By Kyle Prevost on November 1, 2024 Estimated reading time: 8 minutes
Making sense of the markets this week: November 3, 2024
By Kyle Prevost on November 1, 2024 Estimated reading time: 8 minutes
Apple and Nvidia vie for global market cap crown; Google, Microsoft and Meta crush earnings; Amazon’s Bezos takes WaPo subscriber hit; and Canadian energy companies pump profits.
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Photo by gguy from Shutterstock
Kyle Prevost, creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course, shares financial headlines and offers context for Canadian investors.
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Apple, Nvidia growth—no cap
Depending on the day you ask, it’s either Apple or Nvidia as the answer to the classic question: “What is the most valuable company in the world?” Both are worth somewhere around $3.5 trillion. (All figures in this section are in American currency.)
To put that in perspective, each company is worth more than the entire Canadian stock market. Add up all of our banks, railways, energy companies, telecoms, REITs (real estate investment trusts), pipelines, grocery stores, insurance companies, utilities, gold miners and anything else you can find, but Apple or Nvidia are each worth more than the totality of companies listed on the Toronto Stock Exchange.
So, when either reports earnings, it’s a big deal.
Big tech earnings highlights
Here are what the tech companies shared this week.
Apple (AAPL/NYSE): Earnings per share of $1.64 (versus $1.60 predicted) and revenue of $94.93 billion (versus $94.58 billion predicted).
Apple released these key figures as part of its earnings report.
iPhone revenue: $46.22 billion versus $45.47 billion estimated
Computer revenue: $7.74 billion versus $7.82 billion estimated
iPad revenue: $6.95 billion versus $7.09 billion estimated
Other Products revenue: $9.04 billion versus $9.21 billion estimated
Services revenue: $24.97 billion versus $25.28 billion estimated
Gross margin: 46.2% versus 46% estimated
As you can see from above, iPhone revenue continues to be the dominant driver of Apple’s overall income. Sales of iPhone 15 remain strong. The China market continues to be a source of concern for Apple, and sales were down slightly year over year.
Apple’s bottom line got stung, as it had to pay a $10.2 billion tax bill as a result of a tax settlement in Ireland. Even with such a massive bill (that $10.2 billion payment would’ve been worth about 15% of Canada’s total corporate taxes in 2023), Apple was still able to dedicate $29 billion toward share repurchases and dividends during the quarter. It’s worth re-stating cash flow numbers like that. Annualized, last quarter’s share buybacks plus dividends equates to $116 billion.
Unfortunately for shareholders, Apple’s dominance was more or less expected, and consequently, the market had a muted reaction to the earnings reveal. Share prices were down about 2% in after-hours trading on Thursday.
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Amazon primed to profit
The big winner for this week’s tech earnings announcements: Amazon. (All figures in this section are in U.S. dollars.)
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Amazon earnings highlights
Share prices were up 5% in after-hours trading on Thursday after the strong earnings beat.
Amazon (AMZN/NASDAQ): Earnings per share of $1.43 (versus $0.14 predicted) and revenues of $134.4 billion (versus $131.5 billion predicted).
Amazon Web Services (AWS) remains the golden goose, even though very few of Amazon’s retail customers know it exists. Revenues climbed 19% during the quarter, and totalled $27.4 billion. Amazon’s advertising revenues were another highlighted area of the report, as they were up 19%. Overall operating profits grew 56% year over year to $17.4 billion, mostly credited to the 27,000 jobs cut by the company since 2022.
Founder, executive chairman and former president and CEO of Amazon, Jeff Bezos was in the headlines this week in his role as owner of the Washington Post. He refused to allow the Post’s editorial team to print their endorsement of Kamala Harris for president, and it was met with widespread outrage from Post readers. As of Tuesday, more than 250,000 subscriptions were cancelled as a result.
Fortunately for Bezos, he purchased the Washington Post (one of the world’s premier news brands) for “chump change”—$250 million (roughly a mere 1.2% of his net worth). So, if he drives it into the ground, I don’t think he’ll shed tears.
No doubt co-founder and CEO of Tesla, Elon Musk, is making similar calculations with his luxury purchase two years ago of Twitter (which he rebranded as X). Critics say he has turned the social platform into an echo chamber for Republican presidential candidate Donald Trump. What are the billions for, if a person can’t even enjoy themselves by buying a little media, am I right?(That’s sarcasm.)
