‘FAAMG’ Earnings Set to Impress, but Stretched Valuations Pose Big Risk Ahead
Investing.com | Jan 19, 2024 11:21
- Alphabet, Microsoft, Amazon, Meta Platforms, and Apple are soon set to report their respective earnings.
- ‘FAAMG’ profit and revenue growth, as well as guidance updates will be the next test for tech investors.
- As such, here’s what to watch for when the ‘Big Five’ mega-cap tech stocks release their latest financial results.
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- Earnings Date: Tuesday, January 30
- EPS Growth Estimate: +52.4% Y-o-Y
- Revenue Growth Estimate: +12% Y-o-Y
- Earnings Date: Tuesday, January 30
- EPS Growth Estimate: +19% Y-o-Y
- Revenue Growth Estimate: +15.8% Y-o-Y
- Earnings Date: Thursday, February 1
- EPS Growth Estimate: +2,533.3% Y-o-Y
- Revenue Growth Estimate: +11.3% Y-o-Y
- Earnings Date: Thursday, February 1
- EPS Growth Estimate: +180.1% Y-o-Y
- Revenue Growth Estimate: +21.3% Y-o-Y
- Earnings Date: Thursday, February 1
- EPS Growth Estimate: +11.7% Y-o-Y
- Revenue Growth Estimate: +0.9% Y-o-Y
Wall Street’s fourth-quarter earnings season shifts into high gear in the coming weeks with some of the biggest names in the market set to release financial results.
With the S&P 500 and Nasdaq Composite hovering near their all-time highs, most of the focus will once again be on the ‘Big 5’ group of mega-cap companies.
Earnings from Alphabet (NASDAQ:GOOGL) (GOOG), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META), and Apple (NASDAQ:AAPL) will be significant considering these five stocks make up a substantial amount of both the S&P 500 and Nasdaq and have accounted for most of their gains over the past year.
As such, there will be a lot on the line when the so-called ‘FAAMG’ group of mega-cap companies report their respective results in the weeks ahead.
h2 Alphabet/h2Google-parent Alphabet will be the first ‘FAAMG’ company to report earnings when it delivers its latest quarterly results after U.S. markets close on Tuesday, January 30, at 4:00PM ET.
Analysts have become increasingly bearish ahead of the print, according to an InvestingPro survey: of the 27 analysts surveyed, 17 downwardly revised their GOOGL earnings forecast, compared to ten upward revisions.
Source: InvestingPro
Consensus estimates call for Alphabet to report a profit of $1.60 per share for the fourth quarter, rising nearly 52% from EPS of $1.05 in the same quarter a year earlier, as the search giant continues to reap the benefits of ongoing cost-cutting measures.
Revenue is forecast to increase 12% from the year-ago period to about $85.2 billion, which if confirmed would mark the highest quarterly sales total in the company’s history.
h2 The Key Metric/h2
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The market will stay focused on growth rates at Alphabet's Google Cloud Platform, which saw sales jump 22% to $8.41 billion in the third quarter. Despite the double-digit growth in the unit’s revenue, the figure came in below estimates of $8.64 billion.
The search giant has been investing heavily in its cloud business, which includes Google Workspace (LON:WKP) productivity apps in addition to Google Cloud Platform, as it plays catch up with Amazon Web Services and Microsoft Azure, the top two players in the market.
h2 GOOGL Stock Performance/h2GOOGL stock - which is up 54.2% in the last 12 months - ended Thursday’s session at $143.48, not far from its February 2022 all-time high of $151.55.
At current levels, the Mountain View, California-based company has a market cap of $1.80 trillion, making it the third most valuable company trading on the U.S. stock exchange.
Source: InvestingPro
Even with the recent upswing, GOOGL stock could see an increase of 9.9% in the months ahead, according to InvestingPro, bringing shares closer to their ‘Fair Value’ price target of $157.66.
h2 Alphabet ProTips/h2As per InvestingPro's ProTips, Alphabet’s share profile is fairly positive, with several bullish tailwinds working in its favor, including a robust profitability outlook and strong free cash flows.
Source: InvestingPro
On the downside, ProTips points out that Alphabet trades at a high forward price-to-earnings (P/E) ratio relative to near-term earnings growth as well as high revenue valuation multiples and a high price-to-book ratio, underlining risks associated with an overvaluation.
h2 Microsoft/h2Microsoft is set to deliver its fiscal second-quarter earnings and revenue update after the U.S. market closes on Tuesday, January 30 at 4:05PM ET and the Redmond, Washington-based software-and-hardware giant is forecast to post another quarter of double-digit profit and revenue growth.
