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Microsoft and Alphabet earnings: What to expect


If you are a fan of SaaS (Software as a service) stocks, both Microsoft and Alphabet cannot be missed out as mega-cap companies. Cloud computing becomes a key business segment that catches investors’ eyes. Both companies were solid in the final quarter earnings results, along with positive future guidance. But remember the guidance was given before the Ukraine war, hereby, the challenges remain regarding war-induced softening of client spending, high inflation, and rising interest rates, making investors more sensitive about the pace of growth and how these companies steer their businesses through the bumpy journey.


Azure cloud revenue is a key metric

Talking about cloud computing, Amazon’s AWS accounts for 33% of the market share, followed by Microsoft Azure at 21%, Google Cloud Platform at 10%, then Alibaba at 6%. Despite the dominance of Amazon, Microsoft Azure gains more and more popularity among corporate clients by its all-in-one service, where its customers tend to keep a long relationship with a more compatible package price. In the last quarter’s earnings report, Microsoft’s finance chief indicated demands remained high for its products across the business, and the main driver of business, Azure, will accelerate growth in the third quarter.

However, Microsoft’s revenue growth slowed to 20% in the second quarter of the fiscal year 2022 vs. 22% in the first quarter. The key business segment, Azure cloud grew 46% and snapped a four consecutive quarterly gain of 50%, the slowest quarterly preperformance in two years. The company expects revenue growth of $48.5 billion to $49.3 billion in the third quarter, or 18% annually, with analysts forecasting EPS of $2.18, or a 12% growth year on year, which are all lower than the last quarter. But it is expected Microsoft will grow its profit margin regarding strong demand and robust cloud services sales. 

Microsoft has failed to reintegrate back above the 200-day moving average

Source: CMC Markets as of 22 Apr 2022 (Click to see the enlarged chart)

The share price of Microsoft (MSFT) has staged a bearish reaction right below its former major ascending channel support from 23 March 2020 low on 31 March 2022 and broke below the key psychological 200-day moving average on 6 April 2022. In the past four weeks, MSFT has declined by -13%, and last Friday, 22 April closing level of 273.97 is just a whisker above the 271.60 intermediate support that has been formed via the swing lows of 24 February/8 March 2022.

Medium-term downside momentum remains intact as depicted by the recent observations seen in the daily RSI oscillator with a bearish break below and a retest of its former corresponding ascending support on 20 April 2022.

These bearish elements suggest that the major uptrend phase of MSFT in place since 23 March 2020 low may have been damaged and current price actions are likely undergoing a potential multi-month corrective down move sequence. If price actions of MSFT can be contained below the 319.20 key medium-term pivotal resistance, a further potential decline may unfold towards the next support at 241.10/239.20 in the first step (former congestion area from 11 March 2021 to 19 May 2021, 50% Fibonacci retracement of the major uptrend from 23 March 2020 low to 22 November 2021 high & 1.00 Fibonacci extension of the down move from 22 November 2021 high to 8 March 2022 low projected from 30 March 2022 high).

On the other hand, a clearance with a daily close above 319.20 negates the bearish tone for a squeeze up to retest the current all-time high area of 343.80/349.70.


Shrinking YouTube advertising and growing Google Cloud revenue

Alphabet beat earnings estimates but missed revenue expectations in the final quarter. Its YouTube advertising revenue fell short of consensus due to competition from TikTok, despite a 33% jump from a year ago. It is expected that YouTube's market share may continue to lose to rivals. Its network searching ads face global headwinds of softening clients’ spending.

Google Cloud revenue beat estimates in the fourth quarter, becoming a key driver of the business. Aiming to switch clients from Amazon and Microsoft, Google Cloud shifts its focus to cybersecurity by investing billions of dollars into security offerings. It will be a key focus to see if the investment by the online search pioneer will pay off.

All in all, slower growth in both EPS and revenue is expected for Alphabet’s upcoming earing report, with the EPS at $26.17 vs $30.69, and $68.05 billion vs $$75.33 billion in the last quarter. Analysts forecast a 23% (vs. 32% Q4) of the revenue growth annually. Share performance will depend on if the results can beat an already lowered expectation and how the leadership sees the business’s outlook.

Alphabet also announced a 20-for-1 stock split with the offering date on July 1, which could help preserve the share price.

The major uptrend phase of Alphabet has been damaged

Source: CMC Markets as of 22 Apr 2022 (Click to see the enlarged chart)

The share price of Alphabet (GOOGL) has printed a fresh all-time high of 3,028 on 2 February 2022 after it gapped up by +9.7% post Q4 2021 earnings release that accompanied the announcement of its intended 20-for-1 stock split.

But its price actions have failed to break above its prior major swing high of 19 November 2021 and declined by -21% to print a low of 2,378.84 last Friday, 22 April. In addition, it has staged a prior bearish breakdown from its major ascending trendline support in place since the 23 March 2020 low on 12 April 2022. These negative elements indicate that GOOGL's major uptrend phase has been damaged and may kickstart a potential multi-month corrective down move sequence.

A point to note will be its daily RSI oscillator which has almost reached its oversold region that suggests that the recent decline in the prices action of GOOGL from 29 March 2022 high to 22 April 2022 low is overstretched and the odds of a minor corrective bounce increases at the juncture towards the 2,521/2,627 intermediate resistance zone (also the former major ascending trendline from 23 March 2020 low now turns pull-back resistance) before another down move materializes.

If the 2,766 key medium-term pivotal resistance (also coincides with the 200-day moving average) is not surpassed to the upside, GOOGL may shape another potential down move towards the next supports at 2,250/2,190 and 2,013 (a cluster of Fibonacci retracement and extension levels).

However, a clearance with a daily close above 2,766 negates the bearish tone for a squeeze up towards 2,857 before the major range resistance of 3,012/3,028.

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