Big Earnings Under The Big Top

The earnings season circus is back in town and we’ve already had some show-stopping results from the likes of Netflix and Tesla. But next week’s going to draw some crowds under the big top, so let’s take a look at who reports and what to expect.

🕰 Recap

• Netflix is juggling growth and profit right now, but on Tuesday the streamer dropped one of those balls. Read our story
• Tesla’s ringmaster is brushing aside any profit hopefuls, saying it’s focused on car sales and nothing else. Read our story
• Next week, it’s Big Tech’s turn to walk the tightrope. Here’s what you need to know about the upcoming earnings for those giants. Read our story

✍️ Connecting The Dots

Netflix disappointed investors on Tuesday with a subscriber growth number – 1.75 million – that was well shy of what investors were hoping for – something north of 2 million. That got people worried that the streamer’s newfound profit focus would come at the expense of growth. Markets can be fickle, mind you. Take Tesla: its chief Elon Musk told investors that the firm’s perfectly prepared to sacrifice profit in its quest for market share dominance. And investors didn’t much like that either, sending the stock 10% lower. Sometimes the market just gets up on the wrong side of the bed. Next week, we’ll get a rundown on all the latest exciting stuff – like cloud and artificial intelligence (AI) – from the Big Tech firms. And it’ll be a whopper or a week, not least because Big Tech’s share prices have been rather strong lately.

Now, both Amazon and Microsoft warned during the last earnings season to brace for a cloud spending slowdown. Microsoft said it expects around seven percentage points of slower revenue growth from its Azure business for the first three months of this year, and Amazon said something similar. That’d mean growth around 25% for Azure and perhaps as low as 15% for Amazon’s AWS. While cloud will be the main topic of conversation, investors will also be on high alert for any talk about AI – and bosses from these two AI leaders will probably have plenty to say on that topic.

So will Google’s parent Alphabet, whose own AI ambitions are a little unclear, to say the least. But it’s got other matters to address too, like what it’s doing to keep advertising revenue afloat and bring its problem child YouTube back into line. YouTube’s gone from being the jewel in Alphabet’s crown to a real thorn in its side – ad revenue for the streaming site dropped almost 8% last quarter. So investors will be tuning in to hear about that. Don’t forget too that Alphabet has a pretty big cloud business, and investors will expect an update on that front too. Like they say, “If you can’t ride two horses at once, you shouldn’t be in the circus.”

🥡 Takeaways

1. It’s not all about tech.

It’s easy to forget sometimes, but there’s more to the S&P 500 than technology stocks. Sure, the sector dominates the index’s top ten (seven of those are tech firms, in fact), but there’s more than $1 trillion of market cap between Berkshire Hathaway, Coca-Cola, and McDonald’s, and all three old-school titans report their earnings next week. Take McDonald’s: its share price is up 11% this year and is sitting at all-time highs as folks flock to the golden arches. Last quarter, McDonald’s reported that sales from US restaurants open for at least a year jumped more than 10% compared to the previous year. Continued momentum here could boost its stock price even further.

2. Tesla’s thinking about different drivers.

Tesla may have just torn up the valuation rulebook for its stock. Valuing Tesla’s shares has always been about taking a guess at how many cars it’ll sell and how much profit it’ll get from each one. But things may have changed. Elon Musk seemed to be wondering aloud about selling cars with no profit margin whatsoever – making money by flogging auto-drive software down the line instead. It might’ve been a throwaway comment, but it’ll have Tesla followers wondering just how lucrative that revenue stream could be, all the same.

🎯 Also On Our Radar

Apple’s results don't drop till next month, but the world’s biggest firm has a few issues of its own. For a while, Apple’s been grappling with slowing global economic growth as well as a plethora of supply chain problems. Maybe that’s why Apple’s so keen to get investors focused on the future – a future in which India will play a big role, according to the iPhone seller. Apple opened the first – of presumably many – retail stores in the country this week.