February 2023 Tech Earnings Roundup

Key takeaways

• Earnings season was mixed in the tech sector, with cost cutting and layoffs the story of the moment, with Mark Zuckerberg calling 2023 the Year of Efficiency
• The strong US dollar has been a drag for most companies, with foreign revenue converted back to few US dollars
• The outlook doesn’t look much different in the short term, with the global economic environment causing significant uncertainty

We saw a number of hotly anticipated earnings announcements to kick off February, with some of the biggest names in tech providing details of their 2022 Q4 numbers. With layoffs all over the news in recent months, these figures aren’t likely to reflect those changes, as the company works through their cuts in the early part of 2023.

As well as looking back at last quarter, we’ll get out our crystal ball and see whether we can take a leaf out of our AI’s book, and make some predictions on what’s to come for these companies over the rest of the year.

If you want to invest in tech but don’t want to trawl through the earnings reports every month, Q.ai’s Emerging Tech Kit uses AI to predict the performance and volatility of a range of different securities, automatically rebalancing the Kit each week in line with these predictions.

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What is an earnings report?Public companies are required by law to inform the market of key information that could impact their stock price.

This is typically details like revenue, debt levels, operating expenses and profits, as well as operational information such as active users for tech companies and number of vehicles sold for carmakers.

Every quarter (three months) companies provide an update to the market which outlines all of this relevant information. This is typically called an earnings report or an earnings call, as the CFO or CEO will usually get on a call with shareholders to present the report.

As well as recent historical data, they will generally also provide guidance to the market on what they expect in the coming months. This helps limit surprises at the next earnings call and hopefully minimize shocks to the stock price.

Meta’s earnings report

The numbers:

• Earnings per share: $1.76 vs. $2.27 consensus
• Revenue: $32.2 billion vs. $30 – 32.5 billion expected

What happened: Despite a pretty major miss on earnings per share, Meta stock bounced on the talk of cost cutting and Zuckerberg’s comments that 2023 would be the ‘Year of Efficiency.”

Revenue was strong throughout the quarter, and this combined with the forecast for lower expenses for 2023 saw the share price spike 19%. This was helped along further by the announcement of further share buy backs, lowering the overall supply of stock to the market.

The company stated that the costs involved with the layoffs, such as severance payments, were ‘immaterial’ as they had been offset by savings in payroll, benefits and bonuses.

Outlook: With these costs off the balance sheet for Q1 2023, investors will be keen to see whether Meta can improve on what was a terrible 2022. The company has forecast revenue of $26 – $28.5 billion. Wall Street agrees, with the consensus forecast of $27 billion.

Active users were up 5% over the year before and ad impressions and conversion rates were both up over 20%. If Zuckerberg is able to bring focus back to their core business while also reducing overhead, the Year of Efficiency could be a good one for investors.

With that being said, the potential for a recession could put downwards pressure on ad revenue.

Alphabet earnings report

The numbers:

• Earnings per share: $1.05 vs. $1.18 expected
• Revenue: $76.05 billion vs. $76.18 billion expected

What happened: Google’s parent company felt the pinch in Q4 with slowing revenue growth resulting in a miss on both that and earnings per share. A major impact was felt from currency fluctuations and the strong US dollar, with 1% revenue growth amounting to 7% when adjusted for currency movements.

Revenue was down in the Google Search, YouTube Ads and Google Network units, but the overall figure was bolstered by a 32% increase in revenue from the Google Cloud.

The stock price was up 3.8% in premarket after the report and finished out the week up 6.01%.

Outlook: Like Meta and the rest of the tech industry, the focus for Alphabet in 2023 is heavily on costs. Almost all tech companies went on a hiring spree during the pandemic years, and by many accounts this went too far.

Unlike Meta, the 12,000 layoffs for Alphabet are coming at a sizable cost, with the company estimating a hit to the Q1 bottom line of around $2 billion.

Not only that, but Alphabet also faces the same concerns around a recession’s impact on ad revenue. Alphabet does have more protection against this, given how strongly their cloud business is growing.

Amazon earnings report

The numbers:

• Earnings per share: $0.03 vs. $1.69 expected
• Revenue: $149.2 billion vs. $145.9 billion expected

What Happened: Amazon was also hit by the strong US dollar, given their ubiquitous presence all over the world. Revenue growth was up 9% over the month before, but this would have been 12% when accounting for exchange rate moves.

They also wrote down a $2.3 billion loss on their investment in electric vehicle manufacturer Rivian, taking the total write down for the year to $12.7 billion.

Revenue growth from the Amazon Web Services cloud service slowed, but remained strong overall with a jump of 20%. On the online retail side, sales were down slightly with a drop over around 2%.

All in all it was a mixed result for the retail giant

Outlook: Amazon is also cutting costs, and announced plans to reduce global headcount by around 18,000 in January. The Amazon juggernaut isn’t likely to slow down too much over the long term, but is likely to be impacted by rising rates.

In the Fed’s aim to get inflation under control, they’re seeking to temper consumer spending, which is likely to have an effect on Amazon as one of the world’s biggest retailers.

Apple earnings report

The Numbers:

• Earnings per share: $1.88 vs. $1.95 expected
• Revenue: $117.2 billion vs. $121.7 billion expected

What Happened: Apple saw demand for their hardware drop across their Mac, iPhone and Watch range, missing analyst forecasts on both EPS and revenue. It was another hit from the strong US dollar, with CEO Tim Cook stating it made an 8% dent on the revenue numbers.

iPhone sales were down 8%, Mac sales were down 29% and other units were down 8.3%. The company also bought back $19 billion worth of stock.

Apple also had to deal with production issues in China, as well as the general macroeconomic uncertainty being felt by consumers. All in all, it wasn’t a great earnings call from the company, but even so, the stock gained over 6% by the end of the week.

Outlook: Apple’s major concern will be around the general state of the economy. The arrival of a recession will likely soften demand for consumer goods across the board, and the sales of new premium phones and computers are likely to be hit.

Foreign exchange is expected to remain a challenge in the Q1 figures, but CFO Luca Maestri suggested that overall revenue should remain similar to Q4. Overall we can expect to continue to see mixed results until a clear trend emerges for inflation and the economy at large.

The bottom line

Earnings season is a good time to spot trends in the market, and overall that’s often more beneficial to investors than the performance of individual companies.

This earnings season we’ve seen that tech is sitting in a bit of a middle ground. It’s not all good news, but it’s not all bad news either. That makes it challenging to decide which companies are going to perform the best over the next 12 months.

Luckily, Q.ai uses AI-powered technology in our Emerging Tech Kit to help identify trends and predict market changes, before automatically rebalancing the portfolio in line with these predictions.

If you want added security, Portfolio Protection can help protect against volatility, while aiming to capture as much of the upside as possible.

Download Q.ai today for access to AI-powered investment strategies.