While the coronavirus has struck fear in stocks around the globe recently, most of the largest U.S. tech companies report earnings this week to provide fresh numbers for investors to pore over.
While the S&P 500 has posted a strong 7.33% gain in the past three months, Big Tech has largely outperformed. In that span, Apple is up 25%, while Facebook, Microsoft and Amazon are up 14%, 13% and 3%, respectively.
Here's what to expect from Big Tech this week:
Analysts polled by FactSet are looking for earnings per share in the December quarter of $4.54, or 8.6% growth year-over-year. Total revenue is expected to grow to $88.47 billion, representing 4.9% growth, as iPhone sales are expected to see just slight declines, while Services revenue grows near 20% to $13 billion.
Investors have looked past what they perceive to be the end of the iPhone's slump, as analyst checks dating back to September have shown the relatively lower-priced slate of iPhone 11's garnering solid demand and 5G device production and demand looking stronger by the month. Shipments of 5G iPhones are expected to comprise a significant portion of the positive unit growth in 2020.
While management is unlikely to give specific details on 5G production, “to the extent that the company’s comments suggest that they’re preparing for next-generation, even if they don’t indicate exactly how they intend to do so with the new phones, that will be a good cue for investors," Tom Forte, analyst at D.A. Davidson & Co. told TheStreet recently.
Still, "year-end 2020 iPhone consensus looks optimistic," Goldman Sachs analyst Rod Hall wrote in a note on Monday. Hall also said "mix may have shifted more aggressively toward the iPhone 11 and pushed ASPs below what we are forecasting," pressuring his margin forecast. The Street is looking for an operating margin of 27%, against Hall's expectation of 26.9%.
Consensus estimates call for December quarter EPS of $2.53, or 6.3% year-over-year growth. Revenue is expected to grow 25% to $20.88 billion. Monthly active users are expected to grow 7.5% to 2.49 billion.
User growth on Instagram is leading the charge. "We view Instagram survey data as positive with record-high penetration and intrinsically positive and stable satisfaction and engagement trends," wrote RBC Capital Markets analyst Mark Mahaney in a note this week. "Based on intra-quarter data points, and our model sensitivity work, we view Street December quarter estimates as reasonable, with modestly greater likelihood of upside versus downside variance."
"We expect Facebook to report another quarter of stable user trends," wrote Canaccord Genuity analyst Michael Graham in a note on Monday. Facebook is also looking to ramp up its monetization of Instagram as "Stories ads...are seeing increasing adoption from advertisers, but due to a combination of factors are still priced at a discount to News Feed ads, with that gap likely to close over time," Graham said.
Most also expect an uptick in expenses to pressure Facebook's operating margin, which is expected to hit 41% for the quarter but fall to 36% for all of 2020.
Analysts are looking for Microsoft to post EPS of $1.32, representing 20% growth. Revenue is expected at $35.67 billion, or growth of 9.7%.
Microsoft has aggressively grown its higher margin cloud business in recent years and is locked in battle over cloud services with market-leading Amazon Web Services.
Recently, Microsoft has shown signs of taking cloud market share in business and government software services. In late October, Microsoft won the JEDI (Joint Enterprise Defense Infrastructure) cloud contract with the U.S. Department of Defense, bringing in $10 billion of revenue for the next 10 years.
As for business cloud services, Wedbush Securities analyst Dan Ives wrote in a note on Monday that for the December quarter "we again saw strong pipeline activity around larger and more strategic enterprise cloud deals (both domestically as well as in Europe) as we believe Redmond is poised to win the lion's share of the next phase of cloud deployments vs. Amazon and Bezos."
Ives concluded that "we are expecting Nadella & Co. to post another solid beat across the board on both the top and bottom line."
Analysts are looking for December quarter EPS of $4.05, a decline compared to last year's $6.04 result. Revenue is poised to grow 18% to $86 billion.
Amazon is investing heavily in its one-day and same-day e-commerce delivery capabilities, which is spurring strong revenue growth but also pressuring near-term profits. Some analysts view the fast delivery initiative as one that can rejuvenate a slowing e-commerce market.
"The company has had to spend heavily to expand the program, and investors will likely be looking for a better sense of how long this investment cycle will last," Canaccord's Graham wrote.
Analysts are looking for AWS revenue of $9.81 billion and investors will be looking for signs that Amazon is not losing too much market share to Microsoft in the cloud.