Big Tech Earnings Are Upcoming
The next most important round of earnings results I will be following is from the major internet names which are Amazon, Apple, Alphabet, Microsoft, and Facebook. Microsoft reports on Thursday, Apple reports on July 31st, and the others report next week. They will impact the Nasdaq more than Netflix did since they are all larger companies. Earnings season explains the bullish argument the clearest because it adds in the benefit of the tax cuts with the overall economic momentum. There are inklings of economic weakness, especially abroad, but you must parse through data to see them. If a firm had great earnings and sees economic momentum in its end markets and GDP, it won’t be parsing anything to find the bearish case. It’s up to investors to find the bearish case even if they are bullish.
Great Earnings Results So Far
The charts below show aggregate EPS and sales growth rates for the first 39 firms that have reported earnings in Q2. Since this is a decent chunk of earnings reports, the results are near where the actual earnings end up. Keep in mind, the order of earnings season is almost the same every quarter. The banks and the consumer staples report in the beginning and the big internet firms report towards the middle of the earnings season. The only difference is the new firms added to the index report at different times than the firms they replaced did. As you can see, Q1’s first 39 firms had monster quarters as the EPS growth was 30.39%. I have been expecting Q2 to have slightly lower growth than Q1. Then Q3 will have the highest growth. Finally, Q4 will have a sharp draw-down in EPS growth.
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Keep in mind that earnings growth is weighted by the size of the earnings which means the big internet names will have a huge impact on the overall growth rate. More importantly, they will have a big impact on the direction of the market since they have led it higher. Even the smaller Netflix, shows us how the consumer might be doing. A Netflix subscription is a small purchase per month, but the changes in net adds give incite into the health of the consumer because it is so prevalent. The firm now has 130 million subscribers. The weakness in real wages probably had an impact on subscriber growth. As you can see from the bottom chart above, the sales growth from the first 39 firms shows similar information. Growth is 0.9% lower than Q1. This is still high enough for the market to power higher, which is why it did in 2017. The Q4 2018 earnings estimates are guiding the current market.
