Earnings round trip: Meta, Caterpillar, and Amazon

Meta Q1 results confirm advertising has turned a corner

Meta has been the big winner among the mega caps so far in the Q1 earnings season with last night’s results smashing estimates. Q1 advertising revenue was $28.1bn vs est. $26.8bn and the Q2 total revenue guidance of $29.5-32bn is higher than consensus at $29.5bn suggesting advertising is beginning to surprise to the upside like we saw the other day from Alphabet’s Q1 results. From a macro perspective this suggests that the economy could begin accelerating over the next 3-6 months. The only disappointing thing in the result was that the headcount is only down 1% y/y and that it expects the Reality Labs segment’s operating loss to increase indicating that the CEO and founder Mark Zuckerberg is not willing to sacrifice his bet on the metaverse just yet. Meta shares are up 12% in pre-market trading.

Can Amazon get its mojo back?

The big earnings focus tonight after the US market close is Amazon which is expected to see just 7% y/y revenue growth which implies slightly or no volume growth at the largest e-commerce retailer in the developed world. Amazon misread the signals during the pandemic which led to massive overinvestment which has haunted the company for many quarters and recent cost-cutting exercises should extend the rise in operating income which happened in the last quarter (see chart).

Given the low expectations for Amazon it should be manageable for the company to beat expectations, but despite many years of abrupt success it is no so given any longer. Competition has increased dramatically in e-commerce and cloud infrastructure, and Amazon’s international e-commerce operations remain a negative for the outlook.