Were big tech earnings better than expected?

All eyes were on Apple, Amazon, Alphabet and Meta as tech’s biggest companies reported their latest results this week. A key theme going into the reports was layoffs and cost cuts.

- Meta shares jumped 23% following revenue beat.

- Apple avoids layoffs – for now – with Tim Cook calling them a “last resort”.

- Apple, Amazon, Alphabet and Meta are all among the top 10 holdings of the Schwab US Large-Cap Growth ETF.  

Big tech giants Apple [AAPL], Amazon [AMZN], Meta [META] and Alphabet [GOOGL] all reported quarterly earnings this week. 

Meta was first up on Wednesday. While profits for the October to December period slumped 55%, the revenue of $32.2bn beat analyst expectations of $31.5bn, according to Refinitiv data. The Meta share price jumped 23.3% on Thursday. 

Amazon reported a revenue beat on Thursday. While its Amazon Web Services segment underperformed, its advertising segment surprised. The Amazon share price was down over 5% in after-hours trading following weak guidance. 

Alphabet missed both revenue and earnings estimates, reporting $76.1bn on earnings per share of $1.05 versus $76.5bn on $1.18 per share as expected by analysts polled by Refinitv. The Alphabet share price was down 5% after hours. 

Apple also missed top and bottom-line expectations. Revenue fell 5% year-over-year, the company’s first quarterly decline since 2019. The Apple share price was trading down 4.9% after hours.

Numbers not as bad as feared

The results may have been a mixed bag, but Wedbush analyst Dan Ives argued that the Apple, Alphabet and Amazon earnings calls are “painting a much different picture of demand environment than the tech bears were hoping. Caution [is] in the air, but sounds more like [a] soft landing backdrop.”

As for Meta, despite its revenue beat, Jefferies analyst Brent Thill told Yahoo Finance that the doom and gloom around the company hasn’t necessarily lifted. “[T]he expectations were so low that ultimately, it’s not like these are stellar numbers. They’re just better than expected.” As Opto has previously reported, the social media giant has been struggling to maintain its share of the digital advertising market

However, the Meta share price soared post-earnings on the back of signs that the company may be paring down its multibillion-dollar bet on the metaverse. While CEO Mark Zuckerberg didn’t say this explicitly, he told investors on the earnings call that the company is “looking at the signals and learning and making decisions about what it makes sense to do going forward”, adding that “flattening [the] org structure” will likely affect the Reality Labs unit. 

Reality Labs revenue was down 17% year-over-year due to lower hardware sales. Expenses for the unit were up 20% because of restructuring and employee costs, while the operating loss was $4.3bn. The segment’s total losses for 2022 came in at $13.7bn.

Apple bucks layoff trend

Apple is the only one of the four big tech giants not to have announced mass layoffs – yet. Letting people go is a “last resort”, CEO Tim Cook told the Wall Street Journal

Wedbush’s Dan Ives believes the Cupertino company “remains in a unique situation to withstand this economic storm better than its tech peers”. The revenue decline in the October to December period was “a supply chain China situation”, Ives said, that impacted iPhone shipments. 

“Macro remains uncertain, but … March iPhone commentary [is] positive and will be a focus of the Street. Teflon-like is Cupertino, despite macro storm clouds,” tweeted Ives. 

Apple hasn’t provided the exact number of iPhone units sold in the October to December period, but Wedbush estimates that eight to 10 million iPhone sales were shifted out of the holiday season because of supply chain shortages. 

The company expects “March quarter year-over-year revenue performance to accelerate relative to the December quarter.”

Funds in focus: Schwab US Large-Cap Growth ETF

The earnings may halt the big tech stock rally. The Nasdaq index weighted heavily in favour of Apple, Amazon, Alphabet and Meta, enjoyed its best January since 2001, logging a 10.7% gain. 

The four stocks are the top 10 holdings in the Schwab US Large-Cap Growth ETF [SCHG]. As of 2 February, Apple is the biggest holding at 12.94% of assets under management (AUM), Amazon is third-biggest at 5.55% AUM, Alphabet’s class A shares make up the fourth-largest holding at 3.56% of the portfolio, and Meta is tenth-biggest at 2.05% AUM. The fund is up 15.3% year-to-date. 

The four are also held by the T Rowe Price Blue Chip Growth ETF [TCHP]. The fund is up 15.3% year-to-date. Apple is the second-largest holding at 9.95% AUM as of 31 December. 

The iShares US Technology ETF [IYW] holds three of the four stocks. As of 1 February, Apple is the top holding in the fund at a weighting of 17.44%, while Alphabet’s class A shares are the third-largest holding and make up 5.12% of the portfolio, and Meta is the sixth-biggest at 4.06% AUM. The fund is up 19.2% year-to-date through 3 February. 

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