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Microsoft and a host of other tech giants are set to report earnings this week.
Jeenah Moon/Getty Images
Over the next three days, investors will be bombarded with June quarter earnings reports from the industry’s biggest and most important players.
On Tuesday, Microsoft (ticker: MSFT) and Alphabet (GOOGL) will report results. On Wednesday, Meta Platforms (META) will be in the spotlight, but we also get results from Qualcomm (QCOM) and Shopify (SHOP), among others. The pace picks up on Thursday, with results from Apple (AAPL), Intel (INTC) and Amazon.com (AMZN).
There are specific stories for each of these companies, but this is a quarter where the real focus is on the big picture. Here are some of the key issues to track over the next few days:
How bad is the online advertising environment? Last week, shares of Snap ( SNAP ) plunged nearly 40% in a day after Snapchat’s parent posted simply terrible results for the June quarter, while declining to provide any guidance for the September quarter . These results raised new concerns about the state of online advertising alone. There are really three separate but intertwined issues here. Apple’s crackdown on sharing information about which sites and apps iPhone users visit continues to make targeting difficult. Additionally, advertising budgets tend to shrink in economic downturns, and digital advertising is no exception. And third, competition for advertising dollars is increasing, particularly from TikTok, but also from Amazon and Apple, both of which have smaller but growing advertising arms. And note that not all ad-based online businesses will be affected to the same degree: the consensus on the street is that Meta display ads may be more vulnerable than Google search advertising.
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Will cloud spending keep up? The three largest public clouds include Microsoft Azure, Google Cloud, and Amazon Web Services. Until very recently, the thinking on the street was that these businesses would go straight into any recession, as companies in the midst of “digital transformations” move more of their IT budgets to the cloud. But there’s a risk here that cloud customers could cut 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 missteps in this area, particularly by Azure and AWS, would not sit well with investors.
What are the prospects for e-commerce? Shopify’s results on Wednesday could provide an early glimpse of how badly Amazon’s e-commerce arm did in the June quarter. The good news is that expectations are low: Amazon will almost certainly show a year-over-year decline in revenue from its online store. Comparisons to last year’s more robust environment for online retail remain difficult. Retailers, online and off, will be looking for clues about the state of consumer demand in the run-up to higher interest rates, rising inflation and spreading recession fears.
The almighty dollar: One of the reasons most Street estimates for the June quarter look too high is the greenback’s huge appreciation against the rest of the world’s currencies. Many companies had forecast currency headwinds in the range of 2 to 4 percentage points, but the impact of the dollar’s rise will be much greater than expected for many. International Business Machines (IBM) had been projecting a currency rub of 3 to 4 points, for example, and reported a hit of 6 percentage points. The slide that is getting less attention is that European companies are getting a big currency headwind as revenues received in dollars are translated into more euros. For most companies, “constant currency” earnings are higher than GAAP earnings; the opposite is true for European companies, such as SAP ( SAP ), which received an 8 percentage point increase in profits for the June quarter.
How bad is the demand for computers and smartphones? Recent data from market research firms like IDC and Gartner, along with comments from Micron Technology ( MU ), suggest that both PC and smartphone sales have softened considerably, and for a few reasons. Consumers loaded up on new devices during the pandemic that don’t need to be replaced at this point. And worries about recession, inflation and a slightly tighter job market are causing consumer anxiety and a more conservative approach to shopping. We get new data on that front from Microsoft, Intel, Qualcomm and Apple, and from peripherals company Logitech International ( LOGI ), which reports results early Tuesday.
What about the IT demand of the company? IBM and SAP said overall demand remains strong, despite headwinds and complications, including the industry’s withdrawal from the Russian market and ongoing currency issues. There should be some updates on that front from Microsoft’s results on Tuesday, with more data to follow on Wednesday from ServiceNow ( NOW ). Shares of the cloud-based software provider recently sold off when CEO Bill McDermott appeared on CNBC and warned that it was taking longer to close deals in Europe.
Some other things to watch:
Will NCR (NCR) announce a deal? The maker of ATMs and point-of-sale terminals has been considering strategic alternatives, and plans to report the results on Wednesday. An announcement is expected soon; the company could be private.
Will Meta cut spending? One way CEO Mark Zuckerberg could revive interest in the company he founded would be to cut back on his aggressive spending plans for the metaverse. This would seem like the right time to focus on the core business.
Will Amazon CEO Andy Jassy appear on the company’s earnings call? The CEOs of Netflix, IBM, Microsoft, Apple, Meta, Intel and Alphabet participate in quarterly earnings calls. But former 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 introduce himself.
Write to Eric J. Savitz at eric.savitz@barrons.com