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Can Apple and Amazon continue to blow away earnings expectations?

Apple

Both Apple and Amazon are to report their September quarter earnings after the US markets close on Friday morning, 28 Oct. The two companies also both beat earnings expectations in the June quarter results, which offers hopes that they may continue to weather the economic storm in the September quarter. While the iPhone 14 sales revenue will be investors’ focus for Apple, Amazon’s AWS revenue is a key to the e-Commerce giant’s upcoming earnings reports. 

Apple is expected to continue its stable growth in sales revenue

The strong iPhone 13 sales supported Apple to continue growing in the July quarter, with its revenue recording $83 billion, or a 2% year-over-year growth. But it was also the slowest increase since the first quarter of 2020 due to a weak performance in the services revenue and the Mac sales. According to FactSet estimate, Apple will generate a stronger sales revenue at $88.8 billion in the September quarter, or a 6.5% growth year over year, as the iPhone 14 sales may stay in strong demand, along with its other series products, including iPads and Macs. Apple has also just raised its prices on Apple Music and Apple TV+, which may be seen as a positive move to grow its service revenue in the current quarter. Apple CEO Tim Cook expected the company’s revenue to accelerate in the September quarter despite “some pockets of softness” when he was interviewed by CNBC in July. But the company did not provide earnings guidance in the last two earnings reports. It is also expected that Apple’s earnings per share will be at $1.27 for the September quarter or a 2.4% growth year on year, which would be a reverse of the 7% decline in the prior quarter.

On the downside, a slowdown in China’s economic growth and supply chain issues may remain issues for Apple’s sales. Apple ditched the iPhone production increase of 6 million units in late September as demands failed to materialise, but the negative news may have already been priced in.  

Amazon may recover its earnings losses in the third quarter

Amazon beat earnings expectations in its second quarter as its AWS expanded more than expected, reporting $19.7 billion at a record high, with a higher-than-expected operating margin of 2.7%. The total revenue was also much stronger than the analyst’s estimate, which was 121. 23 billion. However, Amazon lost 20 cents per share in the same quarter due to a slowdown in its advertising revenue growth and a $3.9 billion loss on its Rivian investment. Amazon provided the third quarter revenue as between $125 billion to $130 billion, representing growth of 13% to 17%. According to Zacks Consensus Estimate, Amazon’s sales revenue is at $128.05 billion for the third quarter, or a 15.6% growth year over year, an increase from 7% in the prior quarter. And the EPS is expected at 24 cents per share, a decline of 22.6% from a year ago, but recovered from a loss of 20 cents from the prior quarter. CEO Andy Jassy has provided a positive outlook in the last quarter, saying the business was making good progress on the more controllable costs to improve productivity despite inflationary pressures in fuel, energy, and transportation costs.

Amazon also cut its headcount by 99,000 workers to 1.52 million in the second quarter. Its CFO Brian Olsavsky said the company will continue to hire engineers for its AWS and advertising departments but will be cautious about other areas, which may help shift employee costs to more profitable divisions.

Technical Analysis

Apple, daily

Directional bias-bullishSource: CMC Markets as of 26, October

Apple’s shares are on a rebounding pace since 13 October as bullish bets on the US tech shares have been growing. The share’s price had a bullish breakout on the descending trendline on 21 October, which may have confirmed its bottomer reversal trend, with a near-term potential long target at 157, then 167. However, an imminent pullback may be expected at the upper band of the short-term ascending channel, pricing around 154. The near-term support may be at 149, then 141.

On the flip side, a breakdown below 141 may take the share to re-test the recent low at 134.

Amazon, daily

Directional bias - bearishSource: CMC Markets as of 26, Oct

Amazon’s shares face channel resistance and are also under pressure of the 100-day MA at 121, a potential imminent pullback may take the shares to retest the near-term support around 112, then 105, which is the low on 13 July.

On the flip side, a bullish break out of the 100-day MA above 123 may take the shares to further approach 134, which is a 38.20% retracement of Fibonacci. 


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