Tech sector heavy-hitters Apple (AAPL) and Facebook (FB) are scheduled to release their latest quarterly earnings results Tuesday and Wednesday respectively.
Both stocks are key holdings in the Action Alerts PLUS charitable trust co-managed by Jim Cramer and Jack Mohr, and both have experienced exponential growth over the last few quarters. Coming into this earnings release however, the market has divergent opinions on the performance of the two companies during the just-concluded quarter.
Facebook continues to be a market darling. Analysts on average expect the company to increase its earnings per share by 47% over the same period a year ago to $0.62 from $0.42. Revenue for the period is expected to increase 48%, to $5.25 billion from $3.54 billion.
Facebook's stock has performed fairly well year to date, rising more than 5% since January, though at $109.60, it is still well below its year-to-date high of $116.14, which it reached late last month. Facebook shares had a volatile showing last week, starting the week rising before succumbing to the sour taste that Alphabet's (GOOGL) disappointing earnings left.
But those Alphabet-related fears are overblown, according to Cramer and Mohr, and the news coming from the company itself should have been enough to send Facebook higher.
"While there have been a lot of chatter and speculation back and forth in recent weeks about ad trends and how they impacted this Facebook quarter, all the news this week pointed toward positive results," Cramer and Mohr wrote.
"First, Kenshoo (a company that has long been respected as a trusted authority in search advertising) hosted a digital marketing trends conference call this week and noted it measured surprisingly strong 86% year- over-year growth in social advertising spend, which equated to a 9% increase quarter over quarter, and same- store spend was also "up slightly" quarter over quarter."
Wall Street has consensus ad revenue growth expectations between 50% and 52%, which appear to be too low if Kenshoo's estimates are accurate.
Kenshoo wasn't the only industry watcher reporting bullish indicators for Facebook last week. Advertising automation software provider Nanigans reported that Facebook click-through rates for ad impressions delivered by Nanigans' customers rose 11% sequentially and 54% year over year. However, expectations that are too high could hurt Facebook following the release of its quarterly numbers.
"We recognize that despite some of the speculative commentary in recent weeks, FB stock is trading close to all-time highs and expectations remain very high. While we are very confident in the company in its ability to deliver over the short- and long-terms, the setup is a difficult one," Cramer and Mohr wrote. "Even so, Facebook remains a transformative entity as the leader in social and we remain confident in the several growth opportunities moving forward (continued shift to mobile and monetization of Messenger, Instagram, WhatsApp and Oculus). We reiterate our $130 target."
By contrast, the macro-indicators for Apple weren't very bullish leading into Tuesday's earnings release.
Raymond James's analysts downgraded Apple suppliers NXP Semiconductors (NXPI), Qorvo (QRVO) and Skyworks Solutions (SWKS), among others, due to what the firm described as falling demand for the company's iPhone 7. The firm's analysts questioned whether Apple will issue positive guidance in June. "Even if the Apple guide is healthy, we think skepticism will remain until the summer when we start to get evidence of the iPhone 7 ramp and questions about iPhone SE cannibalizing other iPhone models get resolved,"analyst Steven Smigie wrote.
"As the budget model, iPhone SE will support Apple's overall shipments in the second quarter before the next major iPhone release," Avril Wu, an analyst with research firm TrendForce, wrote last week. "However, iPhone SE is going to face severe price competition from Chinese branded products in its target market, which is the mid-range device segment."
For the year, Apple shares are down 0.4%, with much of the decline occurring over the past 10 sessions. Analysts expect the company to report earnings of $2 per share, a 14% decline from the $2.33 per share it earned in the year-ago period. Revenue is expected to fall 10.4% year over year to $51.9 billion from $58.01 billion.
"It is widely known that the upcoming quarterly results will likely show a rough performance for Apple, but this does not change our long- term story. Several factors affected the latest quarter, including extremely tough comparisons over last year when there was extra iPhone demand due to lack of supply in the prior quarter," Cramer and Mohr wrote.
"That being said, an in-line quarter could provide some positive momentum as expectations for the quarter remain very low. We will certainly be interested in CEO Tim Cook's commentary on the conference call, as we will look for an update on China, the consumer response for new products such as the iPhone SE and smaller iPad Pro, as well as any details on upcoming product launches (i.e., iPhone 7)."
Cramer and Mohr will also be looking for commentary on the company's plans for the Apple Watch.
Despite the headwinds, AAP has maintained its $140 price target on Apple, as any short-term bumps in the road will be minor compared to the company's long-term viability.