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Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Earnings review: Apple, Amazon, and Meta
Peter Garnry
Chief Investment Strategist
Summary: Tech giants ended 2023 strong, confirming solid growth and profitability despite some cautious notes from Apple. Amazon bounced back with cost-cutting and cloud success, while Meta emerged as the big winner with strong earnings, first-ever dividend, and bullish guidance. Overall, tech enters 2024 with momentum and a focus on sustainable growth, despite individual challenges.
Job done as technology companies leave 2023 behind on a high
With the most important earnings week almost done we can definitely conclude that Q4 earnings have not changed the overall picture that growth is looking good and profitability has increased. While some technology companies disappointed investors such as Alphabet and Apple (more on that below) the overall bird’s view of technology earnings is that it is job done. Revenue growth is looking good and profitability has improved due cost focus. Sequoia Capital toured Silicon Valley with its famous presentation about a “crucial moment” and “focus on profitability” or face extinction. Technology companies listened and many are benefitting from their focus on profitability. As the chart below shows, Nasdaq 100 operating earnings have soared to a new all-time high supporting the strong rally we have seen in technology stocks. Apple, Amazon, and Meta reported earnings last night and below we go through the key takeaways.
Apple is playing conservative on guidance
Apple beat on both revenue and EPS in its FY24 Q1 results (ending 31 Dec) with only China disappointing in the quarter. FY24 Q1 revenue was $119.6bn vs est. $118bn and EPS was $2.18 vs est. $2.11. Nevertheless, investors were not pleased with the results as management’s guidance on iPhone revenue to be flat in the current quarter compared to a year ago. In our view, Apple is play it conservatively as they have low visibility on the Chinese economy and the pace of the upgrade cycle on its iPhones. As the charts below show on iPhone and Services revenue, the iPhone business is quite volatile (orange colour indicates Apple’s own guidance) while the Services segment offers stable growth. Unless Apple reinvents a new platform experience with its Vision Pro AR/VR headset then the hardware business will over time mean less and less for profits compared to the Services segment that has a higher profit margin. It similar to Amazon where the more profitable business unit AWS over time took over as the most important segment for its valuation.
Amazon profits expand on cost cuts
Amazon overspent during the pandemic mis-reading the long-term in its e-commerce business. After a year of focus on costs the e-commerce and cloud giant has got its mojo back with its operating margin expanding to a new all-time high in 2023 and revenue growth has also come back ending Q4 at 13.9% y/y as the US holiday shopping proved better than expected. Q4 revenue was $170bn vs est. $166.2bn and EPS was $1.00 vs est. $0.78. Despite a Q1 revenue guidance below consensus estimates investors are cheering as Amazon’s cost focus is paying off for shareholders. The Q1 outlook is also confirming another quarter of more than 10% revenue growth suggesting the economy is not showing recession signs just yet.
Meta is the big technology winner in Q4
Meta shares rose 14% in extended trading making it the best major technology stock in the Q4 earnings season. Q4 revenue was $40.1bn vs est. $39bn and EPS was $5.33 vs est. $4.91 as the employees reduction helped Meta expand their operating margin. The social media company is also announcing its first quarterly dividend of $0.50 per share translating into a dividend yield of around 0.5%. But the big positive share price reaction pushing Meta shares to a new all-time high in today’s session is because of the company’s Q1 revenue guidance of $34.5-37bn vs est. $33.6bn indicating that the online advertising industry is seeing a strong demand. This is another important macro indicator suggesting companies have hive confidence in future demand. In addition to the newly declared dividend, Meta is also boosting its buyback programme by $50bn. Recent notes on equities
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