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NASDAQ Roundup: Alphabet Earnings, Microsoft Earnings, Spotify Earnings, And More

Key Takeaways

  • Technology stocks have been hammered by fear of a global recession.
  • Alphabet, Microsoft, Spotify, Apple, and Meta all face short-term headwinds.
  • Investors need to be patient in this sector and take advantage of buying opportunities.

Technology stocks have been the favorites of many investors for years now. But with the well-founded fear of a global recession, 2022 has not been kind to the Nasdaq. The QQQ closed the week at $264.68 (-34.11% year to date).

Here is a recap of earnings from the most prominent tech companies and where investors can expect these stocks to go in the coming months and years.

Alphabet earnings review

Alphabet reported a 27% drop in profit for the third quarter of the 2022 fiscal year compared to the third quarter of the 2021 fiscal year. YouTube ad revenue was the most significant driver of the loss, dropping nearly 2% year-over-year. Analysts were looking for an increase of 3% but were let down by slowing ad spending on YouTube. While there is no shortage of viewership or time spent on YouTube (still the second biggest search engine in the world), the ad platform itself simply lags the capabilities of its competitors.

Alphabet’s video platform generated $7.07 billion in revenue, down from $7.21 billion in the same quarter of the 2021 fiscal year. Wall Street was looking for $7.42 billion in revenue. Total advertising revenues for Google were up to $54.48 billion.

Google Cloud, Alphabet’s answer to Amazon Web Services, lost $699 million for the quarter, an increase in loss compared to $644 million for the previous year. Google’s Other Bets, a division focusing on the sale of health technology and internet services, lost $1.6 billion, another area that lost significantly more money year-over-year.

Alphabet’s stock took a beating after it missed analysts’ expectations for earnings. The stock dropped 9.6% on the day, closing at $94.82, down from its previous day’s close of $104.93.

Alphabet stock outlook

Going forward, Alphabet will rely heavily on where the economy trends. If the economy remains soft, advertisers will be cautious with diminished budgets. However, if the economy strengthens or a recession is short-lived, investors could see the price of Alphabet quickly rise, or at least return.

Microsoft earnings review

Microsoft reported a decrease in profits of over 14% from the same period a year prior, while its revenue increased 11% to $50.1 billion. The company’s Azure cloud services saw a revenue increase of 35% to $20.3 billion, but revenue from the Windows OEM division declined by 15%. The decline in the Windows OEM division is attributable to the fact that PC shipments worldwide declined by almost 20% over the last year. The Productivity and Business Processes division had a 9% revenue increase to $16.5 billion, but the Xbox content and services division experienced a 3% decline.

The company beat earnings expectations with $50.1 billion in revenue against an expected $49.6 billion and earnings per share of $2.35 versus an expectation of $2.29.

Microsoft’s stock closed at $250.66 the day before the earnings report was released and closed at $231.32 the day the earnings report was released. The stock price has rebounded somewhat since the news, as Microsoft has shown it can weather a downturn and retain profitability across its divisions.

Microsoft stock outlook

The short-term forecast for Microsoft stock is cloudy. The personal computing division is expected to weigh on earnings for some time, as consumers are not buying as many computers currently. On the other hand, the Intelligent Cloud division is expected to continue to grow revenue by over 20%. This is more than enough to overcome the decline in personal computer sales. Still, investors should not expect Microsoft stock to move significantly higher anytime soon. Long-term investors must be patient and take advantage of dips to increase their position.

Spotify earnings review

Spotify reported an operating loss of €228 million, almost 5% worse than expectations. Wall Street was expecting a loss of €0.85 per share, but Spotify reported a loss of €0.99 per share. The loss came despite the music streaming platform’s 20% year-over-year increase in monthly active users to 456 million, 6 million more than Spotify’s previous guidance. The total revenue for Spotify was €3.04 billion. Premium revenue grew to €2.7 billion, and ad-supported revenue increased to €385 million. It suffered an operating loss of €228 million.

The company stated that its revenues were negatively affected by the renewal of a large publishing contract outside of the US, softness in advertising revenue, and fluctuations in currency. Other factors impacting its revenue include higher payroll costs due to expanding its global ad sales team, investment in platform improvements, and acquiring a handful of companies.

