Tech giants report a mixed bag.
Fiona Cincotta October 28, 2016 6:26 AM
<p>Tech giants, Amazon and Alphabet Inc, parent of Google both reported after the bell on Thursday with varying degrees of success. Alphabet beats on earnings […]</p>
Tech giants, Amazon and Alphabet Inc, parent of Google both reported after the bell on Thursday with varying degrees of success.
Alphabet beats on earnings
Alphabet defied expectation and posted a 20% rise in revenue as it dominates the mobile ad market and although shares in after-hours trading jumped 2%, they soon settled to trade up just 0.5%.
Amazon, on the other hand, painted a much more volatile picture.
Amazon share price tanks as earnings miss
Amazon saw its share price tank in after-hours trading after reporting a miss on profits and a disappointing guidance for the holiday season quarter. After initially falling over 7% the stock regained some ground, however investors are clearly nervous.
6 straight profitable quarters and 70% rally since February
Net income rose to $252 million, from $79 million a year earlier in the firm’s sixth straight profitable quarter. However, the online retailer posted earnings per share of $0.52 versus an expectation of $0.78, representing a two- thirds miss. Going in to the release this stock has been priced on perfection, it has rallied around 70% since February. Expectations were high, especially given that the last two quarters had been very strong, so this disappointment in the figures could naturally bring if down some percentage points towards $750, away from its all-time high which was reached as recently as October 5th.
Rising expenses whilst in serious investment mode
On closer examination, the central problem at Amazon seems to be rising expenses. Third quarter sales of $32.7 billion, were almost completely eradicated by total operating expenses of $32.1 billion, an increase of 29% from the year previous, with shipping costs alone increasing 43% to $3.9 billion.
The CEO was quick to remind us that the company is in serious investment mode and this does seem to be paying off. Just one example is Amazon Web Services, the cloud computing division, which was up 55% with an operating margin of 27%. Amazon has created a name for itself in the past for heavy spending and losses, yet with AWS Amazon seems to have now found consistent profit from selling storage and services in the cloud.
Going forward Amazon forecasts net sales of $42.0 billion – $45.5billion for the fourth quarter, a range that is disappointing given that it includes the all-important holiday shopping season.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.