Market Insights

Earnings were pretty good for big technology companies like Apple. But are they good enough to overcome jitters about the pandemic and Presidential Election?

We’re finishing the busiest and most important week of earnings season. The five most-valuable U.S. companies issued results. Here’s a quick breakdown:

• Apple (AAPL): Backward-looking numbers beat, but investors were hoping for a forward-looking view of iPhone 12 demand.
• Microsoft (MSFT): Shares fell on weak guidance for personal computing. Windows may be losing market share to Chromebooks.
• Amazon.com (AMZN): Strong all around.
• Alphabet (GOOGL): The search giant benefited from a rebound in online advertising.
• Facebook (FB): Like GOOGL, ad spending drove the quarter.

None of the stocks rose much after the results yesterday. That follows the cautious pattern as investors worry about coronavirus and Tuesday’s election. Most of the companies rallying sharply were less-known turnaround names, which we’ll cover below.

Online Ad Surge

The main theme so far this earnings season has been a surge in online advertising. It started with Snap (SNAP) last week. This week, it spread to GOOGL, FB, Pinterest (PINS) and Twitter (TWTR).

GOOGL beat estimates on every category: earnings, search revenue, YouTube ads, and cloud revenue. The company also had a surprising 35 percent growth in its “Other” category that includes YouTube subscription fees and the Play app store. This segment now accounts for 12 percent of revenue, up from 10 percent a year before.

In another sign of evolving beyond the traditional search business, GOOGL said it will start disclosing the profitability of its Google Cloud business next quarter.

FB, run by Mark Zuckerberg, also beat estimates by a wide margin after ad spending rose. However usage slipped and management said business will soften more in the fourth quarter. The CFO also warned that changes in Apple’s IOS 14 next year could hurt its ad targeting. (Users would opt in to data sharing instead of opting out.)

The biggest mover was smaller upstart Pinterest (PINS), which spiked 27 percent yesterday. Like Snap (SNAP) last week, PINS added millions more users than forecast. Earnings and revenue crushed estimates, thanks to strong demand from advertisers. PINS also seemed to gain acceptance among advertisers, partially because of the boycott against FB.

Twitter (TWTR) was the laggard. The microblogging service rallied before the report on hopes of strong adverting. But its monetizable daily active users missed by almost 8 million, hammering the stock last night.

Where’s the IPhone 12?

AAPL also fell yesterday afternoon. A lack of new iPhones last quarter and guidance about future sales was the main issue.

Some analysts anticipate massive growth over the next year as users upgrade to the iPhone 12, but don’t yet know the pace of orders. This could make traders obsess over channel checks as the holidays approach. China is especially important because its users are waiting for the newer model, according to CEO Tim Cook.

The other numbers were strong: services, other products (like wearables), Macs and iPads. While those mattered in previous quarters, everyone’s focused on the iPhone 12 in coming weeks and months.

Microsoft’s PC Weakness

Something strange happened at Microsoft (MSFT). Industry watchers like Gartner and manufacturers like Dell Technologies (DELL) have gushed about strong demand for PCs and laptops because more people are working from home. But that’s exactly where MSFT guided lower.

While it’s not clear whether anyone has connected the dots yet, the software giant might be losing market share to cheaper GOOGL Chromebooks. Researcher IDC said Chromebook shipments rose 90 percent last quarter, versus 15 percent for all PCs. Schools are the big growth market for Chromebooks so far.

MSFT’s other numbers weren’t amazing. Azure cloud-computing growth slowed more than some analysts expected. Earnings and revenue beat, but that’s common for a big technology stock like MSFT.

Tupperware’s Turnaround

This week also featured strong earnings reports from several companies you might have forgotten about. Most are non-technology names that have struggled for years.

• Harley Davidson (HOG): The motorcycle maker beat top- and bottom-line estimates after adjusting its cost structure. Management said dealer inventories are lean and prices are rising.
• Tupperware (TUP): Revenue rose more than 40 percent and net income quadrupled. The plastic-container company has enjoyed a surge of demand as people spend more time at home. It’s also cutting costs by digitizing some of its sales processes. TUP has gained more than 2,500 percent from its March low.
• Community Health (CYH): Like TUP, the hospital chain recently traded at distressed levels because of its heavy debt load. But it’s also increased profits by more than 700 percent.
• Realogy (RLGY): The owner of real-estate brokerages like Century 21 jumped after beating earnings and revenue estimates. It’s benefiting from cost cuts, market-share gains and a rebound in housing. RLGY has also traded at a discount to book value because of its leveraged balance sheet

Two of the biggest disappointments this week were Mastercard (MA) and Eli Lilly (LLY). MA earnings and revenue missed after the pandemic reduced international transactions. LLY faces weak pricing and has failed to develop hoped-for coronavirus drugs. LLY’s now given up all its gains since late March.

In conclusion, the biggest companies have reported earnings but there weren’t many major surprises. Online advertising is strong, but smaller companies like PINS and SNAP could be benefiting more than FB. AAPL will be watched in coming weeks for iPhone news. GOOGL may be entering a new growth phase as “Other” revenue surges and management prepares to break out the cloud business. Smaller left-for-dead companies like TUP, HOG and CYH are also showing signs of turnarounds.