Spotify’s stock closed at $97.05 the day before the earnings report and closed at $84.42 on the release of the report. The stock has regained a small amount of what it lost, but nothing significant.

Spotify stock outlook

There are a lot of headwinds going against Spotify at the moment. First, ad revenue should continue to be soft as advertisers are reluctant to spend a lot of money with talk of a possible global recession. Another issue is the strong U.S. dollar. As long as the dollar remains strong against the euro, this will hurt Spotify’s revenue as they need to exchange U.S. dollars into euros. The good news for Spotify is users continue to grow, both Premium subscribers and Ad-Supported subscribers. So while the short term has its share of issues, long term, Spotify is in a great position.

Meta earnings review

Meta reported revenue of $27.71 billion, slightly beating Wall Street’s expectation of $27.38 billion. However, its earnings per share were $1.64 versus an expectation of $1.89, and its average revenue per user of $9.41 versus an expectation of $9.83. Revenue for the third quarter fell by 4% year-over-year, and the company reported a 20% profit year-over-year. Net income fell over 50% to $4.4 billion.

A sharp increase in costs and expenses and a strong dollar overseas combined to eat away at Meta’s revenue. It also lost income due to Apple’s recent changes to security protocols on its devices and CEO Mark Zuckerberg’s investment in the metaverse. Its operating margin in the third quarter of the 2021 fiscal year was 36% and shrank to 20% for the third quarter of the 2022 fiscal year. This resulted in a 52% drop in its stock price over the past six months.

The stock closed at under $130 the day before the earnings report was released, dropping to around $100 after the release. Meta’s stock had already been taking a beating before the release of the report. It lost a further 19% in value in after-hours trading. All of this came on top of a loss of 60% in value year-over-year. Meta closed the week at $90.79, up 2.11% on the day but -7.56% for the week.

Meta stock outlook

There are issues both short-term and long-term for this stock. The short-term issues are the decline in revenue and the still uncertain impact of the security updates from Apple. Over the next few months, investors should be able to see what impact these updates will have on advertising income moving forward.

The long-term issue is the investment in the metaverse. CEO Mark Zuckerberg is 100% committed to this venture, but it costs Meta a lot of money. If he can pull it off and consumers get involved, this could be a windfall for the company. However, if either doesn’t work, it could cost the company dearly.

Apple earnings review

Apple beat expectations for earnings when it released its fourth-quarter earnings report for the 2022 fiscal year, but its sales of iPhones and related services showed some weakness. It reported earnings per share of $1.29 versus an expectation of $1.27 and total revenue of $90.1 billion versus the $88.90 billion estimated, for an increase of 8.1% over the previous year. Revenue for the iPhone division was $42.63 billion versus an expected $43.21 billion, but still up 9.67% year-over-year. Revenue for the Mac division increased to $11.51 billion, up 25.39% year-over-year, and beat an estimated $9.36 billion.

Apple CFO Luca Maestri stated that the profits would have been higher if the dollar had been weaker overseas and predicted that Mac sales might decline in the last quarter of the year. It also cut back on its planned increase in production of the iPhone 14 and maintained its current production schedule as extra demand for the phone never materialized.

The stock price closed at just under $150 the day before the earnings report was released and closed at $145 the day of the earnings report. However, the stock price spiked to $151.41 when the NASDAQ opened the following day and closed at $155.74.

Apple closed the week at $138.38 (-9.74% on the week and -23.97 YTD). Yet, they are now worth more than Alphabet, Amazon and Meta combined.

Apple stock outlook

Apple remains head and shoulders above other tech stocks. Sales of smartphones and computers will remain weak for the short term as consumers figure out how to afford basic necessities with the increase in inflation. The good news is that the services portion of Apple, which sells subscriptions to iCloud, Apple TV+, and Apple Music, continues to grow at a fast clip. This will help Apple in the near term until hardware sales improve.

Bottom Line

Technology stocks have been punished this year as a weakening economy sends recession chills through investors. As a result, over the short term, investors should expect little from this sector. While there may be brief rallies, there will likely not be a long-term, sustained move to the upside until recession fears wane. Because of this, investors need to pick and choose the stocks they think have the greatest potential and then take a position at the right price.

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