It's late April, and do you know what that means?
(in game show announcer voice) EARNINGS, EARNINGS EARNINGS!
In all seriousness, though, we're deep in the throes of the second-quarter earnings season of calendar 2015, and this week some of tech's most powerful and important names issued their seasonal updates for the investing public. There are plenty of storylines to breakdown, so rather than ramble, let's dig right in.
Microsoft (MSFT 1.84%)
Source: Microsoft
Transition to the cloud is the defining storyline for computing software giant Microsoft. Going into what is the third quarter of Microsoft's fiscal year, the bar was set understandably low. However, Microsoft's earnings this week came as a welcome positive surprise for investors who have been eagerly awaiting signs that it's shifting business model is indeed taking hold. Here's how the top and bottom lines compared against the same quarter last year.
|
|
FY Q3 '15 |
FY Q3 '14 |
% Change |
|---|---|---|---|
|
Microsoft Sales ($Bil.) |
$21.73 |
$20.40 |
6.5% |
|
Microsoft EPS |
$0.61 |
$0.68 |
-10.3% |
Source: Microsoft Investor relations
Without question, the cloud was the key bright spot in Microsoft's report. Driven by an uptick in subscriptions to its Office 365, Azure, and CRM products, cloud computing revenue surged an impressive 106% and now sits at a $6.3 billion annual run rate. And with the coming launch of Windows 10 promising another potential sales catalyst as well as its reasonable 17 price-to-earnings ratio at the moment, there appears a very fair case that Microsoft represents an interesting value in a market for tech stocks that has been absolutely on fire lately.
Amazon.com (AMZN 1.66%)
Source: Amazon
Switching from value to growth investing, Amazon.com came into this year as my top pick to outperform in 2015. Thus far, it's been proving me right after taking it on the shins for much of 2014. And with its Q2 earnings report on Thursday, Amazon once again silenced its doubters with another strong performance.
|
|
FY Q2 '15 |
FY Q2 '14 |
% Change |
|---|---|---|---|
|
Amazon Sales ($Bil.) |
$22.72 |
$19.74 |
15.1% |
|
Amazon EPS |
$(0.12) |
$0.23 |
-152.2% |
Source: Amazon Investor Relations
The more I observe it, the more I come to respect Amazon. Although its core retail business doesn't enjoy the most compelling economics, Amazon has set the stage to create long-term scale and service advantages that should help it continue to capture an increasing amount of consumers' online spending as this big ticket trend continues to play out in the decades to come.
However, what's so amazing about Amazon is its willingness to continually push the boundaries and enter new, tangential markets where it also thinks it can compete. Cloud computing and original television content are two of the most obvious examples, but other smaller-scale moves like Amazon's recent foray into travel also offer compelling growth opportunities. It's Amazon's unique vision and ability to see decades ahead, while Wall Street often can't look beyond a few quarters, that I believe will continue to help Amazon redefine industries and generate returns for shareholders for years to come.
Google (GOOG 2.25%) (GOOGL 2.01%)
Source: Wikimedia
Over the past several years, Google has struggled to cope with what is in many ways an embarrassment of riches. Its utter dominance of mobile software and the explosion of searches it's yielded has put some pressure on Google's core advertising business. And investors saw more of the same with Google's Q2 report this week.
|
|
FY Q2 '15 |
FY Q2 '14 |
% Change |
|---|---|---|---|
|
Google Sales ($Bil.) |
$17.26 |
$15.42 |
11.9% |
|
Google EPS |
$6.57 |
$6.27 |
4.8% |
Source: Google Investor Relations
As has been largely the case with Google over the past several years, clicks on Google search ads (paid click) increased by 13% YOY during the quarter. However, since an increasing share of these clicks occurred on less profitable mobile ads, the average revenue generated by each ad (cost per click) on Google's sprawling ad empire declined by 7%. If you're looking for an explanation for Google's slowing bottom-line growth, this is undoubtedly a key contributor.
However, despite the problems managing these shifts in its advertising business, Google still remains one of the most entrenched and powerful names in tech. Like Amazon above, Google also has demonstrated the willingness to invest heavily in potentially game-changing technologies in industries as seemingly far-flung as driverless cars and health care. Also like Amazon, I believe it's this desire to be at the epicenter of tech's most important coming markets that will help Google remain great well into the future.
