Don’t look to the results from Apple, Alphabet (Google) and Microsoft to boost market sentiments on Wednesday on Wall Street.
The trio produced good to excellent June quarter figures and yet the shares either fell, or showed a small rise in after-hours trading as investors turned negative.
Apple and Microsoft saw an impact from the shortage of computer chips which limited sales of products – the impact was greater for Microsoft.
And all three companies benefited from the comparative base effect – the June 2020 quarter saw sales revenues crimped and earnings growth slow sharply because of the widespread lockdowns in the depths of the first wave of Covid-19 infections.
Apple shares lost 1.4% after a 2.2% slide in regular trading as management saw a slowdown in growth in coming months.
Microsoft shares ended down around 0.8% (after falling 4%) which came on top of a 2.4% slide in the main session.
Shares in Alphabet (Google) lost 2% in extended trading after a 0.4% rise in regular dealings.
The three reports and the weak market reaction saw Dow futures lose 100 points in after-hours dealings as the Asian session started.
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Apple again beat Wall Street forecasts for the three months to June 30 thanks to strong sales of its top of the range, 5G iPhones and strong gains in subscription bundles and services revenues.
But like Alphabet and other companies reporting, much of the apparent outperformance was just that – apparent – because the comparative base was the Covid damaged June, 2020 quarter.
And the outlook was not as upbeat as the third quarter data.
Apple Chief Financial Officer Luca Maestri said that while the company expected double-digit year-over-year growth in the current quarter it would less than 36% growth in the June quarter because of foreign exchange rates, less growth in its services business, and supply constraints for iPhones and iPads.
Apple CEO Tim Cook echoed those remarks, saying in a call with analysts that Apple is seeing supply constraints related to silicon that would affect the company’s iPhone and iPad sales in the September quarter.
The company reported a 36% rise in revenues to $US81.4 billion from the year ago quarter which was depressed by lockdowns and store closures across the world.
Analysts had forecast $US73.3 billion in revenue for the quarter, the company’s third in its September 30 financial year, so the company outperformed.
Net profit almost doubled to $US21.744 billion in the June quarter, from $US11.25 billion in the same period of 2020.
Like other tech players, Apple has been coping with worldwide chip shortages, and CEO Tim Cook had warned investors to expect a slowdown in iPhone sales in the quarter.
But consumers weren’t listening and sales of iPhones surged almost 50% to $US39.6 billion in the period – and that was ahead of the release of the iPhone 13 in October!
Apple has recently created a number of bundles, enabling consumers to group together subscriptions to streaming, data, music and other services such as AppleTV.
Subscriptions in the quarter rose 700 million, from 660 million in the previous quarter. The company has never broken out any numbers for individual services like Apple TV+streaming service, which launched in November 2019.
Services revenues (which include these bundles) surged 33% to $US17.486 billion and the category remains the second largest revenue centre of Apple. This group also includes Apple’s ad revenues from services like Apple TV and Music.
And Apple’s sales surge saw an improvement in gross profit margin – 43.3% vs. 38% in the June, 2020 quarter and 42.5% in the three months to last March.
Apple did not provide formal guidance for the sixth quarter in a row and has not since the beginning of the Covid-19 pandemic.
Apple’s sales in the Americas were up nearly 33% year-on-year to $US39.57 billion.
Apple saw strong quarter in its Greater China region, which includes Taiwan and Hong Kong in addition to the mainland.
Apple reported $US14.76 billion in sales in the region, up 58% from the same quarter last year, although it was an easy comparison given that China was in lockdown during the quarter.
“Our record June quarter operating performance included new revenue records in each of our geographic segments, double-digit growth in each of our product categories, and a new all-time high for our installed base of active devices,” said Luca Maestri, Apple’s CFO said in the earnings release.
“We generated $21 billion of operating cash flow, returned nearly $29 billion to our shareholders during the quarter, and continued to make significant investments across our business to support our long-term growth plans.”
Apple did not provide formal guidance for the sixth quarter in a row and has not since the beginning of the Covid-19 pandemic in early 2020.
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Normally, the surge in advertising for Alphabet (Google) subsidiary, YouTube would have grabbed the headlines on a tech heavy Tuesday.
YouTube saw its ad revenues almost double in the three months to June – just topping $US7 billion from $US3.8 billion from a year ago.
The 83% surge put You Tube’s quarterly revenue within a sniff of Netflix’s $US7.34 billion.
The quarterly report saw Alphabet shares jump more than 4% in after-hours trading.
But the You Tube performance, while strong, pales when compared to Alphabet’s overall sales which surged to nearly $US61.9 billion from $US38.3 billion, easily beating Wall Street forecasts.
Total Google ad revenues jumped 69% to $US50.44 billion, from the June, 2020 quarter, which was hurt by the of the Covid pandemic and lockdowns.
Alphabet’s earnings followed suit – almost tripling to $US18.525 billion from $US6.9 billion in the June, 2020 quarter.
The numbers come amid a rain of big tech earnings today including Apple and Microsoft followed standout performances revealed by Snap and Twitter last week.
The YouTube and overall Alphabet figures underlined the strength of digital advertising.
“In Q2, there was a rising tide of online activity in many parts of the world, and we’re proud that our services helped so many consumers and businesses. Our long-term investments in AI and Google Cloud are helping us drive significant improvements in everyone’s digital
experience.”
“Our strong second quarter revenues of $61.9 billion reflect elevated consumer online activity and broad-based strength in advertiser spend. Again, we benefited from excellent execution across the board by our teams,” according to Alphabet and Google chief financial officer, Ruth Porat.
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Like Apple and Alphabet, Microsoft reported a solid June quarter – with much of the performance due to low comparative base a year ago when the US and much of the word was in lockdown or starting to emerge from the worst of the first wave of Covid-19 infections.
Unlike Apple, Microsoft was hit by the shortage of computer chops which saw falls in sales of its Surface laptops and a fall in Windows licence revenues as a result.
But solid was the operative word, not a stellar outperformance of the sort seen by Alphabet (and its YouTube business especially) and Apple and an outperformance by its iPhones and services businesses.
That is perhaps why Microsoft shares fell as much as 3% in after-hours trading on Tuesday.
The standout in the report (for its fiscal 4th quarter for the June 30 financial year balance date) was a revenue decline for sales of Windows licenses to device makers.
Revenues totalled $US46.15 billion for the quarter – just above market forecasts – but 21% above the figure for the June, 2020 quarter.
Microsoft’s Intelligent Cloud segment, which includes the Azure public cloud, Windows Server, SQL Server and GitHub, saw a 30% jump in revenue to $US17.38 billion from the year ago quarter.
Microsoft said revenues for its Azure service rose 51% in the quarter (Microsoft doesn’t break out revenue dollar figures) against a 50% in the March, 2021 quarter.
The company’s Productivity and Business Processes unit, which contains Office along with LinkedIn and Dynamics, contributed $US14.69 billion in revenue, up 25%.
Microsoft’s More Personal Computing segment, which contains Windows, as well as devices, gaming and search advertising, generated a 9% rise in revenues to $US14.09 billion.
Negatives included the 3% fall in Windows licenses in the quarter, with license revenue associated with consumer PCs decelerating to a decline of 4% from 44% growth in the prior quarter.
The company pointed to supply constraints which also hit sales of Microsoft-branded Surface PCs which fell 20%, worse than the decline in the mid-teens range that Microsoft had forecast in April.
