The three tech giants, including Apple, Amazon and Alphabet are to report earnings after the US closing bell on Friday 3 February in Australian time. With the broad market’s comeback, tech earnings seem not as pessimistic as the actual numbers suggested. But there are still key areas that investors would focus on that are the market movers and shakers. We will be looking at iPhone sales growth for Apple, the AWS revenue for Amazon and the Google cloud growth for Google’s parent Alphabet to gauge this influential tech companies’ health.
Apple’s revenue growth set to fall amid China’s production disruptions
In the weeks since Apple reported its Q4 numbers in October, the shares hit their lowest levels since May 2021, before recovering to their current levels. As we look towards this week’s Q1 numbers which tend to be the company’s best quarter expectations are starting to be tempered given the problems with respect to its China supply chains and production shutdowns at Foxconn at the end of last year, which caused Apple to issue a warning over its iPhone production, and a potential shortfall of up to 6m handsets.
When the company reported in Q4 all the numbers were in line with expectations albeit with a slight negative bias after services revenue fell short, as did iPhone revenue. Overall Q4 revenue beat expectations, at $90.15bn, helped by strong beats on Mac and Wearables, however, on iPhone revenue, this fell fractionally short at $42.63bn, as did services at $19.19bn, below $19.65bn. iPad sales also missed $7.2bn. Mac revenue came in at $11.51bn, exp $9.25bn, wearables $9.65bn, exp, $8.8bn. The Greater China region continued to be a drag with revenues of $15.47bn. When Apple reported last year Q1 revenue came in at $123.95bn with iPhones contributing $71.6bn of that total, as profits came in at $2.10c a share.
Will Q1 this year get anywhere near close to the levels of sales we saw this time last year, or will investors get a reality check? In both of its biggest markets at the end of last year, retail sales in US and China contracted sharply in a sign that consumers were cutting back sharply. Profits for this Q1 are expected to come in at $1.95c a share.
Directional bias – bullish (A potential bullish breakout of the descending trendline)Source: CMC Markets NG 1 Jan, 2023 (Click to enlarge the chart)
Apple’s shares consolidated above the 100-day moving average, which is also the descending trendline resistance, with near-term support around 143. The directional bias is more bullish than bearish. A breakout of the potential near-term resistance of 146 may take the share price to further test 153, which is the 50% Fibonacci retracement.
The key support may be between 134-138 near the Fibonacci 23.6% retracement. A breakdown below this level could take the share price back to the January low of 124.
Amazon’s revenue growth may go back to a single digit on increased operation cost
when Amazon reported in Q3 not only did net sales fall short of expectations despite seeing a 15% increase on the year before, the decision to cut Q4 guidance sent the shares sharply lower, with the shares hitting their lowest levels since March 2020 at the start of this year. Q3 sales came in at $127.1bn, but higher operating costs meant that operating income came in lower at $2.15bn, with only AWS improving its operating income with a modest increase to $5.4bn on sales of $20.5bn. Operating margins also came in lower at 2%.
While the Q3 numbers were disappointing, it’s the guidance which is doing the damage with Amazon estimating sales of between $140bn to $148bn for the pre-Christmas period, well below forecasts of $155.5bn. Part of the reason for the miss on revenue appears to be being blamed on FX effects, i.e., a strong US dollar. Costs have also risen sharply over the last nine months, currently at $355.27bn, up from $311bn a year ago, an increase of 14% year on year.
Amazon has taken steps to address this with the announcement of thousands of job cuts over the last few weeks, however, these still pale into insignificance when you consider the company has increased its headcount by almost 1m people since 2019. Amazon also said it could struggle to turn a profit for Q4, in a year that has seen the company register huge losses during the year due to its stake in Rivian. Amazon is also investing huge amounts of money into its AWS business over the next few years, saying it intends to spend an extra $35bn by 2040 to boost capacity. Profits are expected to come in at $0.17c a share.
Directional bias – Neutral (testing channel resistance)Source: CMC Markets NG 1 Jan, 2023 (Click to enlarge the chart)
Amazon’s shares are testing the resistance of the 100-day moving average, pricing around 104-106. A breakout of this level (filling out the price gap in October) may take the share’s price to further test 122, which is a 38.2% Fibonacci retracement. However, a weak earning report or negative guidance could take its shares back to the January low of 81.
Alphabet’s Google cloud growth is in focus
In the wake of its Q3 earnings numbers, Alphabet’s shares fell to their lowest levels since November 2020, after missing expectations across all of its core businesses.
We’ve seen a modest recovery since then, however, the downtrend that has been in place since the record highs a year ago remains very much intact. Q3 ad revenue came in at $54.48bn, below expectations of $56.98bn, although at least the numbers were higher than the same quarter a year ago. The same can't be said for YouTube which saw revenues decline to just over $7bn, down from $7.2bn a year ago.
The only silver lining was its cloud business which saw revenues rise to $6.87bn from $4.99bn. Operating margins also declined to 25% from 32%. The last 3 months have seen the company also announce thousands of job cuts as it faces up to the challenges of falling revenues and rising costs. Profits are expected to come in at $1.21c a share.
Directional bias - bearish (facing trendline resistance)Source: CMC Markets NG 1 Jan, 2023 (Click to enlarge the chart)
The downtrend of Alphabet’s shares is still intact, while its shares are testing the 100-day moving average and the descending trendline resistance of 100. A pullback from this level may take its shares to retest the January low of 84. However, strong earnings and guidance may boost its bottom-up pattern and take its shares to the potential near-term long target near 110.