This week’s marquee earnings and economic data reports will mostly take place later in the week, with the majority of the Big Tech or FAANG (Facebook, Amazon, Apple, Netflix and Google’s parent, Alphabet) stocks reporting earnings after market close on Thursday.
Also Thursday morning, on the economic data front, the Bureau of Economic Analysis will release the first print on third-quarter U.S. gross domestic product (GDP), offering a first holistic look at the rebound in economic activity that took place after lockdowns lifted in late spring.
Big Tech earnings
Big Tech stocks’ run-up has cooled somewhat in the months since these companies last reported earnings results over the summer. Since July 30, Amazon (AMZN) underperformed the broader market, rising 5% versus the S&P 500’s 6.8% gain. Alphabet (GOOG, GOOGL) tracked about in-line with the S&P 500, while Facebook (FB) and Apple (AAPL) each gained about 19% over that period.
Ahead of these companies’ reports, Snap (SNAP), the parent company of the disappearing photo-sharing app, posted third-quarter results that blew away expectations, setting the bar high for ad-driven tech companies. Revenue grew more than 52% as the company added more than 11 million daily active users during the third quarter, for a gain of 19%.
“The set-up for Thursday 10/29 when all four report is getting more challenging post SNAP, but we expect the ‘rising tide’ of e-commerce use and DR [direct revenue] advertising to broadly justify stock moves,” BMO Capital Markets analyst Daniel Salmon said in a note Friday.
“We like GOOGL most into the [quarterly reports] as it has the worst sentiment and investors know travel is still bad; we believe retail strength can offset, while recovery of brand advertising and a burgeoning Connected TV story at YouTube are under-appreciated,” he added. Last quarter, Alphabet’s stock sold off after the company posted its first-ever drop in revenue, as customer companies trimmed their advertising budgets during the pandemic.
“As we go into 2021, we also think investors will return more attention to the cloud businesses of GOOGL and our #2 preference in this group, AMZN, which is the only one for which we raised ad revenue growth in both 2020 and 2021,” Salmon added.
Amazon, for its part, reported record profit during the second quarter as net income doubled to $5.2 billion, driven by a jump in online shopping during the height of stay-in-place orders. The company’s results this week will exclude any windfall from its annual Prime Day shopping holiday, which was pushed off by three months this year to October due to the pandemic and took place after the end of the third quarter.
Facebook is also set to report on the heels of a strong second-quarter, during which revenue jumped 11% to $18.7 billion as ad spending began to ramp in May and June as stay-in-place orders lifted. But the easing of lockdowns is also expected to have reduced user engagement on the platform, as users found alternatives to scrolling through social media: The company said in July it expected to see daily and monthly active users moderate and be “flat or slightly down in most regions during the third quarter.”
Though the company endured a boycott from some major advertisers at the start of the quarter, a number of Wall Street analysts suggested the overall rebound in online ad spending from mid-summer to early fall likely provided a meaningful boost to Facebook’s results. Bank of America analysts said in a note Friday that they expected third-quarter results to come in above consensus estimates given a “robust” online ad rebound, based on their advertising checks. The analysts expect Facebook to have accelerated its revenue growth to 14% during the third quarter, versus consensus expectations for a rise of 12% to $19.8 billion.
Finally, Apple’s sales are expected to come in roughly flat over last year at $64 billion, following an 11% jump in the second quarter that had been driven by Mac and iPad sales earlier during the period. The company unveiled its latest 5G-enabled iPhone 12 about a month later than typical due to the virus, with analysts likely to home in closely on the company’s outlook for handset sales heading into the holiday season.
Each of these earnings results also comes as Washington increasingly steps up its scrutiny of some of the biggest internet giants. The Department of Justice and 11 states last week filed an antitrust lawsuit against Google, accusing its search and advertising business of running an illegal monopoly. And the CEOs of Twitter, Alphabet and Facebook are set to appear before the Senate Committee on Commerce, Science and Transportation Wednesday morning to discuss Section 230 of the Communications Decency…
Read More: What to know in the week ahead