Q1 Earnings Season: 5 Takeaways from the Big 5's Reports
Beginning in mid-April through the end of May, investors eagerly await corporate earnings reports. Whether it's considering new trades, monitoring current ones or learning more about a company's health, these reports can offer a lot of important information and data to help with investment decision making.
At the top of many conversations are the "Big 5." This refers to the five of the most significant and influential companies in the technology sector: Apple Inc., Amazon.com Inc., Google LLC (Alphabet Inc.), Microsoft Corporation and Facebook, Inc. (Meta Platforms, Inc.). Within a recent eight-day period, these five companies reported their lastest earnings reports.
By taking a closer look, we discovered five common takeways from the Big 5's performances. Read on to learn more.
Five common takeaways
What drove revenues? One word, two letters: AI
For the Big 5, four of the five companies reported year-over-year revenue increases, with the exception of Apple, which saw a 4% decline. However, a common thread emerged among these companies: artificial intelligence (AI) helped contribute to revenue growth.
For Microsoft, its cloud segment Azure saw a 31% revenue growth year-over-year thanks to contributions from AI services (7% as noted by Microsoft CFO Amy Hood 1). AI serves as the engine for Azure's cloud-computing business, which is a service that helps its enterprise customers create AI applications.
AI was also a component of Amazon's revenues as the company reported that GenAI tools in its Amazon Web Services, its cloud computing business, served as its biggest profit driver. AWS saw a 17% sales growth year-over-year in Q1 2024, rising to $25 billion.
And for Alphabet (Google's parent company), similar to Microsoft and Amazon, Alphabet's cloud revenue was a bright spot with a 25% year-over-year jump to $9.19 billion. The company has placed a lot of money into developing AI, which has driven demand for its cloud services. However, Alphabet sits in the third spot for the cloud computing market behind Amazon.com and Microsoft.
AI is here to stay. The Big 5 commits.
As three companies saw a direct impact from AI investments on their revenues last quarter, AI is here to stay and the Big 5 all plan to expand their efforts with this technology. Here's a look.
Alphabet: Facing competition. OpenAI is supposed to announce plans for an AI-powered search product on May 13. This comes one day before Google's annual I/O conference, where the company giant is expected to share new AI-related products.
Amazon: It's all about GenAI. Monetization has started in the enterprise segment and the company expects it will be a multi-billion dollar driver of revenue over the next several years. Retail customers may also be affected by GenAI as Amazon is looking at tools for them, such as customer review summaries.
Apple: Stay tuned. Many AI projects are in the works, but CEO Tim Cook kept things private in the earnings call. Look for details later in the year.
Meta: Lags behind the competition. The company needs growing infrastructure to support its long-term AI research and product development efforts. It has future plans to integrate AI tools into its suite of apps and provide an AI assistant that will make the company more competitive with its peers.
Microsoft: Scaling investments. Demand is high for AI through the company's partnership with OpenAI but there's capacity issues as the company tries to scale their AI investments.
'Tis the season for buybacks: AAPL, Google, and Meta
While AI sat at the forefront of earnings reports for some of the Big 5, buybacks were also a big topic of conversation. Apple stole the show with the news of its $110 billion in share repurchases. This topples Apple's previous U.S.-recordbreaking $100 billion share repurchase, set in 2018 and now the company has the top six of 10 largest share-repurchase U.S. Announcements. (3)
So what exactly is a buyback? A buyback is a strategy employed by companies to repurchase their own outstanding shares from the open market. This strategy aims to diminish the total number of available shares. Before reducing the share capital, these repurchased shares are canceled.
Companies engage in buybacks for different reasons, including enhancing the value of existing shares by curbing supply or preventing other shareholders from acquiring a controlling interest.
Just to put things in perspective with Apple's mind-blowing $110 buyback figure, these companies have a total market value of less than $110 billion: Airbnb, Boeing, Chipotle, Dell Technologies, and Waste Management.
Apple wasn't alone with buyback news, as Alphabet announced a $70 billion share buyback, while Meta had share repurchases of $14.64 billion for its Class A common stock. And Microsoft gave back $8.4 billion to shareholders in share repurchases. The term share repurchase can be used interchangeably to buyback as both represent a company repurchasing its own outstanding shares from the open market.
Let's pay dividends: Amazon remains the last holdout
Dividends were also a topic of conversation from the Big 5's earnings reports, with Alphabet paying their first one while Amazon remained the lone wolf by continuing to not pay one. First, here's a look at the dividend-paying companies.
Apple: Will pay a 25-cent dividend, a 1-cent increase.
Alphabet: Congratulations shareholders, the company authorized its first-ever dividend payment at 20 cents per share.
Microsoft: Announced a $.75 quarterly dividend in March, payable in June
Meta: Declared its inaugural dividend in February at 25-cents, paid in at the end of March.
As for Amazon, the nearly $2 trillion company has yet to initiate a dividend payout as its cash and equivalents rose to $73.9 billion in the quarter, up from the previous year's $54.3 billion. When the question was recently posed to Amazon's CFO Brian Olsalsky about the no dividend, he responded the company's current valuation doesn't support it.
Investor sentiment: Better-than-expected results, but investors were not easily impressed
The Big 5 companies all reported better than expected results for the quarter but for investors, they weren't so impressed.
For Meta, its earnings outperformance was eclipsed by the announcement of the company's intention to ramp up spending on AI investments. Short-term concerns among revolved around the pace at which these investments would generate returns, despite analysts' suggestions that they could enhance Meta's position in the long run.
Amazon's Q2 2024 revenue guidance sits in the range of $144 billion and $149 billion, with a 9% growth. This came in at $4.2 billion shy of the FactSet consensus. Microsoft's crown jewel, Azure, is currently seeing demand that is greater than the company's capacity, which could have an effect this year on scaling.
For Apple, year-to-date, its stock has declined by approximately 5%, mirroring weakened demand, heightened competition in the Chinese market, and legal challenges. Adding to the conversation, was Warren Buffet's 13% cut in his Apple stake before the company's $110 billion buyback; however, Buffet reiterated his belief in Apple at the recent annual Berkshire Hathaway meeting.
And for Alphabet, highest costs from AI expenditures caught investors' eyes. In the fourth quarter, this pricey investment drove capital expenditures. Larger capital spending is expected for 2024, but the company said it will be disciplined with its growth investment plans.
Keep up on earnings report news and alerts through Moomoo
At moomoo, we can help investors not only prepare for earnings seasons but also stay on top of earnings activity through our free tools. Here's a few that can be found under the Market tab>US earnings calendars/Earning Hub
Earnings Calendar: Link to your personal calendar of choice. Filter earning reports by customizing to your personal interests and review reports based on release time and stock type through your watchlist or positions in the moomoo app.
Earnings Hub: View earning report summaries created by moomoo and receive financial news information on popular, publicly-traded companies with the ability to view by date, revenue, Return on Equity (ROE), and net income by filtering different economic sectors.
Committed to AI, Committed to the journey
The Big 5 delivered strong earnings reports and reiterated their ongoing commitments to AI. These innovative and dynamic tech giants shared positive outlooks for 2024 and will continue to provide new creative tools and products for businesses and consumers. And at moomoo, we do the same: providing investment tools and products to our users, helping to enhance their investment journeys.
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