Three of the biggest companies in the U.S. have reported earnings in the last week. Their results were good, so-so, and bad.
Take the good news first: Apple (AAPL) is starting to move beyond its reliance on smart phones and shifting into longer-lasting businesses. Revenue from services and wearables both rose more than expected, while record buybacks helped lift per-share earnings.
Attention will now turn toward newer offerings like Apple Arcade and Apple TV+ later in 2019. Even with that transformation underway, AAPL suggested its core iPhone business may finally be gaining traction in China.
But then you have Alphabet (GOOGL). Everywhere AAPL is making progress, GOOGL failed to evolve. CEO Sundar Pichai is struggling to monetize YouTube, despite its massive audience. His cloud offering faces growing competition from Microsoft (MSFT). Meanwhile, the core search-advertising business continues to weaken gradually. That resulted in GOOGL’s biggest one-day drop since 2012.
Alphabet (GOOGL) chart with 50-day moving average.
The third major technology company to report was Amazon.com (AMZN), which beat estimates on the top and bottom lines. However its story is now more complicated as CEO Jeff Bezos shifts to services shipping and cloud-computing. Maybe that’s why AMZN barely moved.
It’s the busiest week for earnings, with at least one-quarter of the S&P 500 issuing results. Most other big companies were a mix of upside surprises and downside disappointments.
General Electric (GE) blew past earnings and revenue estimates. Losses were much narrower than feared in its industrial division, while aviation and health care were better than expected. The former blue chip (once the world’s most valuable company) remains in the midst of a huge turnaround effort following an epic meltdown in 2017 and 2018.
Ford Motor (F) also ripped higher as Americans kept buying F-series and Ranger pickups. Business outside the U.S. has been less impressive.
CVS Health (CVS) rallied after its acquisition of Aetna lifted earnings and revenue above estimates. However the debt-laden conglomerate remains near long-term lows as investors worry about pricing and political risks.
Drug maker Merck (MRK) beat estimates and raised guidance. One potential question is how much it stands to benefit from the ongoing measles breakout, given that it’s the only vaccine supplier for the illness in the U.S.
Another member of the Dow Jones Industrial Average, McDonald’s (MCD), also came in ahead of Wall Street as promotions and store upgrades drive comparable sales. However the shares had rallied hard into the report and then dropped as investors “sold the news.”
Square (SQ) also got sold after its results. Some numbers beat estimates, but not the important one: gross payment volumes. Weakness on that line suggested overall business activity is slowing. That’s a contrast from bullish quarter from Jack Dorsey’s other company, Twitter (TWTR).
Square (SQ) with select moving averages.
SQ is now under its 50-, 100- and 200-day moving averages. Is the former high flier getting tired after rallying more than 700 percent between 2017 and 2018?
Some lesser-known companies associated with the spread of e-commerce and electronic payments fared better. Shopify (SHOP), which helps small businesses manage commerce on the web, shot to new all-time highs after beating estimates across the board and raising guidance.
Akamai (AKAM) and VeriSign (VRSN) also rallied after surprising to the upside. AKAM, traditionally a provider of web-caching services, has benefited from adding cybersecurity services. VRSN runs the registry of Internet domain names.
Garmin (GRMN) was one of the biggest winners in the previous earnings season. This time, however, the navigation and fitness company got hammered on weak guidance.
Flour (FLR) also had its worst drop of the decade, down about 24 percent. The construction and engineering firm stunned investors by reporting a quarterly loss and weak revenue. Its CEO quit, to top things off.
Eventbrite (EB), which went public last September, also crashed for the second straight quarter. Wayfair (W), an online seller of home goods, dropped after margins disappointed.
A pair of consumer-products companies, Molson Coors (TAP) and Clorox (CLX), missed. TAP might not have been a huge surprise, given its history of slowing beer volumes. But CLX seemed to face new competitive threats and pricing pressures.
Two notable hotel/casino stocks moved in two different directions. Hilton (HLT) spiked to a new all-time high thanks to higher room rates. But MGM Resorts (MGM) swooned on weak business in Las Vegas.
Zynga (ZNGA) is one last stock worth mentioning. Once associated with videogames on Facebook (FB), the company is reinventing itself as a mobile developer. Strong bookings last night suggested the story may be coming together. That sent ZNGA to its highest level in almost seven years.
In conclusion, we’re still in the heart of earnings season. Some big names have missed but there are still plenty of interesting results — especially in the mid-sized e-commerce segment.
This article was written by David Russell, TradeStation Securities, Inc., part of the Monex Group Inc, published on 02/05/2019.
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