Unsurprisingly, an InvestingPro survey of analyst earnings revisions points to surging optimism ahead of Microsoft’s report, with analysts raising their EPS estimates 23 times in the last 90 days, compared to just two downward revisions.
Source: InvestingPro
Consensus estimates call for earnings per share of $2.76, improving 19% from a profit of $2.32 in the year-ago period amid the positive impact of reduced operating expenses and ongoing job cuts.
Meanwhile, sales are expected to grow 15.8% annually to $61.0 billion, thanks to a strong performance in its cloud business as well as fresh initiatives in artificial intelligence.
If those figures are confirmed, it would mark the highest quarterly revenue total in Microsoft’s 48-year history, demonstrating the strength and resilience of its operating business as well as strong execution across the company.
h2 The Key Metric/h2As always, most of the focus will be on the performance of Microsoft’s Intelligent Cloud segment, which includes Azure public cloud services, Windows Server, SQL Server, Visual Studio, Nuance, GitHub, and Enterprise Services.
The key unit saw sales growth of 19% in fiscal Q1 to $23.49 billion, while revenue from its Azure cloud services, which Microsoft does not report in dollars, grew 28%, compared with 27% in the preceding quarter.
h2 MSFT Stock Performance/h2MSFT stock closed at a new record peak of $393.87 last night. With a market cap of $2.93 trillion, Microsoft recently overtook Apple (NASDAQ:AAPL) as the most valuable company trading on the U.S. stock market.
Shares have been on a major uptrend over the past year, rallying 71.3% in the past 12 months as the tech heavyweight benefits from its growing involvement in the emerging AI space.
Source: InvestingPro
It should be noted that Microsoft’s stock appears to be a tad overvalued heading into the earnings update, as per the quantitative models in InvestingPro, which point to a potential downside of 6.9% from current levels.
h2 Microsoft ProTips/h2As ProTips points out, Microsoft is in great financial health condition, thanks to robust earnings prospects, and a healthy profitability outlook. Additionally, it should be noted that the company has raised its dividend payout for 18 consecutive years.
Source: InvestingPro
Nevertheless, concerns loom as ProTips points out Microsoft’s elevated forward price-to-earnings (P/E) ratio in relation to near-term earnings growth.
Additionally, the company faces scrutiny for its high revenue valuation multiples and a lofty price-to-book ratio, raising questions about its current valuation.
h2 Amazon/h2Amazon is slated to release its fourth quarter financial results - which include the key holiday period - on Thursday, February 1 at 4:00PM ET and sell-side confidence is brimming.
Earnings estimates have been revised upward 27 times in the 90 days leading up to the print, according to an InvestingPro survey, compared to just two downward revisions, as Wall Street grows increasingly bullish on the e-commerce and cloud giant.
Source: InvestingPro
Consensus calls for Amazon to post earnings per share of $0.79, surging over 2,500% from EPS of $0.03 in Q4 2022, thanks to the positive impact of several cost-saving measures implemented during recent months.
Revenue is expected to climb 11.3% from the year-ago period to $166.1 billion, reflecting ongoing strength in its cloud computing and advertising businesses. If confirmed, that would be the highest quarterly sales total in the company’s history.
h2 The Key Metric/h2Investors will stay laser-focused on Amazon’s cloud unit to see if it can maintain its pace of growth. Amazon Web Services revenue rose 12% in Q3 to $23.1 billion, accelerating from sales growth of 12% in the preceding quarter.
Amazon’s AWS is widely considered the leader in the cloud-computing space, ahead of Microsoft Azure and Google Cloud.
h2 AMZN Stock Performance/h2AMZN stock closed at $153.50 on Thursday, not far from a recent 52-week peak of $157.17 touched on January 11. With a valuation of $1.59 trillion, the Seattle, Washington-based tech giant is the fourth most valuable company listed on the U.S. stock exchange.
Shares have significantly outperformed the broader market in the past 12 months, climbing roughly 64%.
Source: InvestingPro
Despite the impressive rally, Amazon’s stock is still relatively undervalued according to the InvestingPro model and could see a gain of 8.5% from current levels, bringing it closer to its ‘Fair Value’ price of $166.49 per share.
h2 Amazon ProTips/h2InvestingPro’s ProTips underscore Amazon’s promising outlook, emphasizing its favorable positioning in the e-commerce and retail industries which has allowed the company to leverage a resilient business model and strong revenue growth.
