Three huge, iconic American brands beat on the bottom line this week, a trend not uncommon for the third-quarter earnings season. The market didn't seem to care for most of October, as investors seemed more focused on 2019, rather than on the solid earnings they'd seemingly anticipated. For now, regardless of what the company-specific issues were causing the imperfections in the earnings prints, it seems notable if not impressive that these three giants -- Apple ( AAPL - Get Report) , Facebook ( FB - Get Report) and Starbucks ( SBUX - Get Report) -- beat Wall Street's earnings estimates.
Apple beat on both top and bottom lines Thursday, as services revenue hit an all-time high and higher prices on devices like iPads and the MacBook Air helped propel revenue. But the stock fell after the earnings were released as higher prices for the devices caused a drop in sales volumes. In addition, management said it won't show unit sales of devices on earnings reports anymore, which gives investors cause for concern. The weaker-than-expected guidance for Apple's fiscal first quarter didn't help either. Here's a key takeaway:
Management's decision to stop reporting unit sales numbers in each quarter has investors worried that unit sales numbers going forward will be nothing to boast about. I say: Let's keep our eye on the ball. Services revenue is the growth driver, while device sales will keep people using the services. Sales of iPhones and iPads need to be nothing more than solid to keep people using Apple's services. Services revenue was 15.7% of revenue for the quarter, indicating a pretty good growth trend. Like Warren Buffett has said, Apple is a good longer-term buy.
Bank of America downgraded Apple to neutral from buy in light of "near-term headwinds." The note said, "Although the long-term opportunity is significant, we expect near-term pressure on shares." Bank of America cited slower iPhone deliveries.
Facebook missed on revenue but beat on earnings. The stock ultimately rose in post-market trading, and finished in the red Thursday. Investors were trying to get a handle on how quickly Facebook will monetize its Instagram platform. Ultimately, it seems investors believe monetization can happen pretty quickly, although higher ad prices, the last ingredient to aggressive monetization, will take some time to materialize. Altogether, Facebook's earnings of $1.76 a share were relatively strong. Here's a key takeaway for Facebook:
Facebook also looks like a longer-term buy. Instagram has a solid growth trend. And it looks as if Facebook is serious about correcting privacy and security issues which will make it a sounder platform that won't lose too much more credibility with users.
Starbucks Corp. ( SBUX - Get Report) beat on both top and bottom lines. The stock rose more than 9% in post-market trading. Same-store sales in the U.S., which have been flat, disappointing and a huge concern for investors, rose 4% year over year. That was better than the expected 2%-3% sales growth. A strong U.S. consumer clearly showed up for the coffee chain in the quarter. Plus, sales in China beat on estimates, although the China growth story remains a long-term one. Here's what's important for Starbucks:
At least for the moment, it's a revived business. In its July quarter, China sales growth was negative and U.S. sales growth was 1%. The average ticket price, simply the price of coffee and food at Starbucks locations, rose, always a good sign for a consumer company.
Apple and Facebook are holdings in Jim Cramer's Action Alerts PLUS member club . Want to be alerted before Jim Cramer buys or sells AAPL or FB? Learn more now.
To Our Readers: TheStreet's Morning Jolt newsletter is merging with our 5 Things You Must Know newsletter, which runs down the five most important news events that savvy investors must know about every trading day before Wall Street rings the opening bell.
Morning Jolt subscriptions will automatically flip over to 5 Things You Must Know in the next few days. Check your inbox for this great newsletter to prep you each day for the market session to come.