Tech giant earnings season is fast approaching, and some of the largest publicly traded companies are reporting their latest quarterly results. Wall Street anticipates this will be a tough quarter for Big Tech earnings. Microsoft is the only member expected to report EPS growth, after experiencing declines in the last two quarters, while the rest of the group are expected to report another quarter of declines. Alphabet and Microsoft will report earnings on April 25 after the market closes, Meta on April 26, Amazon on April 27 and Apple on May 4.
Wall Street anticipates a quarter of modest revenue declines from YouTube and search engine Google, with overall ad sales down 1.6% amid an advertising environment that faces tough times due to the presence of competitors. While this growth has slowed in recent quarters and it’s important to remember that the division is still losing money despite supporting overall revenue, it’s estimated that Google Cloud’s revenue will increase by 28%.
Margin pressure from rising costs and capital expenditures means that each unit will be much less profitable. Alphabet’s operating margin is expected to be 23.9%, down from 29.6% last year. For the fourth straight quarter, Alphabet’s EPS will be squeezed by slower revenue growth and tighter margins.
Specifically, Alphabet’s workforce should have peaked and will begin to decline this quarter, as it begins implementing the 12k job cuts it announced in January. The market anticipates, though, that Alphabet’s sales will start growing again and its margins will start improving in Q2. Investors are hoping this will result in the first EPS gain in over a year and will be very positive, should Google Cloud show signs of breaking even.
However, the prospects are uncertain. Even if Alphabet can control costs, the company’s revenue stream is still quite vulnerable to the uncertain economic outlook and increased competition caused by the rise of AI. This could impact pricing and force Alphabet to increase spending even more to improve its product and retain customers. With the recent hype surrounding ChatGPT, Google is considered to be behind in integrating AI capabilities for its search feature, after the launch of its own version of the AI Chatbot Bard earlier caused quite a stir about its misinformation. Therefore, the focus will also be on how management can convince investors that it will remain competitive so as not to lose market share. Microsoft’s launch of a new version of Bing, which includes a generative AI chat feature from OpenAI, has dramatically improved the company’s competitive position.
The current expectation from Refinitiv is for Alphabet’s upcoming Q1 revenue to be $68.8 billion, up 1.2% y/y. Earnings per share (EPS) is estimated at $1.07, down 13.1% from last year. Looking ahead, Q1 2023 sees the US economic shock index return to positive territory to provide the highest reading since April 2022. The still strong US labor market may play a role and the positive reading suggests that economic conditions may still hold above expectations, at least for Q1 2023. This could increase the chances of potential resilience being reflected in forthcoming results, as Alphabet derives almost half of its revenue from the US.
Technical Review
#Alphabet-A, D1 – signs of Q1 2023 gain of over 15% (Jan-Mar). The follow-up rally from March still looks quite dominating as it recorded a high of 109.15 in early April, surpassing February’s high of 108.17, although in the middle of the month it corrected again to 103.06, due to rumors that Samsung is considering switching the default search engine on its smartphones to Microsoft Bing from Google.
During trading on Wednesday (19/04), the price strengthened +0.78% and closed at 104.07. The moving average is still above the median line and above the 26-day EMA, meaning that the short-term price trend remains bullish. A move above 109.15 is projected for FE61.8 (110.34) and FE 100 (116.90) from the drawdown of 89.42-106.58 and 99.74. Meanwhile, a move below 103.06 could test the support at 99.74 with a continuation at 95.96.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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