As Google, Amazon, Microsoft and Intel Simultaneously Report Earnings, Here's What to Watch

 | Apr 26, 2017 | 8:13 PM EDT
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Though Thursday is hardly the first time that multiple high-profile tech companies are due to report earnings at the same time, it's pretty rare to see four tech giants with $150 billion-plus market caps -- three of whom have $400 billion-plus market caps -- reporting within minutes of each other. But that's what Alphabet/Google (GOOGL) , Amazon.com (AMZN) Microsoft (MSFT)  and Intel are set to do after Thursday's close.

For those who plan to try and follow the numbers and commentary that these firms plan to simultaneously deliver, here's a look at what's expected of them going into earnings, and what's worth keeping an eye on as they report.

Alphabet

The Google parent's shares slipped in January after posting mixed Q4 results (EPS beat, while revenue missed), but is still up 12% on the year with the help of rising equity markets. Shares trade for 23 times a 2018 EPS consensus of $39.29.

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Analysts on average expect Alphabet to report revenue of $19.8 billion (up 20% annually) after backing out traffic acquisition payments to partners (TAC), and adjusted EPS of $9.42 (up 26%). Google hasn't historically provided sales or EPS guidance with its earnings, and there's no reason to think it will start on Thursday.

What to watch:

  • How strong paid click (paid ad click/impression) growth remains. Thanks to strong mobile search and YouTube growth, Google's paid clicks rose 36% annually in Q4, and 43% on Google's sites/apps. With recent growth having been propped up by mobile search changes that happened in the second half of 2015, the consensus is for paid click growth to slow to 26% in Q1 (30% on Google sites).

    The growing habit among Amazon shoppers to go directly to Amazon's app rather than search for products on Google is a potential headwind, and rising Google Maps ad traffic a potential tailwind. The advertiser losses that YouTube saw over its hosting of extremist content are unlikely to have a big Q1 impact, since the issue only blew up in mid-March, but any commentary on the matter will be closely watched.
  • Whether the decline in Google's cost per click (CPC, average ad price) slowed. CPC fell 15% annually in Q1 due to the lower prices attached to smartphone search and YouTube ads. Google has been trying to boost ad prices by improving the rates at which smartphone ad clicks convert into sales, and by growing local business ad sales. CPC is expected to drop 11% in Q1.
  • If TAC (10% of Google ad revenue in Q4) continues to rise as a percentage of revenue. Mobile ad sales carry a higher TAC overall than PC ad sales, due to revenue-sharing payments made to phone OEMs, carriers and others.
  • The "Google Other" revenue line, which covers Google's non-advertising businesses. The Pixel phone launch and cloud service growth helped Google Other revenue rise 62% in Q4 to $3.4 billion. It's forecast to rise 47% to $3 billion in Q1.
  • Whether losses narrowed for the "Other Bets" reporting segment, which covers businesses such as Nest, Waymo (self-driving cars), Google Fiber and Verily (health care tech products). Other Bets had a $1.1 billion Q4 operating loss on revenue of just $262 million.
  • If capital spending continues to surge due to data center investments. Capex rose 46% in Q4 to $3.1 billion.

Amazon.com

The early-February selloff that Amazon saw in response to mixed Q4 results (EPS beat, revenue missed) and light Q1 sales guidance already feels like a distant memory. Shares are up 21% on the year, as faith in the company's ability to keep taking retail share and maintain a dominant cloud infrastructure position remains as strong as ever. But such big gains also spell high expectations: Amazon is now worth about twice as much as Wal-Mart, and (with the qualifier that Amazon clearly isn't focused on maximizing short-term profits) trades for 47 times a 2019 EPS consensus of $19.23.

Analysts on average expect Q1 revenue of $35.3 billion (up 21% annually) and reported (GAAP) EPS of $1.08 (up 1%). If one backs out stock compensation and one-time items, the EPS consensus is at $2.35. Q2 sales and operating income guidance should be given in the earnings release.

What to watch:

  • If Amazon Web Services' (AWS) revenue growth continued to slow. AWS growth slowed to 47% in Q4 from Q3's 55%, with revenue of $3.54 billion slightly missing expectations. This may have made analysts a little conservative with their Q1 outlooks: Sales are expected to rise 42% to $3.65 billion.

    AWS is still in a league of its own among public cloud platforms, and enterprise cloud migrations continue apace. But its sheer size now makes delivering 50%-plus growth more challenging, and Microsoft and Google are hungry to gain ground.
  • How badly a strong dollar affects international sales. Amazon's international e-commerce segment saw 23% Q4 sales growth on a forex-neutral basis, but only 18% growth on a reported basis.
  • How much gross margin rises. A mix shift towards AWS and third-party seller services (commissions, ads, fulfillment services) has been boosting Amazon's GM like clockwork, in spite of heavy capital spending. GM is expected to rise to 36% in Q1 from 35.2% a year earlier.
  • Fulfillment and tech/content spending growth. Amazon's warehouse-building spree and logistics investments have led the former to grow rapidly; R&D spend and Prime Video investments had a big impact on the latter. Fulfillment spend rose 26% in Q4 to $5.7 billion, and tech/content spend 27% to $4.5 billion.

