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Microsoft and Alphabet Signal Q2 could bottom

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Big Tech earnings got off to a solid start on Tuesday when Microsoft and Google reported steady revenue growth and margins unchanged from recent macro conditions. Strong profit margins were particularly welcome, as many companies lack operating margins and cash flow. Microsoft, on the other hand, posted his $17.8 billion in free cash flow and $16.7 billion in net income, and the outlook for the year was also upbeat. Similarly, Google reported strong free cash flow of $12.6 billion and his net income of $16 billion in the most recent quarter.

The same was not the case with Meta, which mostly came across in Q3 guides. The company reported a decline in revenue for the first time in the company’s history, and guidance for the next quarter was missed due to currency headwinds. For the third quarter, analysts were expecting $30.4 billion, or 5% growth. Instead, the company led a 6% year-on-year decline at the midpoint of its guidance from $26 billion to $28.5 billion, or a 6% headwind at the current exchange rate.

Alphabet: Search is resilient

The company reported revenue of 13% and 16% in constant currency, totaling $69.7 billion. Operating profit margin was flat year-over-year. This is a victory. Operating expenses were up 24%, but operating profit was 28%, the same as last quarter, and operating profit was $19.58 billion.

Net income was slightly weaker than in the previous quarter of 2021, at $16 billion, the same as last quarter. The company’s free cash flow is $12.6 billion. The company has $125 billion in cash and securities. The company reported EPS of $1.21, compared with his $1.36 in the same period last year.

Search was stable considering it grew 13.5% to reach $40 billion in the current environment. Searches were strong last quarter, growing 24% to bring him to $40 billion, flat in total dollar value quarter-over-quarter.

When it comes to search resilience in the current environment, the impact of Google’s large R&D department and advances in AI cannot be overstated. It’s just a glimpse into what Google could be in the future when it comes to their advertising dominance.

YouTube was expected to weigh on the report, but it showed a modest 5% year-over-year growth. The company was adamant that YouTube’s growth rate was slow due to harsh comps. Tight comps are mentioned many times:

Notably, Google Cloud slowed to 35.6% growth from 43.8% growth last quarter. This means Google Cloud is growing slower than Azure with a lower revenue base. This is something we should pay attention to in the future.

Microsoft: The Double-Digit Guide for 2023

While many technology companies have declined to provide guidance, Microsoft management has provided strong guidance for both the first quarter of fiscal 2023 and fiscal 2023. For the first quarter of fiscal 2023, management will provide his 10% guide across product lines for the next quarter (which includes currency headwinds) and his fiscal 2023 forecast, which ends in June. We also provided guidance. currency and US dollar. Revenue growth will be driven by continued momentum in the commercial business and a focus on gaining share across the portfolio. “

Revenue was up 12% year-over-year to $51.9 billion (0.94% below Wall Street analyst estimates) and EPS was $2.23 (2.9% below estimates). A strong US dollar negatively impacted revenue by $595 million and EPS by $0.04. Microsoft Cloud revenue increased 28% year-over-year to $25 billion. The company is doing well given the various macro uncertainties, the lockdown in China and the strong US dollar. Fiscal 2022 revenue increased 18% year-over-year to $198.3 billion and net income increased 19% year-over-year to $72.7 billion.

The company’s total revenue grew 10% year-over-year to $35.4 billion. Gross margin decreased 147 bps to 68.2% compared to the same period last year. Excluding the impact of changes in accounting estimates, gross margin was relatively unchanged.

Operating income was $20.5 billion, up 8% year-over-year. Operating margin decreased 187 bps to 39.5%. Excluding the impact of changes in accounting estimates and currency exchange rates, operating margin remained relatively unchanged.

The company’s cash flow continued to be strong in recent quarters. Operating cash flow was $24.6 billion (47% of revenues), up 8% year-over-year, and free cash flow was $17.8 billion (34% of revenues), up 9% year-over-year. The company has $104.8 billion in cash and investments and $49.8 billion in debt.

