Investors around the world will be looking towards Silicon Valley for some of the major business stories of the coming week of US earnings season, including the biggest company in the world, the most powerful social media giant and the largest carmaker by market value.
Microsoft Corporation (NASDAQ:MSFT) kicks things off for Big Tech after-hours on Tuesday, then deluge begins as Apple Inc (NASDAQ:AAPL), Facebook Inc (NASDAQ:FB) and Tesla Inc (NASDAQ:TSLA) all report quarterly earnings on Wednesday evening, with Tim Cook, Mark Zuckerberg, Elon Musk reporting after the markets close, at 5pm Eastern time (10pm in the UK).
With its Teams and Azure cloud software having been among the big winners from lockdown, Microsoft enjoyed a renaissance last year with four successive quarters of growth.
For this past quarter, Bill Gates old company is forecast to report earnings per share of US$1.64 on revenues of US$40.12bn, according to the average Wall Street forecast, with whispers it could hit US$1.77 of EPS.
Wedbush analysts in recent days reiterated their 'outperform' rating on the stock, hiking their target price to US$270 from US$260.
They reckon Microsoft will post a “beat and raise special,” driven by strong demand for Azure services.
“This current work-from-home environment is further catalyzing more enterprises to make the strategic cloud shift with Microsoft across the board with Azure growth remaining brisk,” Wedbush said in a note to clients.
“In many cases we are seeing enterprises accelerate their digital transformation and cloud strategy with Microsoft by six to 12 months as the prospects of a semi remote workforce for the foreseeable future looks here to stay.”
First $100bn quarter for Apple?
The big number for Apple, outside of its eye-popping US$2trn-topping market valuation, is US$100bn. This is the quarterly revenue record that most analysts expect the Cupertino company to notch up for the first time in its history.
Hitting the Wall Street top-line forecast of $102.6bn would equate to year-on-year growth of 12%, its fastest progress in ten quarters.
The past quarter, including both Thanksgiving and Christmas, tends to be the one that generates the most product enthusiasm and upgrades for Apple, with new upgrades launched for the iPad, new Apple Watch and the new Apple ONE subscription bundle of Apple Music, Apple TV+, iCloud, Apple News, Apple Arcade and Apple Fitness+ which have been grouped together to take on Amazon Prime.
“This looks like an attempt by Apple to tap into the lucrative online fitness market with a Fitness Plus option which connects to the Apple Watch and tailors’ online workouts where you can do virtual workouts online," says analyst Michael Hewson at CMC Markets.
“The new iPhone 12 which was announced a month later in October was rather underwhelming, though we did finally get the long awaited 5G model."
Expect the focus to be on Apple's hardware sales in these first-quarter results, said analyst Susannah Streeter at Hargreaves Lansdown, as while there has been a lot of fanfare around its Apple ONE services bundle, “that big product line is hugely dependent on people continuing to buy Apple devices”.
With iPhone sales having been a bit lacklustre last year, Apple hopes the initial interest in its new 5G enabled models will have translated into higher sales and that the rise in working from home leads to ongoing demand for sales of Mac laptops and iPads.
“If they don’t that is likely to adversely affect the share price, given its high valuation,” says Streeter, also wondering if there might be an inkling of Apple’s progress in developing its own search engine.
Tesla has much further to go, some analysts reckon
Over at Tesla, Musk has been as busy as usual this year, already reporting that the electric carmaker just missed his target of delivering half a million cars last year by a whisker, despite the pandemic, and in the past week kicking off sales in China of the new Model Y crossover, which is seen as being one of the next key growth steps.
With a 16% rise in the shares to US$845 so far this year, Musk has become the richest person in the world but how can a billionaire rest on his laurels when there are distant planets to be colonised?
Optimism is not just held by Musk's legion of fanboys, there are also many fans on Wall Street, including analysts at US brokerages Oppenheimer and Wedbush, who recently hefted their price target on the stock to US$1,036 and US950, making what seemed like a bullish call by Morgan Stanley seem nerdily sensible.
Oppenheimer said it believes the company has “the potential to be a transformational technology company and deliver outsized returns”, with the crucial medium-term tests being the company's execution on Model 3 and Model Y volumes, along with battery cost reduction.
