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China sales take a bite out of Apple, Amazon and Meta set to surge

US markets look set to get off to a strong start on the back of strong gains in Meta and Amazon shares after hours in the aftermath of their latest earnings numbers.

Having got off to a strong start to the year, as well as rallying from 5-month lows last October the bar was high for Amazon when they released their Q4 numbers after the close last night.

When Amazon reported in Q3, Q4 guidance was set at net sales of $160-167bn, with the company adding it would be hiring 250k full and part-time employees to cover the holiday periods of Thanksgiving and Christmas.

The revenue estimate was a figure that they beat quite comfortably, turning over a record $170bn, driven by a record Black Friday and Cyber Monday shopping event, and returning profits of $1 a share, or $10.6bn, well above forecasts of 80c. Despite the extra hiring the growth in revenue far outweighed the increase in expenses showing that the despite the difficulties of the last 2-years Amazon has become much more efficient.

Online stores saw revenues of $70.54bn, although AWS came in marginally short at $24.2bn while geographically the company outperformed in both North America and internationally. Over the full year Amazon saw a 12% increase in net sales to $574.8bn.

Prices for Amazon services have gone up, we’ve seen that with Amazon Prime and Prime Video, while job losses have also been taking place in these areas of the business.

For Q1 guidance was in line with expectations with the company forecasting $138-143.5bn, while the company said it expected to deliver operating income of between $8bn and $12bn.

Unlike its peers in the “Magnificent 7” Amazon has struggled to regain the levels we saw back in 2021. Could last night’s numbers give the shares the final push to revisit the record highs we saw in November 2021?

We also saw a good set of numbers for Facebook owner Meta Platforms. Having recovered all of its 2022 losses and making a new record high last month Meta faced a similarly high bar as far as its own Q4 numbers were concerned.

Just like Amazon, Meta appears to have delivered with the Facebook owner enjoying a record quarter, generating $40.11bn in revenue, and generating profits of $5.33 a share. For the first time ever, Meta said it would be paying a dividend of 50c a share, as well as announcing a $50bn share buyback, sending the shares higher after hours.

Advertising revenue came in at $38.71bn with daily and monthly active users both beating forecasts.

For Q1 guidance Meta says it expects to see revenues of between $34.5-37bn.

One other item that got investor attention was AI spending, with Meta increasing its capex by $2bn in this area.

Having set a marginal new record high in December there were concerns that Apple’s ability to deal with the increased competition from Huawei’s new 5G handset in its China market and that could see revenues come in short, due to recently announced price cuts there.

When Apple reported at the end of its previous financial year their guidance for Q1 was cautious saying they expected similar total revenues to last year of about $117bn. In any event revenues came in higher than forecast at $119.58bn, led by the iPhone of $69.7bn which came in ahead of forecasts

It was notable however that on a regional basis Greater China revenue came in well short of forecasts at $20.82bn indicating that the squeeze on sales is starting to have an effect. There was also concern on the part of Apple management that this was likely to continue, with the March quarter expected to be similar to last year.

On all its other products, the iPad saw revenues at $7.02bn, Mac revenues of $7.78bn, and wearables of $11.95bn all coming in light. Even services fell short of forecasts at $23.1bn.

The next few months are likely to be challenging for Apple having to deal with regulatory issues in Europe over its App Store, while its Watch has been the subject of issues with respect to its blood oxygen feature.

The launch of the Vision Pro at $3,500 is unlikely to shift the dial when it comes to sales given how costly it is. Apple is launching some new iPads which may prompt an uptick in sales in this area over the next quarter, but the iPhone remains its key revenue earner so the slowdown in China will be a concern, however the Indian market could offer a way out on this front. 

Investors are also keen to hear about how Apple intends to use AI in its products suite, something that Tim Cook said there would be more detail on later this year.

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