Alphabet, Microsoft, Spotify Earnings: Results Mixed but Stocks Move Lower After Hours

October 26, 2022

Earnings season US investors

In the US, Big Tech kickstarted their earnings yesterday with mixed results but initial share price gains in trading hours were pared in after hours moves following their results.

Here are some of the companies that reported their earnings yesterday.

1. Google hit by slowdown in digital advertising business

The giant in digital advertising space, Google, has been affected by the slowdown in online advertising market amid economic downturn and recession fears.

Google’s parent company Alphabet Inc (NASDAQ: GOOG) reported earnings for Q3 2022 that missed Wall Street’s expectations for both sales and profit.

It reported revenue of nearly US$69.1 billion, up just 6% year-on-year (yoy). Analysts were expecting revenue growth of 8.5% to US$70.7 billion.

Meanwhile, net income came in at US$13.9 billion, down more than 26% from the year prior and well below the US$16.6 billion analysts had projected.

Advertising revenue was at US$54.5 billion during the quarter, compared with US$53.1 billion last year but that still came in below analysts’ expectations.

YouTube ad revenue, in particular, shrank for the first time since the company started reporting YouTube earnings separately in late 2019.

It revenue fell about 2% to US$7 billion from US$7.2 billion  for the same period last year.

2. Microsoft earnings beat but cloud revenue growth slowed

Software giant, Microsoft Corporation (NASDAQ: MSFT) earnings beat expectations but shares dipped by more than 6% in after-hours trading as investors remained concern over slowing cloud revenue growth.

For its Q1 FY2023, Microsoft reported revenue of US$50.1 billion as compared to Wall Street’s sales expectations of US$49.7 billion. This represents an increase of 10.6% yoy.

Meanwhile, it earned US$2.35 a share during the quarter as compared to the expectation of US$2.31 a share.

Microsoft’s Azure revenue grew 35% during the quarter as compared to 40% growth in the previous quarter.

Analysts were expecting cloud revenue to grow by 36.4% during the quarter.

Management has guided that growth in Azure consumption will continue to moderate and higher energy costs have hurt gross margin of the cloud revenue.

3. Spotify loss widened

Music streaming service Spotify Technology SA (NYSE: SPOT) reported a wider net loss than expected during Q3 FY2022.

Its loss per share was at 99 Euro cents as compared to an estimated loss of 85 Euro cents.

This was despite slightly better revenue of EUR 3.04 billion as compared to EUR 3.02 billion.

It is interesting to note that while Spotify has managed to grow its user base, its financials have underperformed and missed guidance as well.

Source: Q3 2022 Update

In line with the wider losses reported, Spotify’s share price was down by 7% in after-hours trading.

4. Texas Instruments earnings beat but guidance lowered

Texas Instruments Incorporated (NASDAQ: TXN), which is known for making semiconductors and integrated circuits, beat earnings expectations.

However, it also lowered its guidance for Q4 FY2022, raising concerns among investors.

During Q3 FY2022, Texas Instruments reported earnings per share (EPS) of US$2.47 versus an estimate of US$2.39.

Meanwhile, revenue came in at US$5.24 billion, which beat expectations of US$5.1 billion.

Texas Instruments, however, lowered its EPS guidance for Q4 2022 from US$2.21 to an EPS range of US$1.83 to US$2.11.

Revenue expectations were also lowered to a range of US$4.4 billion to US$4.8 billion as compared to the previous guidance of US$4.9 billion.

The level of uncertainty provided by management reflects the current challenging environment amid weakness in personal electronics and expanding weakness across industrials.

The share price of Texas Instruments was down by 5.7% after the lower earnings forecast provided.

Investors need to be selective in growth stocks

One key takeaway from the earnings results released by some of the Big Tech players yesterday is the importance for investors to be selective in growth stocks amid the rising interest rate environment.

Despite beating earnings expectations, Microsoft’s results were seen as a disappointment with slowing cloud revenue growth.

Similarly, Texas Instruments’ lower guidance reflects the challenges in driving growth.

The stronger US Dollar is also affecting companies’ earnings. For example, on constant currency terms, Alphabet’s sales would have risen by 11% as compared to the reported 6%.

I believe that Microsoft and Alphabet will not be the only Big Tech companies that will be affected by some of the near-term headwinds.

One thing is certain: investors need to be more selective in their growth stock picks as near-term challenges are expected to remain.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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