For Wedbush, China holds the key to a bullish potential scenario that would command a target price of US$1,250. Consumer demand for electric cars in the People’s Republic surged last year and Beijing is looking to lift the proportion of EVs from the current 5% to 25% by 2025, although Tesla faces growing local competition from the likes of Nio Inc (NYSE: NIO), Li Auto Inc (NASDAQ:LI) and Xpeng Inc (NYSE:XPEV).
The attention of investors and Wall Street in Tesla's Q4 numbers will be on profit margins and cash generation, says Nick Hyett at Hargreaves Lansdown, for some reason forgetting to mention the big issue of Tesla tequila.
“Key questions are whether the group has been able to sustain the higher level of production without incurring additional costs, and whether average sales prices have fallen to stimulate demand,” he says.
“Also worth particular attention is any information relating to the sale of regulatory credits. The group earns credits from its zero-emission vehicles and then sells them to manufacturers of traditional combustion engine cars. With rivals upping their electric production the demand for these credits should fall over time – undermining a key source of cash for the company.”
There's plenty of stuff coming in 2021 that Musk may also comment on during the analyst call on the day, including battery production, the Model Plaid launch and Tesla's energy business.
Face-book em, Danno
After Joe Biden and the Democrat's blue wave, social media companies are expected to face tougher times, with members of the new administration and Republicans having publicly said that companies like Facebook need to be made accountable for what’s published on their platforms and regulated more tightly.
Biden’s tech adviser, and his former chief of staff during his time as vice president, has been a keen advocate for tech reform in his years outside of government.
In December, major antitrust cases were filed against Facebook by the Federal Trade Commission and various states in regard to the company’s acquisitions of Instagram and WhatsApp.
However, though these are issues that will take years to play out, they may hit advertising sales and investor sentiment in the company.
Indeed, advertisers have already started to cut back spending on social media sites in the past few weeks, though this is not expected to show up in Zuck's latest numbers, with earnings per share expected to come in at US$3.20.
While the company’s rationale on banning Trump “may well appear to make sense, it comes across as too little too late, from one side of the political divide, while on the other side of the divide it comes across overstepping the bounds of free speech,” said CMC's Hewson.
The Facebook website and app has 33mln Trump followers, Bank of America analysts noted, raising the possibility that there could be some customer churn and "engagement risk" in the first quarter.
Wall Street analysts mostly think the company will be fine (https://www.investors.com/research/fb-stock-buy-now-facebook-stock/), with UBS reiterating a ‘buy’ rating and KeyBanc predicting the company will be fines rather than broken up.
Likewise, UK star investor Terry Smith is also a fan and this week he reiterated his support for what was a controversial purchase for his Fundsmith unit trust.
Look to the skies
Boeing, another coming to market on Wednesday, has seen its shares climb slowly higher since the March lows last year.
The recent decision to restore the airworthiness certificate to the 737 MAX aircraft is a big deal, but getting people to fly on the aircraft is likely to be another story, says Hewson.
“The damage to the Boeing brand has been significant and with the company fined $2.5bn by the Department of Justice after charging it with criminal conspiracy earlier this month, the stink is likely to linger, especially since the evidence pointed to the company 'knowingly and wilfully' conspiring to defraud the US by obstructing the FAA in being able to fully evaluate the aircraft.”
The previous quarter saw the aerospace group post a fourth conservative quarterly loss of US$1.39 a share, while announcing that the aim of reducing its headcount to 130,000, down 40,000 since the beginning of 2020.
A continued weak outlook for air travel, with the loss of over 400 net orders last year alone, is likely to push back any likelihood that Boeing will be cash flow positive this year, says Hewson.
Airlines around the world have been one of the industries hit hardest by the pandemic.
On Thursday American Airlines is expected to report a loss per share of US$4.13, like Boeing its fourth in a row.
The daily cash burn is expected to be around US$25mln in the fourth quarter, down from US$44mln a day in the third and US$58m in the second.
Others to watch out for
Friday has an earthy theme with Caterpillar, Chevron, Conoco-Phillips and Honeywell.