|
As we highlighted in our previous article back in November, the so-called “Magnificent 7” contributed a substantial proportion of the S&P 500 gains during 2023. Come the beginning of 2024, it was time to see whether these blockbuster share price performances were justified. Nvidia (NASDAQ: NVDA) is the only one of the 7 yet to report, with this scheduled for 21 February (there shouldn’t be a need to mark your calendar as there will likely be considerable media coverage). The remaining six (Alphabet, Amazon, Apple, Meta, Microsoft and Tesla) each reported their earnings for the October to December period in the last week. Often viewed as a group, their performance was, in fact, quite varied. Let’s start with the good and take it from there. Note: All figures are quoted in U.S. Dollars.
|
Market Movers: How the Magnificent Seven Are Faring in 2024
Market Movers: How the Magnificent Seven Are Faring in 2024
Microsoft’s results were also impressive, which they needed to be following the company’s addition to the $3 trillion market cap club. Revenue of $62.0 billion increased 18% YoY (16% excluding the impacts of currency changes), and net profit was $21.9 billion, 33% higher than the pcp (or 26% ex-currency). Intelligent Cloud was again a key driver of Microsoft’s performance, with revenue growing 20% YoY to $26 billion, including a strong 30% YoY performance from Azure and other cloud services. Unsurprisingly given its investment in ChatGPT developer OpenAI, AI dominated the conference call. Examples included approximately 53,000 clients using its cloud-based AI platform Azure AI (one-third of which were new to Azure this past year) and an AI-infused Office was released for business users. Microsoft also completed its highly publicised acquisition of Activision Blizzard on October 13, which juiced Microsoft’s More Personal Computing division, which saw 19% revenue growth including 61% growth at Xbox. Guidance for the upcoming quarter was strong, and shareholders were rewarded with $8.4 billion in dividends and buybacks. They should be very satisfied with the company’s performance.
The Alphabet share price took a hit the day of its earnings release, but there was actually much to like about the search giant’s results. Revenue rose 13% YoY, with a further improvement in Google advertising revenue, which revenue increased 11% YoY to $59.0 billion, from +9.5% YoY in the prior quarter and +3.3% YoY in 3Q 2023. Google Search revenue increased 13% YoY and YouTube ads increased 16% while Google Networks remained weak (fortunately this contributes less than 10% of the company total). Google Cloud revenue increased 26% YoY, and perhaps even more importantly, Cloud profitability has accelerated since breaking even early in 2023, reaching a 9.4% operating margin in 4Q 2023. Like Meta, Alphabet showed better cost control, with CFO Ruth Porat showing the benefits of the 2023 cost drive. The employee count was 4% lower at the end of the year and another round of layoffs have begun already in 2024. CEO Sundar Pichai was very optimistic about the company’s ability to implement AI initiatives, and combining this with better efficiency could lead to some healthy profit growth in years to come. The share count also continues to decline, with a further $16 billion of share repurchases in 4Q bringing the 2023 total to $72 billion. Overall, a solid performance from Alphabet.
The Amazon share price jumped nearly 8% following the release of its results, as revenue growth surpassed market expectations. Overall it was a strong yet not entirely outstanding result from the online retail behemoth. Net sales in 2023 increased 12% from the prior year to $575 billion and net income swung from a net loss of $2.7 billion to a net profit of $30.4 billion. Retail growth was relatively consistent with North America revenue increasing 13% YoY and international revenue increased nearly 17% YoY. International still lost money but at a lower rate, while the North American operating margin expanded quite dramatically. Amazon Web Services (AWS) saw growth accelerate ever so marginally, but at 13% YoY, it was far below the growth rates of both Microsoft and Alphabet’s cloud platforms (although it is notably bigger, with annualised revenue now approaching $100 billion). Like the others, the AWS cloud margins expanded nicely, with operating income growing 38% YoY to $7.2 billion. Guidance for the first quarter was net sales growth of between 8% and 13%, consistent with the past two years but a significant slowdown from pre-pandemic growth rates. Additionally, capital expenditures continue to grow, particularly in AWS, following more than $160 billion spent by the company over the past three years. Time will tell if this is money well spent.
Apple shares are modestly down since it reported its 1Q FY 2024 earnings (ended 30 December 2023), which saw a revenue increase of 2% YoY to $120 billion. iPhone revenue rose 6% YoY to $69.7 billion, Mac increased 1% YoY to $7.8 billion and Services hit an all-time high, increasing 11.3% YoY to $23.1 billion. On the other hand, iPad fell 25% YoY to $7.0 billion and Wearables, Home and Accessories declined 11% to approximately $12.0 billion. Revenue grew across all geographies with the exception of Greater China, which declined nearly 13% to $20.8 billion–accounting for 17.4% of company revenue during the quarter. A hallmark of the Cupertino-based company, profitability was again excellent, with net income of $33.9 billion 13% above the pcp. EPS of $2.18 increased at a faster 16% pace due to share repurchases, which totaled $20.1 billion in the quarter. Overall, a respectable performance from Apple, particularly given the challenges in China, but the growth rate is likely far below what investors might expect from a company with its valuation.
The most lacklustre of the Magnificent Seven to report was undoubtedly Tesla. Revenue grew a very modest 3% YoY to $25.2 billion and shares have fallen nearly 10% since a less-than-impressive earnings call. In particular, investors likely focused on comments by CFO Vaibhav Taneja that volume growth in 2024 will likely be lower than in prior periods as the company focuses on the launch of the next-generation vehicle. This comes amidst a challenging time for Tesla given a general slowdown in the EV market and significantly greater EV competition (particularly in China and by Chinese exporter BYD). As has been frequent throughout Elon Musk’s career, there have also been a number of other recent distractions, including the overturning of his extraordinary $55 billion compensation package, the possible relocation of the company’s incorporation from Delaware to Texas, media reports about drug use, comments about launching an unaffiliated AI/robotics entity, and of course, the severe decline in profitability at X (formerly known as Twitter) following his take-private transaction in 2022. Musk undoubtedly has a loyal base of supporters and has proven his ability to navigate challenging environments before, and it appears that 2024 will be another busy year.