Despite PC weakness, the company’s other segments continue to grow. Intelligent Cloud grew 20% year-over-year to $20.9 billion, and the productivity and business process segment grew 13% year-over-year to $16.6 billion.

The company also changed the useful life of its server and network equipment assets from four to six years, extending the company’s depreciation expense.

Amy Hood said on the earnings call:First, we will extend the depreciable life of our cloud infrastructure server and network equipment assets from four years to six years beginning in fiscal year 2023. This applies to asset balances on the balance sheet as of 30 June. 2022 and future asset purchases.

As a result, based on June 30 balances, 2023 operating income is expected to be positively impacted by approximately $3.7 billion for the full year and approximately $1.1 billion in the first quarter. “

Meta: Q3 Disappointing

Given the numerous headwinds facing technology companies, the market doesn’t have to have a perfect quarter in Q2. What the market needs is a sign that the company may have bottomed out and can lead growth (even minimally) into Q2 and Q3.

In the second quarter, Meta’s revenue declined for the first time in history. This was expected. What was not expected, however, was the downside guide next quarter. The company forecast $26 billion to $28.5 billion, or a 6% year-over-year decline at the midpoint of its guidance. This guidance takes into account the weak advertising demand the company has experienced in recent quarters, as well as foreign exchange headwinds of 6%. Investors expected growth to return next quarter.

The company’s DAU was 1.97 billion, slightly higher than the forecast of 1.96 billion. He had 2.93 billion monthly users, just below the 2.94 billion expected.

Operating expenses were $20.4 billion, up 22% from the prior year. That pushed his operating margin down to 29% in the most recent quarter, compared to 43% in the same period last year. Also, his net income fell 36% year-on-year to $6.69 billion. EPS came to $2.46 versus his $3.61 in Q2 2021.

The company aims to further reduce annual operating expenses from $87 billion to $92 billion in the previous quarter and from previous estimates of $90 billion to $95 billion to $85 billion to $88 billion. I’m here.

We explained why the meta will likely continue to face headwinds in an in-depth webinar here.

Apple: Good results despite challenges

Apple posted strong results despite a challenging macro environment, a strong US dollar, and supply chain issues. Revenue was $83 billion, up 1.9% year-over-year, in line with analyst expectations. EPS is reported at $1.20, and he beat estimates by $0.04 (4% more).

Product segment revenue was $63.4 billion, down 0.9% year-over-year, and services segment revenue was $19.6 billion, up 12% year-over-year. The company’s installed base of active devices has reached an all-time high. Paid subscriptions he has surpassed 860 million, an increase of 160 million over the past year.

The company has not provided precise earnings guidance for the next quarter. The company’s CEO, Tim Cook, said in the earnings call: “Revenue in the September quarter will accelerate compared to the June quarter, while services will slow down.”

The company’s gross margin was 43.26%, compared with 43.75% in the previous quarter and 43.29% in the same period last year. Management guidance, he was above 42% to 43%.

Net income was $19.4 billion, or $1.20 per share, compared with $21.7 billion, or $1.30 per share, in the year-ago quarter. It beat analysts’ EPS estimates by $0.04.

The company had $179 billion in cash and marketable securities and $120 billion in debt. The company reported strong operating cash flow of his $23 billion (28% of revenue). The company returned more than $28 billion to shareholders in the form of dividends and share buybacks in recent quarters.

Royston Roche, Equity Analyst at the I/O Fund, contributed to this article.

Note: The I/O Fund conducts research and draws conclusions about the company’s portfolio. We then share that information with our readers and provide real-time trade notifications. It is not a guarantee of stock performance and is not financial advice. Please consult your personal financial adviser before purchasing stock in the companies mentioned in this analysis. Beth Kindig and her I/O Fund, she owns Alphabet and Microsoft at the time of writing.