Amazon, Alphabet under a cloud ahead of earnings

Clouds hanging over the Big Tech earnings season continue to darken ahead of Amazon and Alphabet earnings

Clouds hanging over the Big Tech earnings season continue to darken ahead of Amazon and Alphabet earnings.

That’s after Facebook revealed a new Federal Trade Commission probe into its competition practices a day ago. The news pushed its shares lower, despite the group topping, profit, revenue and some user-growth expectations in earnings. The group had only just agreed to settle with the commission for $5bn as penalty for breaches of user privacy, with other aspects of the deal—that may curtail business goals—yet to be finalised. The FTC’s review could end up proceeding in concert with a wide-ranging Department of Justice antitrust probe covering Facebook and all its giant Internet peers.

Although there are good reasons to see the lengthy, thorough process of Washington’s investigation in itself as moderating near-term stock impact, the soured mood is an unwanted dimension as the sector releases earnings. Facebook shares slipped despite its results beats. The shine may also be taken off reaction to Alphabet and Amazon earnings, when they report later.

Key numbers expected from Alphabet (Data from Bloomberg)

  • 2Q GAAP EPS $11.19
  • 2Q revenue excluding traffic acquisition costs up about 18% to $30.84bn, from +19% in Q1
  • Google ‘other revenue’ $5.63bn
  • 2Q operating income $8.67bn

Key points for Alphabet earnings

  • After Alphabet missed revenue forecasts in Q1, all signs show pressures on Google advertising market share have persisted, with growth slowing further
  • Concerns about product changes and massive investments in key units like YouTube were in the frame for Q1’s let-down. There will be some focus on the second half of the year for any hints as to when internal drags might ease.

Earnings reaction

Options trades point to a move of around 5% immediately after earnings. The negative sector mood and worries on Google growth may create a downward bias for the stock, which underperforms Big Tech peers so far in 2019. As ever though, even a small upside surprise relative to expectations could give the stock a shot in the arm.

Key numbers expected from Amazon (Data from Bloomberg)

  • 2Q GAAP EPS estimate $5.56 (year-on-year profit comparisons may not be comparable due to one-off factors)
  • 2Q operating income estimate $3.71bn
  • 2Q net sales estimate $62.46bn, up 18% vs. +17% in Q1
  • Amazon Web Services $8.50bn billion, up 39%
  • 3Q net sales estimate $67.22bn
  • 3Q operating income estimate $4.34bn

Key points for Amazon earnings

One-day shipping (ODS), the feature recently rolled out to members of the e-commerce leader’s Prime subscription service, is the hot topic. A record 48-hour ‘Prime Day’ should make for robust Q3 guidance. However, $800bn announced in spending to facilitate ODS is weighing on the group’s thin operating margins. Investors are unlikely to tolerate significant erosion. Still, higher-margin contributors, chiefly AWS, continue to show growth that’s not always straightforward to quantify. That makes upside beats from cloud quite common, and if seen, that could offset shaky numbers elsewhere.

Earnings reaction

Options trades point to a move of around 4.5% immediately after earnings in either direction. Sentiment for Amazon is probably more resilient heading into its earnings than it is for Alphabet.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account