Big Tech earnings: All eyes on Amazon & Apple
Microsoft, Google, Meta (Facebook), Apple, Amazon… it’s an earnings bonanza for Big Tech companies as many are releasing financial statements as we head into the final two quarters of 2022. Some of the most valuable companies in the world are all reporting quarterly results in the final week of July 2022.
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The year started with a massive sell-off in tech stocks; Amazon has dropped by 27% in 2022, Google by 25%, Microsoft by 23%, and Apple is down 13%. Unfortunately, it seems as though the biggest companies in the world continued to struggle.
Alphabet (Google), Microsoft, and Meta all missed their quarterly targets sending waves in the market.
CMTrading Daily Market Review July 28, 2022
Markets remain volatile
These companies’ earnings come at a time when investor confidence has been shaken by rising inflation, poor consumer confidence, and fears of a recession.
Yet, regardless of the economy, quarterly earnings have shaken the markets, providing opportunities for traders. Despite missing its target, Microsoft hit a low of $250.48 on July 26 before rallying to a high of $269.49 on July 27 as traders were eager to grab their share of one of the world’s biggest IT companies. Overall, Microsoft is up 8% by July 28.
The same can’t be said for Google ($113,06, -1.08%) and Meta ($169,58, -6.09%).
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Traders anxious over Apple, Amazon
Apple and Amazon are set to release their quarterly earnings on July 28. Investors and traders will be eager to see how these two titans of industry are doing financially. Amazon reported record profits from 2020 to 2021 as it became the default option for home shipping needs during the onset of the COVID-19 pandemic. However, as the retail business started opening and competitors regained control, the eCommerce giant has seen a severe drop in its profits. Amazon has, however, invested heavily in its other online offerings such as Prime TV and web services. Both businesses have grown substantially.
Apple has benefited greatly from the popularity of its latest iPhone, with record sales since 2020. The company, however, hasn’t been immune to COVID-19 issues as production problems in Asia curbed its supply of products. Like Amazon, Apple has invested heavily in streaming (Apple TV) and other web offerings such as its marketplace to generate more revenue.
Here’s how to trade company earnings
Fred Razak, CMTrading’s Senior Trading Specialist, shares valuable trading advice:
Q: Why are company earnings important for traders?
Razak said: “So earnings are very important as they allow us to keep a finger on the pulse of what’s going on with the company from quarter to quarter. They are published four quarters out of the year and it doesn’t necessarily go by the calendar year. It depends on what the company decides, what their quarter will be when they close their books and issue a new year depends on tax reasons and all kinds of factors that are not relevant in terms of the actual quarter.
Q: What are some factors traders need to consider?
Razak said: “Traders need to understand what EPS (Earnings Per Share) is and how it works. Every company has a bunch of shares outstanding that a public company has issued. Shares are pretty much a piece of the company – it’s as if they’re selling a brick of the physical company. People can buy pieces of bricks or ownership and they have a share of the company. Therefore, buying these would entitle you to a piece of a company and earnings relative to the value of your share.”
“Now these shares float in the market. Some are held by the company themselves and some are floated in the markets themselves. So conceivably if I bought all the shares of Microsoft, I would own Microsoft, right? There are so many shares that are issued to the markets at any given time. So the reason why earnings per share are so important is that it’s a consistent track record of how many shares the company has outstanding versus what its profits are.
“You can compare companies in a more diagnostic way by looking at how much profits the company makes versus how many shares it has in the market. So, if a company like Microsoft has a huge number of shares and its profits are relatively high relative to those shares, it would be a much different picture if a company was much smaller, but still had a profit margin like Microsoft.
“So you could compare two companies to each other via their profit margin vs share amount. It’s a barometer where you’re able to compare apples to apples.
Q: When is the best time to trade earnings – before or after the results?
Razak said: “When to trade is a bit of a loaded question. So before a company comes out with results it is a little bit difficult to trade because you won’t know which way the markets will go at any given time. So that’s a little bit difficult to anticipate. However, after the results, it’s a little bit easier because as the dust settles, you can see what the market reaction was and whether that was warranted. So, I’m a big proponent of thinking about after the initial knee-jerk reaction move is and then. Reacting to the markets from a positive perspective is not to be in control in advance.
Q: What do you think of Microsoft’s, Google’s, and Facebook/Meta results?
Razak said: “Microsoft and Google’s results did not hit their earnings, but at the same time, the markets reacted six months in advance. At the start of 2022, we had a big sell-off of major tech stocks. So, I think that the current climate is just happy that it’s not as bad as we thought it was or it’s not as bad as we thought it would be. There’s a lot of room for interpretation about where the markets are still going even after their earnings. And I think that that’s going to be something to consider.
“Now all these major tech stocks, Facebook, Apple, Amazon, Netflix, and Google are coming out with these results, they’re all varying in how bad the results are. So it’s that we know the results are not good, but the question is how bad they are really?
Q: What do you think of Apple and Amazon?
Razak said: “I think they all are part of each other because they’re all fighting for user data. But at the end of the day, they all have their nuances. What they contribute to the table. So I think that that’s an important element of understanding.
“Apple and Amazon are more customers and retail-based businesses as opposed to Facebook and Google, which are more advertising and corporate based. You’re seeing the different types of climates being affected and so it’s not just on a retail basis, it’s also a B-to-B business. So that’s the nuance needed to understand what is being affected by the markets.
Q: Advice for earnings traders?
Razak said: “Don’t trade the first trade. Let trades come to you, and know the levels of the market. Usually, the counter move is just as aggressive as the initial knee-jerk reaction. So, we always miss the first move. Let the dust settle before you jump into to the markets. It could be initially wrong. Just give yourself some space and watch the markets in that type of group environment.”
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