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Tech Earnings Last Week: Amazon Disappoints, Alphabet Delights, and Facebook Satisfies

By Beth McKenna - Jul 28, 2019 at 3:05PM

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Here are Q2 earnings recaps for the e-commerce, search-engine, and social-media giants.

Three of the "big techs" -- Amazon.com ( AMZN -1.81% ), Google parent Alphabet ( GOOG -0.58% ) ( GOOGL -0.60% ), and Facebook ( FB -4.27% ) -- reported their second-quarter results this past week.

If you subscribe to singer Meat Loaf's belief that "two out of three ain't bad," then their collective results relative to Wall Street's earnings expectations ain't bad.

Here's a summary of each company's results. 

Close-up of a red key marked "2nd Quarter" among silver keys on a computer keyboard.

Image source: Getty Images.

Amazon: The lonesome loser of the trio

Keeping our music theme going, let's start with the lonesome -- or sole -- loser (Little River Band, 1979) of the big tech trio with respect to meeting analysts' earnings consensus estimate. Last Thursday after the closing bell, Amazon released Q2 results that put an end to its streak -- five consecutive quarters long -- of obliterating the Street's expectations. While the e-commerce titan fell short of the profit projection, it beat on the top line. 

Shares dropped 1.6% on Friday, which we can attribute to the earnings miss and third-quarter operating income guidance coming in lighter than analysts were expecting. In 2019, Amazon stock is up 29.4% through Friday, July 26, versus the S&P 500's 22.1% return.

Metric

Q2 2019

Change (YOY)

Wall Street Consensus

Revenue

$63.4 billion

20% (21% in constant currency) $62.4 billion

GAAP net income

$2.6 billion  4% --

GAAP EPS

$5.22 3% $5.57

Data sources: Amazon and Yahoo! Finance. GAAP = generally accepted accounting principles. YOY = year over year. EPS = earnings per share. 

Highlights of Amazon's Q2 results:

  • Revenue growth accelerated from Q1's rate of 17% year over year, reversing course from recent deceleration.
  • Revenue outperformance was in part due to a boost stemming from the company's upgrading of Amazon Prime's core free delivery benefit from two days to one day.
  • North America segment's revenue jumped 20% year over year to $38.7 billion, international's revenue grew 12% to $16.4 billion, and Amazon Web Services (AWS) revenue surged 37% to $8.4 billion.
  • North America's operating income (OI) declined 15% year over year to $1.56 billion, largely because the company spent more than $800 million on the Prime delivery upgrade; international's operating loss widened 21% to $601 million, and AWS's OI jumped 21% to $2.12 billion. 

Amazon's Q3 guidance:

  • The company guided for Q3 revenue growth of 17% to 24% year over year -- in line with analysts' expectations.
  • It expects operating income to decline 16% to 43%, driven by continued spending on upgrading the Prime free-delivery benefit to one day. The Street had been modeling for EPS growth of 15.5% in Q3, which means it also expected operating income to grow year over year.
A judge's gavel on top of a pile of U.S. currency.

Image source: Getty Images.

Facebook: The lucky one

Facebook is "tagged" with the moniker of the lucky one (an '80s hit by Laura Branigan) because the social-networking behemoth was fortunate that the U.S. Federal Trade Commission fined it "only" $5 billion. The fine, officially announced on Wednesday before the company's release of its Q2 results, is a record, but still little more than pocket change for the cash cow.

The market thought Facebook got off easy related to the probe into its data and privacy practices launched last year following the revelation of the Cambridge Analytica data scandal. Shares got a nice pop following unofficial reports last month of the $5 billion settlement. That pop probably took the fizz out of the market's reaction to the official news, though shares did edge up 1.1% on Wednesday. They gave back that gain on Thursday, however, falling 1.9% following the earnings release. So far in 2019, Facebook stock has gained 52.4%.

Metric

Q2 2019

Change (YOY)

Wall Street Consensus

Revenue

$16.9 billion

28% (32% in constant currency) $16.5 billion

GAAP net income

$2.6 billion  (49%) --

GAAP EPS

$0.91 (48%) --

Adjusted EPS

$1.99 14% $1.88

Data sources: Facebook and Yahoo! Finance. 

Highlights of Facebook's Q2 results:

  • Revenue growth accelerated from the first quarter's rate of 26% year over year, a welcome surprise as management had previously said that it expected sequential constant-currency revenue growth rate deceleration throughout 2019.
  • The trend continued of robust growth in the number of ad impressions -- up 33% year over year -- more than compensating for the decline in the average price per ad, which declined 4% from the year-ago period. 
  • Adjusted results exclude a $1.1 income-tax expense and an additional $2 billion charge related to the FTC settlement. In Q1, Facebook took a charge of $3 billion in anticipation of a fine.
  • The company's regulatory woes aren't over. In the earnings release, it disclosed that in June, it was "informed by the FTC that it had opened an antitrust investigation." Moreover, in July, the Department of Justice announced that it will begin an antitrust review of the big online players. 

Facebook's Q3 outlook:

The company doesn't provide specific guidance. But on the earnings call, CFO Dave Wehner reiterated management's expectation that year-over-year revenue growth will decline sequentially throughout the year. He said the FTC agreement "will require significant investments in compliance processes, personnel, and technical infrastructure."

Exterior view of company's headquarters with a bike rack on front of the glass-walled multi-story building.

Image source: Alphabet.

Alphabet: Stock shoots up, up and away 

Taking a cue from singer Vanessa Williams, I saved the best for last. On Thursday after the market closed, the Google parent company soundly beat Wall Street's earnings expectation, resulting in the stock shooting up, up, and away (The 5th Dimension, 1967) on Friday, closing the day with a gain of more than 9%. The search-engine specialist's announcement that it's authorizing a huge $25 billion stock repurchase plan also probably provided a lift. 

So far in 2019, Class A and C shares are up 19.2% and 20.7%, respectively, versus the S&P 500's 22.1% return.

Metric

Q2 2019

Change (YOY)

Wall Street Consensus

Revenue

$38.9 billion

19% (22% in constant currency) $39.7 billion

GAAP net income

$9.9 billion billion  209%* --

GAAP EPS

$14.21 213%* --

Adjusted EPS

$14.21 21% $11.33

Data sources: Alphabet and Yahoo! Finance. *The year-ago period's GAAP results were negatively impacted by a European Commission antitrust fine of more than $5 billion.

Highlights of Alphabet's Q2 results:

  • Google segment revenue jumped 19% year over year to $38.8 billion and other bets revenue grew 12% to $162 million.
  • Google segment operating income increased 16% year over year to $10.4 billion and other bets operating loss widened 35% to $989 million.
  • Within the Google segment, advertising revenue was up 16% year over year to $32.6 billion, driven by Google properties, which posted an 18% jump in revenue to $27.3 billion. Google's "other revenue" soared 40% to $6.2 billion, driven by robust growth in Google Cloud and Google Play. 

Alphabet doesn't provide specific guidance.

In short, all three companies performed well in the quarter. While Amazon did miss earnings expectations, that's because it doesn't play Wall Street's short-term game. It's sacrificing current profit to lay the groundwork for even stronger growth over the long term. 

With that, so long, farewell (The Sound of Music, 1965 movie).  

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$2,821.03 (-0.60%) $-16.92
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$3,443.72 (-1.81%) $-63.35
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
FB
$310.60 (-4.27%) $-13.86
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$2,832.36 (-0.58%) $-16.68

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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