US Tech Titans Deliver On Earnings
Watch for a big night on Wall Street tonight (Friday) after solid quarterly reports from Amazon, Microsoft and Alphabet (Google) and even Twitter. But Mattel, the maker of Barbie and other toys, saw its shares slump 27% at one stage after quarterly sales slumped 13% and the company turned in a surprise loss.
But offshore the tech boom remains on course and another set of record closes are expected on Wall Street tonight - helped by the move by the European Central Bank to extend its quantitative easing program (even at a reduced level) for at least another year, and the current ultra low interest rates regime for longer than that.
The solid results from Amazon, Alphabet and Microsoft keeps the tech driven surge on Wall Street alive - until next week’s reports from Facebook and Apple - especially Apple with its shares under pressure from continuing stories of weak demand and other problems with its new iPhone.
Amazon shares jumped Thursday afternoon after revealing better than expected earnings in its first quarterly report since the takeover of Whole Foods Markets. The online giant reported third-quarter net income of $US256 million, on sales of $US43.7 billion, up from $US32.7 billion a year ago.
Amazon shares jumped about 8% immediately after the report was released, topping $US1,030 after closing at $US972.43.
The results from Alphabet were just as impressive.
Alphabet shares surged in after hours trading Thursday after the company beat earnings and revenue expectations.
Alphabet Class A shares rose 2.9% to $US1,020.50 in after hours dealings as a result. Alphabet, which owns Google, reported third-quarter net income of $US6.73 billion - up more than 50% from $US5.061 billion a year earlier. Google’s profit margin rose to 28% in the September quarter from 26% a year ago, another indication of just how profitable it is.
But there was one largish question - the rising cost of acquiring search via payments to third parties. The cost of acquiring traffic for Google’s search jumped 32% in the quarter. That’s the cost of getting ads in front of mobile users, so Google has to pay a cut of its ad sales to Apple and other companies that integrate Google search into their mobile products and services - this is of little use to companies whose businesses are being pillaged by Google (and Facebook).
Distribution payments increased 54% in the third quarter, accounting for 12% of Google’s ad sales or nearly $US2.9 billion on ad sales of more than $US24 billion (up 26%).
Revenue rose to $US27.8 billion from $US18.27 billion in the September quarter of 2016. Alphabet shares are up 25.9% this year, with the S&P 500 index up 14.2%.
Microsoft shares rose in Thursday’s after hours session after posting better-than-expected quarterly results. The company reported its fiscal first-quarter earnings rose to $US6.58 billion, from $US5.67 billion previously.
Revenue jumped 12% to $US24.5 billion. Microsoft shares rose 0.6% to $US79.20, matching the all-time high set on earlier this week on October 24.
Twitter shares rose strongly on Thursday despite another loss, another drop in revenue and a snafu with its user figures since 2014, but only realised recently by the company. Twitter said it had a third quarter net loss of $US21 million, down from a $US103 million loss a year ago.
The company claimed “net income” under its version of accounting rules and not the official standards of $US78 million. In other words, make believe money, but its what floats the boats of silly investors.
Revenue fell 4% to $US590 million, while daily user numbers rose 14% (12% in the June quarter) to 330 million. That’s a reworked estimate because since 2014 the company has been including Twitter users on third party apps when they are in fact users on those platforms. Twitter said that overstatement was one to 2 million, but it added 4 million new users in the quarter.
Mattel provided the outlier result. Worldwide sales fell 13% including a 22% plunge in North America (linked ti the problems at Toys R Us). The company also announced a cost-cutting plan and suspended dividend. Mattel said it lost $US603 million, against a profit of $US236 million, in the third quarter of 2016.
Sales fell to $US1.56 billion from $US1.79 billion a year ago. Among Mattel brands, sales of American Girl products fell 30%, while Fisher-Price sales fell 15%.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.