So far we’ve yet to see analysis to show Bezos’ editorial decision affecting Amazon’s share price or revenue numbers. Apparently Republicans buy Amazon Prime, too.
Microsoft, Meta and Google: Predictably incredible earnings
While not having quite as large a market cap as Nvidia and Apple, other mega tech stocks in the U.S. are no slouches. For example, Microsoft is also as valuable as the entirety of Canada’s stock exchanges at $3.2 trillion. Alphabet and Meta clock in at $2.1 trillion and $1.5 trillion respectively. (All figures in this section are in U.S. dollars.)
Other Big Tech stock news highlights
Here’s what these companies announced this week.
Alphabet (GOOGL/NASDAQ): Earnings per share came in at $2.12 (versus $1.51 predicted) on revenues of $88.27 billion (versus $86.30 billion predicted).
Microsoft (MSFT/NASDAQ): Earnings per share of $3.30 (versus $3.10 predicted), and revenues of $65.59 billion (versus $64.51 predicted).
Meta (META/NASDAQ): Earnings per share coming in at $6.03 (versus $5.25 predicted) and revenues of $40.59 billion (versus $40.29 predicted).
All three companies crushed earning estimates across the board. However, shareholders’ reactions to these earnings beats were still muted. Meta shares were down 2.5% in after-hours trading on Wednesday, and it was a similar situation for Microsoft. Alphabet fared better as its shares were up 3%.
It’s hard to put these numbers into the massive context into which they belong, because the world has never seen anything like these companies before. Here are highlights from the earnings calls. (Scroll the chart left to right with your fingers or press shift, as you use scroll wheel on your mouse to read.)
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Meta
Alphabet
Microsoft
• Net income was up 35% year over year. While that’s incredible growth, it’s still the lowest growth rate it’s had in six fiscal quarters. • Meta makes so much money through ad sales, we barely notice when we see quotes such as, “The company’s Reality Labs hardware unit posted an operating loss of $4.4 billion in the third quarter.” That three-month loss is worth almost the entire market cap of Air Canada.
• Growth was chiefly due to a 35% climb in its cloud computing division. • Advertising revenue was up about 12% year over year.
• Net income was up 11% year over year. • Its cloud computing division was up 33%.
Two more thoughts:
The idea of Microsoft as “just a software company” is pretty much dead, as revenues from Windows operating system licenses were up only 2%.
Most large tech companies are significantly raising spending on “property and equipment.” Much of that spending is going towards buying Nvidia’s AI-powering computer chips. Consequently, we see Nvidia indirectly soaking up a lot of the ad-driven profit these companies pump out.
The muted market reaction to the earnings calls was likely due to all three companies cautioning a possible slowdown in growth going forward. And the last trading day of October seemed to spook investors too, with the Nasdaq falling almost 513 points or 2.8% on Thursday, with smaller losses on other North American exchanges. Amazon bucked the trend, jumping 5.3% after the bell and as we were nearing press time Friday morning, Nasdaq futures were up 0.4% after the Amazon beat.
Canadian fossil fuel giants Canadian Natural Resources and Cenovus Energy reported quarterly earnings results this week.
Canadian earnings highlights
Lots of news from three big Canadian companies this week.
Canadian Natural Resources (CNQ/TSX): Earnings per share of $0.97 (versus $0.91predicted) and revenues of $8.89 billion (versus $9.01 billion predicted).
Cenovus Energy (CVE/TSX): Earnings per share of $0.42 (versus $0.42 predicted) and revenues of $15.18 billion (versus $14.69 billion predicted).
While share prices for CNQ essentially traded flat after earnings were announced on Thursday, the big news in the earnings report was that the company would be reducing its natural gas expansion going forward in order to focus on heavy crude oil instead. Natural gas prices remain quite low in Alberta, with the opening of the TMX pipeline, CNQ believes heavy oil is the better bet.
Cenovus also cited TMX pipeline capacity as a key variable for their operations. The increased capacity to export to world markets has helped reduce the discount that Canadian oil producers received for their oil relative to the US benchmark prices.
Cenovus shares were down 3.41% on Thursday despite meeting earnings expectations. The company forecasted for relatively large capital expenditures in the next two years, followed by a heavier focus on maximizing free cash flow by 2027. Cenovus reported it could sustain the capital spending plan plus its dividend (currently yielding 3.22%) at USD$45 WTI benchmark pricing. Given that the current WTI price is about $70, heavy oil production continues to look profitable.
Kyle Prevost is a financial educator, author and speaker. He is also the creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course.
