June. The Dow closed 3.4% lower, the S&P fell 3.5%, and the NASDAQ fell 3.7%.

“A lot of uncertainties shook the markets this week. First, the return of confinement in Europe and an increase in record cases in the United States. Then the US elections which are less than a week away. Finally, the stimulus budget discussed mainly during the month of October, which had led the indexes, will not finally be approved before the elections. These fears are added to a difficult economic climate due to the pandemic, thereby increasing volatility in the markets. This therefore explains this sudden drop in the markets. However, we believe that markets will probably stabilize after the election,” explains our portfolio manager Philippe Pratte.

The Dow had its worst session since June, dropping more than 900 points and finishing lower for a fourth consecutive session.

Wall Street opened without direction on Thursday. However, the S&P 500 and NASDAQ managed to open slightly higher thanks to gains in technology stocks and better-than-expected economic data in the United States. Facebook gained 3.5%, Alphabet increased 0.7%, while Amazon and Apple advanced 1%. Markets finally closed in the green on Thursday, pulled higher by tech stocks.

Markets opened lower on Friday; the Dow was down 5.9%, the S&P 500 by 4.5% and the NASDAQ down 0.8%.

Microsoft

The company announced its earnings on Tuesday, beating expectations for both revenue and sales. Indeed, its three basic segments have increased significantly in the face of demand for cloud services and video games during the COVID-19 pandemic. Microsoft reported first-quarter tax advantage of $13.9 billion, or $1.82 per share, down from $1.38 per share a year ago. Revenue reached $37.2 billion, up from $33.06 billion a year ago. According to FactSet, analysts expected average earnings of $1.54 per share on revenue of $35.76 billion.

The company also reported rapid growth in Azure, which rose 48%, up from 47% in the previous quarter when analysts expected growth of around 44%. The Xbox division also increased its revenue by 30%. The new console is expected on November 10.

“Companies are making a transition from managing teleworking because of COVID-19 to renewing their digital transformation plans, with attention given to hybrid work” of employees, commented Patrick Moorhead, Moor Insights and Strategy. “And Microsoft is taking advantage of this phenomenon.”

“Demand for our cloud offerings drove a strong start to the fiscal year with our commercial cloud revenue generating $15.2 billion, up 31% year-over-year,” Chief Financial Officer Amy Hood said on Tuesday news release.

Pinterest

Pinterest’s stock had a good week after filing better-than-expected quarterly results. Its stock gained more than 38% as the markets opened on Thursday, boosting other tech stocks. The company added more than 26 million active daily active users in the last quarter. Last July, the #StopHateForProfit campaign encouraged brands to halt their advertising later this month to protest Facebook’s controversial handling of hate and misinformation on its platform. This has allowed Pinterest to increase its advertising revenue.

Pinterest posted total third-quarter revenue of $443 million, a 58% year-over-year increase. The company expects its fourth-quarter sales to increase by 60% compared to last year. Indeed, users of the platform are more and more active, especially when it comes to finding inspiration for their renovations and creating a workspace at home. Pinterest also benefited from the release of the infamous iOS 14 when approximately 4 million people used Pinterest “as inspiration for custom background filters.”

The stock has posted gains of 136% since the start of the year and more than 106% in the past three months.

Apple

The company’s sales are down 20% from the same period last year. Mac and iPad revenues have both exceeded analysts’ expectations, due to telecommuting during the pandemic. Overall, Mac revenue grew 28% year-over-year and iPad revenue increased 46% from the same quarter last year. Its overall revenue grew 1% while its net profit fell 7.4% in one year.

“Despite the still ongoing impacts of COVID-19, Apple is in the middle of the most prolific product launch period in its history,” said group boss Tim Cook in a statement. “The initial reactions to our newest products, foremost our iPhone line that can use 5G networks, are overwhelmingly positive,” he added.

The stock fell 4% following the announcement in post-session trading and opened down 3.5% on Friday.

Alphabet

The company released quarterly results above expectations, boosting its stock by 6% after the markets closed. Alphabet posted revenue up 14% from last year while its net earnings per share stood at $16.40 instead of the $11 estimated by analysts.

“We expected advertising revenue to pick up in all segments, and it exceeded our estimates,” commented analyst Nicole Perrin of eMarketer. “This is especially true of YouTube; whose ad revenue grew 32% year over year. This bodes well for the return of brands and shows that advertisers’ desire for video is not waning. There are also notable increases in spending on political ads during the past quarter”. Its stock soared 7% at the open on Friday.

Amazon

The company tripled net profit to $6.3 billion in the third quarter as revenue jumped 37%. Internet sales of its items have increased 38% while the sale of items from third-party companies using its platform has increased by 55%. The company has added more than 400,000 jobs since the start of the year and its CEO Jeff Bezos took the opportunity to remind American companies to increase their minimum wages.

“We’re seeing more customers than ever shopping early for their holiday gifts, which is just one of the signs that this is going to be an unprecedented holiday season,” Amazon CEO Jeff Bezos said in a statement.

Its stock has accumulated gains of 74% since the start of the year and opened Friday session down 2.2%.

Facebook

The company disclosed in its quarterly results a decline in users in the United States and Canada, which fell to 196 million daily active users from 198 million in the last quarter. Facebook posted earnings of $21.47 billion, the majority of which came from advertising revenue, and reported $7.85 billion in net profit. The advertising boycott of the StopHateForProfit campaign did not appear to have an impact on the company’s advertising activities, with advertising revenue up 22% from a year ago.

“In addition, we expect more significant targeting and measurement headwinds in 2021,” the company said in its earnings report. “This includes headwinds from platform changes, notably on Apple iOS 14, as well as those from the evolving regulatory la

Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).

Intended to provide general information about markets and securities and not to meet your specific needs, this report is the result of the author’s only work. The opinions (including any recommendations, if any) expressed in this report are those of the author only and do not necessarily represent those of Pratte Portfolio Management and do not constitute securities investment advisory activities designed to meet your specific needs.

The information contained in this report is derived from sources believed to be reliable, but the accuracy and completeness of this information can not be guaranteed and, in providing the information, the author and Pratte Portfolio Management assume no liability whatsoever. This information was current as of the date indicated in this bulletin, and neither the author nor Pratte Portfolio Management assumes any obligation to update it or to report any new developments with respect to this information. This report is intended for distribution in jurisdictions where the author and Pratte Portfolio Management are registered for trading in securities. Any distribution or diffusion of this report in another territory is forbidden. The author, Pratte Portfolio Management, its affiliates and their respective directors, officers and employees, and the companies with which they are associated may, from time to time, hold securities referred to in this report. 

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