Earnings season is in full force for investors everywhere. And although we believe successful investing requires a time horizon measured in years, not quarters, regularly scheduled corporate reports remain must-watch events for any serious investors.
The week ahead is chock-full of high-profile technology titans releasing their calendar-year third-quarter earnings. Kicking things off, enterprise tech giant IBM (IBM +1.89%) reports its earnings after hours on Monday, the 19th, and hopes to convince skeptical investors that its ongoing business-model transformation is indeed taking root.
Looking to Wednesday, the 21st, online auction house eBay (EBAY 0.38%) will release its first earnings release after its much-debated divestiture of longtime subsidiary PayPal. And rounding out the action for this article, recently renamed search and mobile juggernaut Alphabet (GOOG +0.45%) (GOOGL +0.57%) will offer its earnings after market close on Thursday, the 22nd.
IBM, eBay, and Alphabet each have their own unique outlooks and business narratives, so read on to learn what you should expect from each of these high-profile tech earnings reports this week.
Source: IBM.
Tim Brugger (IBM): Despite what many industry pundits focus on, IBM's future is not dependent on the declining PC market. Naysayers are quick to point out that IBM hardware revenue declined more than 30% last quarter, along with a 10% drop in both software and services sales.
But heading into Q3's earnings announcement on Oct. 19, long-term investors would be wise to monitor the results of IBM CEO Ginni Rometty's "strategic imperatives," because that's where its bread is really buttered. Already, the units that make up its strategic imperatives -- the cloud, big data, analytics, social media, and mobile -- account for 27% of IBM's total revenue, and plans are for that percentage to grow to 40% in a couple of years.
Of particular interest in Q3 will be whether IBM is able to keep its cloud revenue momentum rolling. Thanks to a huge second quarter, IBM was tracking at $4.5 billion in annual cloud sales, and that will almost certainly jump again in Q3. IBM also scored two more cloud wins this month, inking a $1 billion deal with Norway-based IT consulting firm EVRY, along with a $700 million arrangement with Middle East airlines Etihad.
Another metric to watch in Q3 will be the growth of IBM's business analytics unit, where its big data and Watson cognitive computing wonder are housed. As evidenced by its commitment to its Watson and Watson Health divisions, IBM is leading the way in big data and analytics -- a market expected to generate more than $30 billion in sales this year.
Is IBM inching closer to its goal of generating 40% of its revenue via its strategic imperatives? That's the question that matters, and the one that will determine if IBM and its 3.5% dividend yield will finally catch the attention of investors.
Source: eBay.
Steve Symington (eBay): eBay is set to release third-quarter results Oct. 21 after the bell, marking the online auctioneer's first report since formally splitting with PayPal in July. For perspective, last quarter eBay Marketplace's gross merchandise volume fell 2% year over year, despite the fact that active buyers grew 6% during the same period. But keep in mind that eBay was also negatively affected by continuing foreign currency fluctuations, without which gross merchandise volume would have risen 6%. When all was said and done, eBay's revenue fell 3%, to $2.1 billion, and would have climbed 5% excluding currencies.
When eBay reports this week, investors will likely see more of the same headwinds: eBay's current guidance calls for reported revenue to fall 4% to 2% (or 3% to 5% top-line growth on a currency-neutral basis), resulting in a range of $2.06 billion to $2.11 billion. That should translate, eBay says, to adjusted earnings per diluted share of $0.38 to $0.40. But analysts, on average, are predicting eBay will achieve results near the high end of both ranges, with consensus estimates calling for revenue of $2.10 billion and earnings of $0.40 per share.
But what will likely draw the most focus from the market will be eBay's comments on the future, especially now that it can no longer rely on PayPal to drive overall growth. So after eBay's report hits the wires, listen closely for clarity on not only its specific financial guidance for the fourth quarter and full-year 2015, but also plans to differentiate its Marketplace platform, and reinvigorate long-term growth in today's burgeoning e-commerce industry.
Source: Alphabet.
Andrew Tonner (Alphabet): Although not going to the same extreme as Prince's 1993 rebrand, the company formerly know as Google will offer its first-ever quarterly report under its new moniker, Alphabet, on Thursday, Oct. 22 after the market's close.
In terms of the revenue and profit forecasts, here's what the average of analysts expects Alphabet to produce.
|
Q3 2014 |
Q3 2015 Est. |
% Change | |
|---|---|---|---|
|
Alphabet Revenue |
$16.52 |
$18.30 |
10.8% |
|
Alphabet EPS |
$4.09 |
$7.21 |
76.3% |
Source: S&P CapIQ.
Beyond analysts' projections, additional information about Alphabet's new reporting structure will certainly loom large over recently minted CFO Ruth Porat's report. Will Alphabet provide investors with additional details about its business divisions, which could shed light on the current financial performance (or lack thereof) for Alphabet's R&D and investment efforts? Or will the company only break out results among financially relevant business divisions? Either way, investors should expect many of the same trends, like soaring paid searches and slumping cost-per-click, to again feature prominently in Alphabet's upcoming report.
Gazing past the quarter-to-quarter myopia, Alphabet remains one of the most well-positioned companies in all of technology. Although experiencing some pressure from mobile ads, its core search ad business continues to print money. The near-total dominance of its Android mobile OS ensures its relevancy into the next generation of technology.
Alphabet's bold stance toward inventing new technologies and businesses to support (read: profit from) them also bodes well in the rapidly evolving technology space. So even if its first quarter as Alphabet disappoints, the company still offers plenty of promise for savvy long-term investors.
