Alphabet and Microsoft rise to data after quarterly earnings beat estimates

Alphabet CEO Sundar Pichai gestures during a discussion on artificial intelligence at the European business think tank Bruegel in Brussels, Belgium, on Jan. 20, 2020.

Geert Vanden Wijngaert | Bloomberg | Getty Images

Alphabet and Microsoft stocks rose to record highs on Wednesday after both companies released third-quarter results that exceeded analysts’ expectations.

Stocks helped propel the tech-heavy Nasdaq Composite higher, although the S&P 500 and Dow Jones Industrial Average fell slightly.

Alphabet rose nearly 5% to $ 2,924.35, giving the company a market cap of nearly $ 2 trillion. Microsoft rose 4% to $ 323.17. With a market capitalization of $ 2.43 trillion, the software maker is approaching Apple’s valuation of $ 2.46 trillion.

Despite inflation concerns, supply chain restrictions, and Apple privacy changes restricting advertising, the world’s most valuable tech companies continue to beat growth expectations and demonstrate their resilience to economic fluctuations.

Google reported a 43% increase in ad revenue to $ 53.1 billion, with ad sales on YouTube increasing to $ 7.2 billion from $ 5 billion last year. According to Refinitiv, earnings of $ 27.99 per share exceeded analyst estimates for earnings of $ 23.48.

Google was able to bypass a big hit from Apple’s iOS privacy changes that affected Snap and Facebook’s quarterly results. Ruth Porat, Alphabet’s chief financial officer, said Apple’s new features had a “modest impact” on advertising revenue.

“The ad market remains strong and unlike most other digital competitors, Google doesn’t seem to have been negatively affected by iOS 14 or supply chain issues,” Ross Sandler, an analyst at Barclays, wrote in a note on Wednesday. “In the longer term, Google will remain the best-positioned digital advertising company and one of our favorite names,” wrote Sandler, who rated the stock as a buy.

Microsoft’s revenue for the first quarter of fiscal year grew 22% year over year to $ 45.3 billion, while earnings of $ 2.27 exceeded the average estimate of $ 2.07, according to Refinitiv.

For the current quarter, Microsoft’s CFO, Amy Hood, said she expects gross margin to increase 2 percentage points as the company improves its cloud businesses, even without the impact of an accounting change that extends the life of its data center equipment.

Microsoft’s PC-related business is meanwhile overcoming the global supply chain bottleneck. The company reported a 10% growth in sales of Windows licenses to device manufacturers,

“Microsoft has overcome the two top concerns that went to press – PC exposure and margins,” wrote UBS analysts, who have a buy rating for the stock, in a note following the earnings report.

While investors are optimistic about Google and Microsoft’s growth prospects, both companies signaled potential challenges. Stocks are up 83% and 51%, respectively, over the past year.

Hood told analysts on Microsoft’s call to “watch the advertising market” as companies hit by delivery problems may be less willing to spend. Search and news advertising accounts for about 6% of Microsoft’s revenue.

Google warned that growth rates will not be as rosy as they have been in recent periods, including 69% growth in ad sales in the second quarter.

“Given the gradual recovery and the results in the second half of 2020, the advantage of the lap performance of the previous year decreased in the third quarter compared to the second quarter and will continue to decline in the fourth quarter,” said Porat in the conference call on the results on Tuesday.

Analysts expect revenue growth to slow in the first half of 2022, partly due to lower fees on the Google Play Store and regulatory challenges.

SEE: Alphabet just keeps getting better at delivering apps and services to consumers, Sebastian says. by Baird

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