Over the next three days, investors will be bombarded by June quarter earnings reports from the sector’s biggest and most important players.
(ticker: MSFT) and
(GOOGL) will report results. On Wednesday,
(META) will be in the spotlight, but we also get results from
(SHOP), among others. Thursday the pace increases, with results from
There are specific story lines for each of these companies, but this is a quarter when the real focus is on the big picture. Here are some key issues to track over the next few days:
How bad is the online-advertising environment? last week,
(SNAP) stock fell nearly 40% in one day after Snapchat’s parent posted simply terrible June quarter results, while declining to provide any guidance at all for the September quarter. Those results triggered fresh concerns about just the state of online advertising. There are really three separate but intertwined issues here. Apple’s crackdown on sharing information about what sites and apps iPhone users are visiting continues to make targeting more difficult. Also, advertising budgets tend to shrink in economic downturns—and digital advertising is no exception. And three, competition for ad dollars is increasing, in particular from TikTok, but also from Amazon and Apple, both of which have smaller but growing advertising arms. And keep in mind that not every ad-driven online business will be affected to the same degree: the consensus on the Street is that display ads on Meta might be more vulnerable than Google search advertising.
Will cloud spending hold up? The three biggest public clouds include Microsoft Azure, Google Cloud, and Amazon Web Services. Until very recently, the thinking on the Street has been that these businesses will blow right through any downturn, as companies in the middle of “digital transformations” shift more of their IT budgets to the cloud. But there is risk here that cloud customers could trim their spending—or at least slow spending growth—as the economy slows. Among other things, these cloud companies serve social networks, streaming video sites and e-commerce services, all of which have seen their businesses slow. Any serious miss in this area—in particular by Azure and AWS—would not go over well with investors.
What’s the outlook for e-commerce? Shopify’s results on Wednesday could provide an early peek at just how bad Amazon’s e-commerce arm did in the June quarter. The good news is that expectations are low—Amazon almost certainly will show a year-over-year decline in revenue from its online store. Comparisons with last year’s more-robust environment for online retailing remain difficult. Retailers—online and off—will be looking for clues on the state of consumer demand in the race of higher interest rates, soaring inflation, and spreading recession fears.
The almighty dollar: One reason that most Street estimates for the June quarter look too high is the huge appreciation of the greenback against the rest of the world’s currencies. Many companies had been forecasting currency would be a headwind in the 2-to-4 percentage-point range, but the impact of the spiking dollar is going to be far higher than that for many.
International Business Machines
) had been projecting a 3-to-4 point currency drag, for instance, and reported a 6 percentage point hit. The flip slide which is getting less attention is that European companies are getting a huge currency tailwind, as revenue received in dollars translate to more euros. For most companies, “constant currency” revenue are higher than the GAAP result; the opposite is true for the European firms, like
(SAP), which received an 8 percentage-point boost to earnings for the June quarter.
How bad is PC and smartphone demand? Recent data from market-research firms like IDC and
along with comments from
(MU), suggest that sales of both PCs and smartphones has softened considerably, and for a few reasons. Consumers loaded up on new devices during the pandemic, which at this point don’t need to be replaced. And worries about recession, inflation, and a slightly tighter job market are triggering consumer anxiety, and a more conservative approach to purchases. We’ll get fresh data on this front from Microsoft, Intel, Qualcomm, and Apple—and from the peripherals company
(LOGI), which reports results early Tuesday.
What about enterprise IT demand? IBM and SAP both said demand generally remains strong, although there are crosswinds and complications, including the industry’s withdrawal from the Russia market and ongoing currency issues. There should be some updates on this front from Microsoft’s results on Tuesday, with more data to follow on Wednesday from
(NOW). The cloud-based software provider’s shares sold off recently when CEO Bill McDermott appeared on CNBC and warned that it was taking longer to close deals in Europe.
A few other things to watch:
) announce a deal? The maker of ATMs and point-of-sale terminals has been considering strategic alternatives, and is scheduled to report results on Wednesday. An announcement is expected soon; the company could go private.
Will Meta cut spending? One way CEO Mark Zuckerberg could revive interest in the company he would founded be to cut his aggressive spending plans for the metaverse. This would seem like the right moment to focus on the core business.
Will Amazon CEO Andy Jassy show up on the company’s earnings call? The CEOs of
IBM, Microsoft, Apple, Meta, Intel, and Alphabet all participate in quarterly earnings calls. But form Amazon CEO Jeff Bezos skipped his company’s calls, and so far, new CEO Andy Jassy is following the same pattern. This would be a good quarter for him to show up.
Write to Eric J. Savitz at [email protected]