Source: InvestingPro
Despite these strengths, investors are advised to approach cautiously as concerns about the stock's valuation metrics, particularly a high price-to-earnings ratio, raise questions about potential overvaluation risks.
h2 Meta Platforms/h2Meta Platforms, parent of social networks Facebook, Instagram, Threads, and WhatsApp, is projected to release fourth-quarter earnings on Thursday, February 1 after the U.S. market closes at 4:15 PM ET and it is expected to be one of its most profitable quarters on record.
An InvestingPro survey of analyst earnings revisions shows that analysts boosted their EPS estimates 15 times over the last 90 days, compared to 12 downward revisions.
Source: InvestingPro
Wall Street sees Meta earning a profit of $4.93 per share, soaring 180% from EPS of $1.76 in the year-ago period, as the Mark Zuckerberg-led company continues to focus on improving operating efficiency.
If that is in fact reality, it would mark the company’s most profitable quarter in its 20-year history.
Revenue is expected to increase 21.3% year-over-year to $39.0 billion, amid signs of improving conditions in the digital advertising market.
h2 The Key Metric/h2As usual, investors will pay close attention to Meta’s update regarding Facebook’s daily and monthly active user accounts - two important metrics for the social media giant.
Facebook said daily active users (DAUs) rose 5% annually in the previous quarter to 2.09 billion, while monthly active users (MAUs) increased 3% to 3.05 billion.
h2 META Stock Performance/h2Meta’s stock has been on a tear heading into its earnings report, with shares of the Menlo Park, California-based tech company hitting a series of 52-week highs recently.
META stock closed at $376.13 yesterday, ending just below an all-time high of $384.33 reached in September 2021. At current levels, Meta has a market cap of roughly $967 billion.
Shares have staged an astonishing rally over the last 12 months and are up a whopping 176% over that timeframe, with investors encouraged by aggressive cost-cutting initiatives implemented by CEO Mark Zuckerberg in recent months.
It should be noted that META shares remain undervalued at the moment according to InvestingPro, and could see an increase of 9.1% from the current market value, which would bring them closer to their ‘Fair Value’ of $410.43.
h2 Meta Platforms ProTips/h2InvestingPro’s ProTips highlights several positive trends Meta has working in its favor, including a robust earnings outlook, healthy profitability, and solid cash flow growth.
Source: InvestingPro
Nonetheless, there are concerns about valuation as ProTips points out and worries about the stock being overvalued warrant investors' attention.
h2 Apple/h2Apple will be the final ‘FAAMG’ stock to report quarterly results when it delivers fiscal first-quarter earnings after the market closes at 4:30 PM ET on Thursday, February 1. A call with CEO Tim Cook and CFO Luca Maestri is set for 5:00PM ET.
The Cupertino, California-based consumer electronics giant is forecast to report less than 1% growth in annual sales, reflecting the challenging operating environment that has weighed on demand for its pricey smartphone models.
Not surprisingly, profit forecasts have been revised downward 12 times in the past 90 days, according to InvestingPro, as the iPhone maker deals with several headwinds.
Source: InvestingPro
As per Investing.com consensus estimates, Apple’s earnings per share are expected to be $2.10 for the important holiday quarter, an improvement of 11.7% from EPS of $1.88 a year ago.
Revenue is forecast to inch up 0.9% year-over-year to $118.3 billion amid slowing demand for the company’s high-end smartphones and computers.
h2 The Key Metric/h2Wall Street will pay close attention to growth in Apple’s Services business, which was the fastest growing segment in fiscal Q4 with annualized revenue growth of 16% to $22.31 billion.
The unit includes sales from Apple’s App Store, extended warranties from AppleCare, licensing fees, search-licensing revenue, and monthly subscriptions like iCloud storage and Apple Music.
h2 AAPL Stock Performance/h2AAPL stock - which has gained 40.2% in the past year - ended at $188.63 on Thursday, not far from its mid-December all-time high of $199.62.
At current levels, the Cupertino, California-based consumer electronics conglomerate has a market cap of $2.92 trillion, making it the second most valuable company trading on the U.S. stock exchange.
Source: InvestingPro
Apple’s stock appears to be overvalued heading into the earnings print according to a number of valuation models on InvestingPro: the average ‘Fair Value’ for AAPL stands at $162.68 a potential downside of 13.8% from current levels.
h2 Apple ProTips/h2InvestingPro's ProTips paint a mostly positive picture of Apple's stock, citing its strong market presence and innovative product ecosystem as key strengths.
Apple also stands out with ProTips emphasizing its robust free cash flow levels, strong dividend, and consistent profit growth.
Source: InvestingPro
However, caution is advised as ProTips highlights concerns about Apple's valuation metrics, including a high price-to-earnings (P/E) ratio relative to its near-term earnings growth and elevated price-to-book multiple.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY (NYSE:SPY)), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.
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