Earnings Watch: Tech’s trillion-dollar valuations are about to be tested by coronavirus-tainted earnings
Only four U.S. companies have ever been valued at $1 trillion or more without adjusting for inflation, and all four will describe how their businesses have been weathering the COVID-19 pandemic in the coming week.
In the busiest week of a corporate earnings reporting season that has been imbued with much more importance than usual because of the impact of the coronavirus that has spread across the globe, the tech giants still manage to stand out.
, Amazon.com Inc.
and Microsoft Corp.
have held on to their fourth comma, all valued at more than $1.2 trillion as of the end of Friday trading, while Alphabet Inc.
has fallen below $900 billion as its ad-supported business faces more doubts.
In all, 149 members of the S&P 500 index
are expected to report financial results in the week ahead—more than a third of those will arrive Thursday—as well as 12 Dow Jones Industrial Average
components. Joining the tech giants will be high-profile companies like Facebook Inc.
, Gilead Sciences Inc.
, Tesla Inc.
and Boeing Co.
As expected, the pandemic has meant a brutal stretch for corporate profits, with more pain ahead. The 122 members of the S&P 500 that have already posted first-quarter numbers saw earnings decline by 22.7% in aggregate. FactSet’s blended estimate — which combines already-reported results and estimates for the rest — calls for only muted improvement of a 16% drop once all results are in.
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While 65% of those companies that had reported through Wednesday topped expectations, J.P. Morgan analyst Mislav Matejka said that would mark the lowest “beat” rate in at least 10 years. Typically, 75% of companies deliver better-than-anticipated results.
The first-quarter carnage is likely a small preview of what’s to come, since many companies pointed to strong January and February periods before things turned south in March. Analysts are modeling an even sharper profit decline of 32% for the second quarter, when businesses will have felt a full three months of coronavirus impact.
Here’s what to watch for in the week ahead.
Big Tech onslaught
Alphabet kicks off Big Tech earnings Tuesday afternoon, after Snap Inc.
reported a dramatic contraction in ad spending as the COVID-19 outbreak worsened. Alphabet’s business is far broader than Snap’s, so its report will give the clearest view yet of the marketing landscape. Facebook offers another read Wednesday afternoon, while Twitter Inc.
follows the next morning.
Alphabet in the Age of COVID-19: Google has braved a recession, and is now more diversified
Alphabet’s troubles in advertising will likely be balanced by strong cloud growth given increasing demand for digital services, and Alphabet does break out its Google Cloud results now. Microsoft should also see a cloud benefit in its Azure business, but its legacy Windows and on-premises IT businesses are more vulnerable to an economic downturn.
Microsoft in the Age of COVID-19: Push to the cloud may save Microsoft from a coronavirus crash
Amazon provides yet another look at the cloud landscape, though the bigger story could be how its e-commerce arm is performing with the rush of online orders. Stay-home beneficiaries like Target Corp.
, Netflix Inc.
, and Citrix Systems Inc.
have reported strong results but have not been rewarded by investors in response, so Amazon’s outlook will be the key focus Thursday afternoon.
Amazon in the Age of COVID-19: The right businesses to weather coronavirus, but spending could grow even faster
Apple is banking on services growth as the pandemic crimps demand for consumer hardware. Investors may be willing to forgive Apple for a weak March quarter Thursday, but they’ll be highly focused on the smartphone giant’s recovery expectations.
Apple in the Age of COVID-19: Can Apple make new iPhones, and who will buy them?
Gilead’s Thursday afternoon report is likely to be overshadowed by anything the company says about its remdesivir drug, which is the subject of several COVID-19 trials.
Gilead in the Age of COVID-19: Amid focus on remdesivir, HIV drugs return to center stage
The stock has gotten a roughly 20% lift in past three months on hopes that remdesivir, an antiviral drug, could be effective against the novel coronavirus outbreak, though leaked early data points have suggested mixed results. One area of focus on the call will Gilead’s manufacturing capacity if the drug gets approved for COVID-19 use.
The COVID-19 outbreak hasn’t dented enthusiasm for Tesla shares, which are up about 25% over the past three months partly on expectations that the crisis will be worse for peers. There’s hope that Tesla could gain a big long-term advantage as traditional car makers face tough choices about their priorities.
Tesla in the Age of COVID-19: Stock is riding high as investors wait to hear effects of coronavirus
But that doesn’t mean Tesla won’t feel a crunch from the outbreak. While its first-quarter delivery numbers exceeded many analysts’ expectations, the company had to temporarily shut down factories in March. It will detail the business impact of those closures Wednesday afternoon.
The energy sector is expected to be the biggest contributor to the S&P 500’s earnings declines in the first quarter, with analysts modeling a 68% plunge. We’ll learn more about the impact of cratering oil prices on sector financials Friday morning from Exxon Mobil Corp.
and Chevron Corp.
First-quarter numbers “will be essentially meaningless,” wrote Raymond James analyst John Freeman, since the COVID-19 crisis only began impacting results in March. Nonetheless, he’ll be looking for company commentary on capital spending, balance-sheet flexibility, and the possibility of shut-ins.
Just when you thought things couldn’t get worse for Boeing given its prolonged 737-Max struggles, the company was hit with a sudden collapse in air travel. Citi’s Jonathan Raviv will be focused on liquidity, production rate, and working capital commentary Wednesday morning as the company faces big questions about its future.
Boeing in the Age of COVID-19: A crisis not of its own making, but no less serious
Liquidity issues will also be front and center for Southwest Airlines Co.
, which offers another view of air-travel woes Tuesday morning.
Pass the chips
report last week is both a hopeful sign and a cautionary tale for Advanced Micro Devices Corp.
when it reports Tuesday afternoon. Intel crushed first-quarter expectations due to surging demand for data-center and personal-computing products that help enable people to work and study from home during quarantines, and AMD likely benefited from similar trends.
AMD In the Age of COVID-19: AMD is set up to withstand coronavirus in the short term
The question is whether AMD will be able to carry that momentum forward through the rest of the year, since Intel’s more muted tone weighed on its shares after the report.