6 May 2024 | Weekly Snapshot

Did you know?

Microsoft is the largest listed company in the world and has a market valuation of US$3.0 Trillion. This is double the size of Australia’s GDP (US$1.6 Trillion) and 21x the size of BHP.
The below chart shows the history of Microsoft in terms of revenue (dark blue area), which currently stands at US$244 Billion and earnings (light blue area, earnings before interest and tax or EBIT), which stands at US$107 Billion.

Market Movements

The Australian market rose 0.8% this week, led by the consumer discretionary sector (up 2.1%, Wesfarmers up 5.4%) and Technology Stocks (up 1.6%, Xero up 4.1%). This strength came despite weak domestic retail sales figures, which unexpectedly fell 0.4% in March, against expectations of a 0.2% rise. Energy stocks were the worst performers, driven by a 7% fall in the oil price (Energy sector down 1.8%, Woodside down 3.5%).

The US market was up 0.6%, also led by the consumer discretionary sector (up 1.6%, Apple up 8.3%). US interest rates were held steady in the 5.25-5.5% range, as expected. Chair-Powell maintained his position that interest rates have more likely peaked. This notion was supported by some market data, whereby the US economy added 175k jobs in April, below the 243k expected and below the 315k in March. At the same time, job openings also fell in April to 8.49m from 8.81m in March. On a more inflationary note, unit labor costs increased 4.7% in Q1, well above expectations of 3.2%.

Portfolio Movements

Amazon Q1 earnings at US$15.3b, shares finish up 3.6% for the week

• Q1 earnings of $0.98/share a decent beat on the $0.84 expected and triple the $0.31 a year ago. Q1 revenue also increased 13% from Q1 last year to $143B. Operating income of $15.3B was well ahead of the $11.3B estimate as efficiency and cost out gains delivered a big boost.
• Looking into the future, Q2 revenue guidance was $146B, short of market’s expectations for $150B but still 9% above the same quarter last year. Q2 operating income guidance was $12B, also a bit below the $12.7B estimate but still a 65% increase on the same quarter last year.
• Amazon shares finished up 3.6% for the week

Microsoft beats estimates – shares flat for the week

• Microsoft reported a solid result with Q1 earnings of $2.94/share, which was ahead of the $2.82 estimate. Revenue and margins also beat with outperformance across all business lines.
• Looking into the future, Microsoft expects continued double-digit revenue and operating income growth in FY25. They also forecast higher capex in both Q4 and FY25.
• Microsoft has taken the dominant position in Generative AI considering the growth in both revenue and investment spend.
• Microsoft shares finished flat for the week

Google beats earnings estimates – shares down 2.7% for the week

• Google parent Alphabet reported very strong Q1 results with earnings of $1.89/share. This was well ahead of the $1.51 estimate. Q1 revenue of $80.5B was also a decent beat on the $78.8B expected. Strength was broad-based with accelerating growth across (Google) Search, YouTube and Cloud. They announced a maiden dividend and a new $70B buyback. AI was a big focus for management.
• Looking to the future, earnings guidance for the coming year sits around 15%, which includes an increased investment spend, particularly around ‘AI’. Regulatory/competition issues linger in the context of historic anti-competitive behaviour.
• Shares finished down 2.7% for the week.

Apple announced buyback for US$110b worth of shares, share price rises 8.4% for the week

• Apple reported Q2 earnings of $1.53/share, largely in line with the $1.51 expected. The market responded well to the announcement of a share buyback to repurchase up to $110B worth of shares.
• Apple shares rose 8.4% for the week.

The Week Ahead

• Tuesday: The RBA announces their interest rate decision, which is expected to remain at 4.35%. There is some growing opposition to the RBA’s current ‘no change’ stance in context to the inflation rate of 3.6%, which remains stubbornly above the RBA’s target range (2%-3%). Playing devil’s advocate, there are some signs that inflation is trending back to normal levels considering inflation was above 6% less than a year ago and that goods inflation is back to normal. However, employment-related inflation remains sticky and the unemployment rate remains near record lows.
• Wednesday: Uber reports quarterly results, where the market is expecting earnings-per-share of $0.22. Uber currently has approx. 1/3 of the global ride-sharing market. They continue to be the market leader in the ride-sharing economy and are one to keep an eye on.
• Friday: The US quarterly earnings season is an official wrap. It has been a very strong reporting period (again) and we exit the quarter with expectations for 20.3% earnings-per-share growth for the US market over the coming 12 months.