Four for four. That's the way it's looking this morning for the big four that reported last night, Amazon (AMZN), Google (GOOGL), Microsoft (MSFT) and Starbucks (SBUX). They were four for four for all different reasons, but they were perfect nonetheless, at least for this market.
First, we have presentation: all four held superb conference calls, something that matters at this point in the earnings season, because we have earnings fatigue. By this point, the companies' managements have a pretty darned good idea of what the sell side analysts want to hear, either because they didn't get it before, on the last quarter, or because they have learned from what the others have said, negatively, on this quarter.
Second, each had a much more positive story to tell than anyone expected, and in all four cases expectations were pretty darned low, either because there had been subtle guide-downs going in --namely Google and Microsoft -- or people felt that no matter what, Amazon and Starbucks couldn't do all that much that wasn't expected of them already.
So what went right? First, Amazon actually told us something. Its conference calls had been vapid exchanges of no real enlightenment, sleep-walking, contemptuous, at times, and obfuscating and frustrating for those who want to be able to model for the next quarter and year -- the chief desired takeaway of these kinds of exercises.
Not this time. This time, we heard a breakout of how well Amazon Web Services is doing, the vaunted distribution system that's terrific for Amazon and conceivably great for others who want to be partners with the company. Our discovery, it's fabulous for Amazon, a line item that could be lucrative beyond hopes. In one fell swoop, it obliterated the long-term short story of how Amazon would never get profitable.
Plus, Amazon told stories of potential good tidings in both India and China where, previously, it seemed to be one pointless spend-a-thon. You could hear the cheering where there had been scoffing and the stock, which had started to recoil before the call, zoomed up, exactly as it should. Amazon, it seems, can be Wal-Mart (WMT) for the world. So the stock may be mispriced to the downside, much to the chagrin of the intellectual shorts.
Google? We always knew the growth was slowing, and it was losing both ad share and mindshare to Facebook (FB). That was a given. We heard nothing different about that last night, and the number were considered disappointing, although, given that the company doesn't give guidance and this was, arguably, the fifth straight disappointing quarter, perhaps the issue is with how the analysts predict, not how Google reports.
But this time we heard two things that were overwhelmingly positive on the call. First, the big issue -- at least with me -- was the lack of any monetization of its other major property besides the well-monetized search business and the poorly monetized Android operating system: YouTube. I had begun to think that Google had become a bit of an expensive laboratory where one business, search, carried all the others, and it was carrying them less and less.
But if YouTube gets monetized, you have the thing that most television companies are most fearful of, the fifth network to ABC, NBC, CBS and FOX, with lower costs and more videos than anyone could ever hope to advertise against. Suddenly, a stock that sold at a market multiple because growth was slowing holds out to become a very undervalued situation.
Then, on last quarter's conference call, the company talked the talk about wanting to hold down expenses and become more profitable by stopping the willy-nilly hiring and the wasteful projects that would never produce earnings. This time it walked the walk and we discovered there are mountains of cash flow here once expenses are under control.
It was extraordinary how profitable this company is RIGHT NOW. That's why people will pay up and up for it. Future growth, more profitability, and a dominant search situation made us forget how wasteful things were here. And that's with one of the biggest dollar headwind stories around. Made us forget all about that troublesome European monopoly inquiry, too.
Microsoft is a testament to what happens when you blow a quarter, get the estimates taken down and taken down again, and the downgrades fly fast and furious. That's an opportunity to make the towel-throwers, including me, want to go wash the towels and put them out again. What wasn't to like?
First, the presentation, so muddled last quarter, was clear and concise. Three divisions: cloud, Windows and devices, three easily split divisions are necessary. That's fantastic. Second, cloud growth that was so off the charts it made up for whatever lack of growth might be coming from personal computers. The Windows division, after disappointments in Intel (INTC), Micron (MU), SanDisk (SNDK) and Texas Instruments (TXN), gave you big upside, simply because it wasn't as bad as we thought, particularly on revenues.
Devices? Let's just say this grab bag is suddenly something that could be split off and bring out a ton of value. A superb call from a previously befuddled and even paralyzed team. The ultimate expectations low, earnings good story. Lots of crow to eat all around, including yours truly.
Finally, there's Starbucks. Maybe we should have expected better after that terrific quarter by Dunkin (DNKN), which had rallied five points in the wake of an amazingly changed- for- the- better story.
That's not the case, though. It was all about traffic being up big, gift cards being redeemed, mobile pay speeding lines, food coming in better than expected, producing comparable store sales of 7% here and 12% in China. This is now an accelerating growth story with a fantastic consumer product goods aisle space kicker. I was astonished at how strong this one really was, and I was a big believer going in. Anyone who thought the racial initiatives hurt the business got hung big on the short. This is a different, better story than people thought, with faster growth and a blueprint for more stores everywhere.
A total homerun.
It's rare that everything comes together in one night of earnings. This was that night. An astonishing assemblage of four companies with four big wins. It's like an NBA team going four for four in the playoffs, a rare accomplishment. Just about as good as it gets.