We're in the midst of the period when companies issue their financial reports for the quarter that ended March 31, and Wall Street pros and regular investors alike are keeping a close eye on the results. With inflation falling but still elevated, and interest rates higher than they've been in years, this earnings season offers an important look into the health of the broader U.S. economy.
So far, there have been some standout performers in the technology sector. Here are three companies that delivered better-than-expected results, and subsequently saw their stock prices pop in April.
1. Microsoft: It's all about artificial intelligence
Microsoft (MSFT -1.37%) has come a long way since the days when the Windows operating system (launched in 1985) was its only blockbuster product. The company has grown to dominate other industries like gaming, cloud computing, and now, artificial intelligence (AI). Investors were particularly pleased with Microsoft's progress in AI during Q1, as it has been weaving the technology through the entire business.
The company's multibillion-dollar investment into OpenAI is behind much of its recent success. OpenAI developed the online chatbot ChatGPT, which has the ability to answer complex questions and even write computer code in response to fairly straightforward conversational prompts. Microsoft has integrated ChatGPT into its Bing search engine, and within two months, mobile installs of the platform had grown fourfold, with 100 million people using it every day.
Plus, Microsoft has integrated OpenAI's technology into its Azure cloud platform, placing advanced AI tools at the fingertips of businesses everywhere. The OpenAI-Azure partnership had 2,500 customers by the end of Q1, up tenfold from just three months prior. Although its growth is slowing, Azure overall was the fastest-growing piece of Microsoft's business, with revenue up 27% year over year.
Financially speaking, Microsoft beat its own revenue forecast in Q1 and crushed Wall Street's consensus expectation for earnings of $2.24 per share, delivering $2.45 per share instead. Microsoft stock soared by 7.5% the day after it reported the results, a session that accounted for most of its 9.5% rise in April.
2. Spotify: User growth was music to investors' ears
Spotify (SPOT -1.13%) is the world's largest music-streaming and podcast platform, and it's growing impressively even in this tough economic period. It operates in an industry where product differentiation is key, because the music content across Spotify, Apple Music, and Amazon Music is effectively the same.
Spotify recently revamped its home screen and incorporated video, keeping pace with many of the popular social media platforms its customers actively use. Plus, the company has invested in artificial intelligence to improve its search feature, helping users find the content they're looking for with fewer inputs. Personally, I often use both Spotify and Apple Music, and Spotify's user experience is far more appealing thanks to these changes, whereas Apple focuses more heavily on audio quality as its point of difference.
Spotify told investors to expect 11 million net new members in Q1, but it ended up attracting an all-time high 26 million, taking its total to 515 million. The company's revenue topped $3 billion in the quarter, with 14% year-over-year growth coming from paid subscriptions and 17% growth coming from advertising from customers using the free ad-supported version. Those results were impressive, given the economic climate has hurt both consumer discretionary spending and businesses' marketing budgets.
Spotify stock gained 2.9% in April thanks in part to its Q1 results. But that took its year-to-date gain to a spectacular 63%, so investors certainly appear pleased with the company's direction right now.
3. Meta Platforms: Instagram bounces back thanks to artificial intelligence
Meta Platforms (META -2.73%) is the parent company of Facebook, Instagram, and WhatsApp. It has faced serious pressure from investors over the last 18 months, many of whom expressed concerns about its shrinking revenues and increased spending, especially on unproven projects like virtual reality and the metaverse.
At one point, Meta Platforms stock had suffered a 77% peak-to-trough collapse. CEO Mark Zuckerberg acknowledged the company's struggles near the end of 2022, and has since committed to cutting 21,000 jobs and managing costs more carefully. He's calling 2023 a year of efficiency, and in the first quarter, investors saw substantial improvements.
First, Meta's revenue grew on a year-over-year basis for the first time since Q1 2022, and its Reality Labs (virtual reality) losses shrank compared to the prior quarter. Second, the company made progress on its investments in AI-powered content curation for its Reels feature on Instagram and Facebook. This was key to fending off the competitive threat from ByteDance's TikTok, and the results were clear: On average, Instagram users spent 24% more time on the platform.
That was likely a key reason Meta's revenue grew in Q1, as more engagement equals more advertising dollars. In any case, investors were highly impressed and sent Meta stock soaring. It ended April up by an impressive 17%, and it probably isn't done heading higher this year.
