FAANG Stocks’ Results Illuminate a Record 2Q Earnings Season
Growing fears about the latest COVID-19 Delta variant couldn’t keep the stock market down for long. All the major averages have bounced back to all-time highs in the final trading week of July, as Wall Street celebrated record quarterly results.
The post-pandemic recovery has provided an impressive rebound to many companies’ top and bottom lines. By the final week of July, several big-name technology companies had reported quarterly earnings; Most did not disappoint. Just consider how the so-called FAANG stocks fared in the latest quarter…
Facebook (FB): Second-quarter revenue grew 56% year-over-year to $29.08 billion, with advertising revenue accounting for $28.58 billion. Second-quarter earnings more than doubled to $10.39 billion, or $3.61 per share, compared to $5.18 billion, or $1.80 per share in the second quarter of 2020.[1]
The Street was expecting earnings of $3.03 per share on revenue of $27.89 billion. The upside surprise was impressive.
Amazon (AMZN): The popular online retail giant disappointed Wall Street with its second-quarter earnings report and third-quarter outlook on Thursday afternoon. The fact is that with the world reopening its doors, folks aren’t as reliant on online shopping as they have been in the past year. Still, Amazon has more than 200 million Prime members, and the company expects to exceed revenue and earnings expectations for the latest quarter.
For the second quarter, Amazon achieved revenue of $113.08 billion, with AWS revenue accounting for $14.81 billion. Second-quarter earnings per share came in at $15.12. Wall Street expected revenue of $115.06 billion, AWS revenue of $14.18 billion, and earnings per share of $12.22.
Apple (AAPL): Achieved record third-quarter revenues. The continued adoption of 5g iPhones, strength in their watches and other wearables, and continued growth in their services division all contributed to the quarter.
Third-quarter sales increased 36% year-over-year to $81.4 billion.
Apple earnings doubled their prior year’s results. Earnings were $1.30 per share, up from $0.65 per share in the third quarter of 2020. Wall Street analysts only expected earnings of $1.01 per share and total sales of $73.46 billion.[2]
Netflix (NFLX): The entertainment streaming company experienced a mixed quarter. Overall membership rose 8.4% year-over-year to 209.18 million, up from 192.95 million in the second quarter of 2020, reflecting Netflix’s continued success growing their international user base.
However, in North America, the reopening economy worked against Netflix as membership fell during the quarter.
Total second-quarter revenue increased 19.3% year-over-year to $7.34 billion, compared to $6.15 billion in the same quarter a year ago. Earnings jumped 87.9% year-over-year to $1.35 billion, or $2.97 per share. Earnings, however, fell short of analysts’ estimates of $3.15 per share even though revenues came in higher than forecasts.[3] The divergence is explained by the fact North American members are the more profitable.
Google (GOOG): The top online communications company revealed that resurgent online advertising around the globe significantly bolstered its top and bottom lines. Second-quarter revenue climbed 61.6% year-over-year to $61.88 billion, and earnings rose 169% year-over-year to $27.26 per share. Compare that to earnings of $10.13 per share and revenue of $38.3 billion in the second quarter of 2020.[4]
Google’s results crushed analysts’ expectations. The consensus’ estimate only called for second-quarter earnings of $19.08 per share and revenue of $56.08 billion.
The results reported by these mega-cap companies are reasonably representative of what we see in the broader market. According to FactSet’s latest Earnings Insight report[5], approximately 24% of S&P 500 companies have released results, with 88% exceeding analysts’ earnings estimates and 86% topping revenue forecasts. The recovery is well underway and is proving to be more robust than expected.
At the end of the second quarter, analysts anticipated 63.2% year-over-year earnings growth and 19.4% year-over-year revenue growth. So far, the S&P 500 has achieved 74.2% average earnings growth and 20.9% average revenue growth in the second quarter. To put this into perspective, that’s the fastest earnings growth since the fourth quarter of 2009 and revenue growth rate since 2008.
But, as you know, the stock market direction is determined by future earnings, not the past. So all eyes will now turn to the 3rd calendar quarter and beyond. Is this recovery sustainable? We believe it is.
Consider that current robust revenue and earnings numbers are being reported despite severe bottlenecks and shortages being reported across the economy. For instance, semiconductors where shortages are hindering production and sales of everything from computers to automobiles. As these shortages are addressed, pent-up demand from these constrained sectors will help sustain the recovery.
It’s also important to note that the world has not yet reopened. Many foreign markets are still operating under the yoke of closures. The strength seen this quarter is largely tied to a reopening of the United States. As the rest of the world reopens, we expect similar economic rebounds helping companies sustain their growth and profitability.
It appears the positive effect of the post-pandemic recovery will be with us for several more quarters, and that should help support stock prices.
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[1] https://investor.fb.com/investor-news/press-release-details/2021/Facebook-Reports-Second-Quarter-2021-Results/default.aspx
[2] https://www.apple.com/newsroom/2021/07/apple-reports-third-quarter-results/
[3] https://s22.q4cdn.com/959853165/files/doc_financials/2021/q2/FINAL-Q2-21-Shareholder-Letter.pdf
[4] https://abc.xyz/investor/static/pdf/2021Q2_alphabet_earnings_release.pdf?cache=4db52a1
[5] https://www.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_072321.pdf