Big Tech results will get a lot of attention in the biggest week of the holiday-earnings season.
After tech stocks were decimated in 2022, investors will be looking for signs of a comeback in holiday reports and potential forecasts for the year ahead from three of the top five market- value loser. Microsoft’s results in the wake of a mass-layoffs announcement didn’t bode well for its Big Tech brethren.
Microsoft is the cloud sector’s canary in the coal mine.
After finding themselves in unfamiliar territory, the companies will deliver results, even as demand for core products slows. The bottom hasn’t arrived for either their finances or their workforces, according to some analysts.
One Big Tech company that hasn’t taken a sword to its payroll is Apple, which didn’t increase its staff as much as the others during the COVID-19 Pandemic. Apple shed $846 billion from its market cap last year, and now reports that its core product was part of the worst holiday season decline on record. China, a nation whose COVID-19 restrictions have constrained production of some phones, could face questions from Wall Street about changing up its product sources.
While the tech-industry layoffs have yet to hit Apple, some analysts say the company is unlikely to be spared despite Chief Executive Tim Cook requesting a healthy cut to his compensation.
D.A. Davidson analyst Tom Forte said in a research note that he expects Apple to adjust its head count to reflect an increasingly challenging global macroeconomic environment.
If profit continues to fall along with revenue growth, rivals will face more cuts. An activist investor has already said that cutting 12,000 employees isn’t enough, considering how much the company grew during the Pandemic and the difficulties it faces in the online-ad sector.
Microsoft’s big move in artificial intelligence doesn’t mean it’s going to compete with Google in search.
Meta’s “darkest days” are still ahead, as it navigates a round of more than 11,000 layoffs, competition from TikTok and its early stumbles in the metaverse. Despite the efforts to slash the Facebook parent company’s previously healthy bottom line, the Chief Executive has promised to keep spending on metaverse.
Monness Crespi Hardt analyst Brian White said in a research note on Thursday that he expected Meta to remain engulfed in battles inside the Octagon. In the long run, we believe Meta will benefit from the secular digital ad trend and innovate in the metaverse; however, regulatory scrutiny persists, internal headwinds remain, and we believe the darkest days of the downturn are ahead of us.
Meta’s dark days are ahead, but some analysts say ad sales are still on track.
The first Big Tech company to publicly declare cost-cutting was in order a year ago was online retailer Amazon. When inflation sucks away more consumer dollars toward essentials, it kicked off with plans to lay off more than 18,000 workers as struggles continued throughout last year.
Amazon has helped to drive sales in the past as businesses built out their tech infrastructures. Microsoft executives last week warned of a moderation in consumption growth for its own cloud business, which is a sign that the outlook for cloud growth isn’t very encouraging.
One company may be able to determine whether U.S. corporate profits rise to a record.
After Microsoft’s earnings and conversations with industry checks, sentiment was already bearish on Amazon Web Services, with investors looking for slowing revenue over the next three quarters, according to a note from an analyst. E-commerce revenue has been stable, and we think margins should improve from organic scale and announced head-count reductions.
Big Tech companies that grew fast during the Pandemic are starting to be laid off as well. IBM confirmed plans for 3,900 layoffs as it reported earnings, despite already reducing its workforce by at least 20% during the Pandemic.
One sector to watch is Semiconductors, where a chip shortage has turned into a glut, as evidenced by the layoffs of workers atLRCX. If Advanced Micro Devices reports this week that there is any silver lining in the storm, that could be a sign.
The earnings preview shows that there will be even more scrutiny after the Intel outlook.
Tech layoffs will accelerate with more pain ahead to curb expenses, and Apple will likely cut some costs around the edges, but we do not expect mass, according to a Sunday note from Daniel Ives.
Big Tech earnings were a salve to other problems in the market for the past decade-plus but with layoffs already under way and doubts about the path forward, don’t expect salvation from their results this week.
This week in earnings
More than 100 S&P 500 companies, including six members of the Industrial Average, will report results for the week. FactSet senior earnings analyst John Butters confirmed to MarketWatch that this will be the busiest week for S&P 500 holiday earnings this year.
After a one-off supply-chain disruption and the home-renovation boom, appliance-maker Whirlpool Corp. forecast fourth-quarter sales that were below expectations.
There are questions about holiday-season demand, according to United Parcel Service Inc. Following its own layoffs and suggestions of possible price hikes, as well as McDonald’s Corp. MCD, there is concern that rising prices are keeping people from eating out. Exxon Mobil Corp., Caterpillar Inc., and Pfizer Inc. report Tuesday.
Mcdonalds earnings have not been hit by higher prices.
In the wake of a data breach and wobbling cellphone demand, T-Mobile US Inc. reported on Wednesday. Analysts are likely to zeroed in on U.S. demand and China’s reopening, after executives said they were confident that higher prices, along with enthusiasm from younger customers and for custom drinks, could help them navigate any potholes.
Thursday is the big day for the Big Tech companies, with Apple, Amazon and Alphabet reporting that afternoon.
The calls to put on your calendar
Vince McMahon, who returned to the professional-wrestling organization this month following allegations of sexual misconduct, is seeking a buyer or other strategic alternative for the company.
Analysts have speculated about how the company might use its wrestling events and media content to make money, with the possibility of interest from Amazon or Netflix. The company has struggled to develop story lines that stick with viewers, and has lost a lot of wrestlers.
McMahon would pay a multimillion-dollar settlement to a former referee who accused him of raping her, according to the Wall Street Journal. The departure of McMahon’s daughter, who had been promoted to co-CEO after he stepped down, was one of the changes since McMahon returned.
There isn’t much clarity on whether Vince McMahon will be on Thursday’s earnings call, which was moved from the morning to the afternoon due to a scheduling conflict Regardless of who attends, it should offer drama.
The numbers to watch
GM and Ford will report sales results on Tuesday and Thursday. Despite falling new-vehicle sales in the third quarter, GM kept its own sales higher, according to the AP.
During GM’s third-quarter earnings call in October, Mary Barry, the auto maker’s chief executive, called out the popularity of vehicles like the Escalade, the Chevrolet Bolt EV, and some pickup and SUVs. In June, GM said it completed 75% of the unfinished vehicles in its inventory. She said supply-chains were opening up again, but that disruptions would continue.
As they try to put a chip shortage and other production constraints behind them, the auto makers report. According to some forecasts, auto sales will be the weakest in a decade. GM’s and Ford’s own EV sales could be at risk because of the recent price cuts byTesla.