Microsoft

The software giant jumped to new highs after beating fiscal second quarter estimates in January, and is now up 9% on the year. Shares trade for 21 times a fiscal 2018 (ends in June 2018) EPS consensus of $3.27.

The fiscal Q3 consensus is for revenue of $23.65 billion (up 7% annually) and adjusted EPS -- it adjusts for the impact of Windows 10 revenue deferrals, but doesn't back out stock compensation -- of $0.70 (up 13%). Sales and spending guidance is typically provided on the earnings call, but the former has historically been conservative.

What to watch:

  • How much stabilizing PC sales continued to prop up Windows revenue. Windows OEM revenue rose 5% annually in fiscal Q2, as did Windows commercial revenue. IDC recently estimated that global PC shipments rose 0.6% in Q1; Gartner, using a slightly different methodology, estimated they fell 2.4%.
  • Office 365's momentum. Office commercial revenue grew 5% last quarter due to strong business demand for the subscription-based version of Microsoft's productivity suite, while Office consumer revenue grew 22% as 365 subs rose by 4.3 million annually to 24.9 million.
  • Azure's growth. The world's #2 public cloud platform saw 93% revenue growth in fiscal Q2 -- better than AWS' 47% Q4 growth, but down from fiscal Q1's 116%. Microsoft recently announced some new high-profile Azure wins.
  • Server software growth. While many peers are seeing their sales of on-premise data center software decline, Microsoft's server products revenue grew 5% in fiscal Q2, aided by healthy upgrade activity for Windows Server 2016 and SQL Server 2016. While this business might still be able to outperform the broader market going forward, Microsoft has signaled growth will be weaker in Q3.
  • LinkedIn's performance. Fiscal Q3 will be the first quarter for which Microsoft records a full three months of LinkedIn revenue. The professional social networking leader has been busy overhauling its services and integrating them with Microsoft's, but it's still early.

Intel

The chip giant's shares are only up 2% in 2017 going into earnings, easily lagging the Nasdaq's 12% gain. Worries about the cautious full-year sales outlook Intel gave in late-January along with a Q4 beat and strong Q1 guidance appear to be a factor. Sticker shock over its $14.7 billion deal to buy automotive vision processor leader Mobileye (MBLY) might also be a factor.

Intel's Q1 consensus is for revenue of $14.8 billion (up 8% annually) and adjusted EPS of $0.65 (up 20%). Q2 and full-year sales guidance should be provided in the earnings release, as should full-year sales and capex guidance. Shares trade for a modest 13 times Intel's 2018 EPS consensus of $2.93.

What to watch:

  • How Intel's PC CPU sales are holding up amid pressure from AMD (AMD) . Like Microsoft, Intel is benefiting from stabilizing PC demand. But that could be more than offset by share losses to AMD's Ryzen CPU line, which put Intel's smaller rival on much better competitive footing than it has been in years.

    Ryzen reviews, while not flawless, often showed the chips providing more bang for the buck than comparable Intel parts for many demanding workloads. With high-end Ryzen CPUs having only launched in early March, and mid-range CPUs a month later, AMD's Q1 impact on Intel should be limited. But its Q2 impact could be larger.
  • How Intel's Data Center Group (DCG) is faring amid conflicting trends. On one hand, DCG, which supplies server CPUs and other data center products, is getting a lift from strong capex growth at cloud giants such as Google, Amazon and Facebook. It's also benefiting from from rising sales of non-server CPU offerings such as Xeon Phi co-processors and Omni-Path interconnect fabric controllers.

    On the other hand, enterprise server demand remains weak as more and more workloads migrate to the cloud. And there could be a lull in both enterprise and cloud demand ahead of the anticipated launch of Intel's Xeon E5 v5 CPUs, which are based on its Skylake architecture (first launched for PCs in 2015).
  • Flash memory sales. They grew 25% annually in Q4 to $816 million, and growth should be stronger still in Q1, given what peers have reported about demand and pricing trends. Intel plans to spend $2.5 billion on flash capex this year, as it ramps production of cheap, high-density, 3D NAND flash chips.
  • Commentary on product launch schedules. Intel was recently reported to be planning to launch new PC CPUs based on its Basin Falls platform and Coffee Lake architecture sooner than expected, as it tries to combat AMD. But PC CPUs based on Intel's Cannonlake architecture, the first to use a 10-nanometer manufacturing process, now aren't expected until late 2017 or early 2018.

    Any details on Intel's ETAs for these chips will get attention. As will any commentary about how its Skylake Xeon ramp is expected to proceed.
  • iPhone-related commentary. After years of relying solely on Qualcomm (QCOM) for its iPhone modem needs, Apple (AAPL) partly relied on Intel for the modems going into the iPhone 7. And with Apple and Qualcomm in the midst of a bitter legal spat, there has been speculation that Apple might solely rely on the XMM 7560, the first Intel modem to support Verizon, Sprint and China Telecom's cdma2000 3G networks, for this year's iPhone launches.

    Apple tends to demand a lot of secrecy from its chip suppliers. But it's possible that Intel could provide a comment or two that give an idea as to what its iPhone sales and market share will look like this year relative to last year.

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