Microsoft Q1 24 – Earnings Report Analysis
The Week Ahead – ECB Rate Decision, US Q3 GDP, Amazon and Microsoft Earnings.
The upcoming week is set to be an eventful one for financial markets, with significant developments expected in the UK, Europe, and the US. We’ll delve into the key events and data releases that could shape the week ahead.
UK Unemployment (Sep) – 24/10
The most recent UK ILO unemployment figures for September, which were postponed from the previous week, are anticipated to show no change after a slight increase to 4.3% for the three months up to August. The Office for National Statistics (ONS) cited delays in gathering responses as the reason for the rescheduling, with the extra time allocated to improving the accuracy of labor market estimates. During the three months up to August, unemployment increased by 159,000, employment decreased by 207,000, and the number of job vacancies dipped below 1 million for the first time since the summer of 2021. It is expected that employment will decline by 200,000 for the three-month period in September, while the unemployment rate is projected to remain steady at 4.3%.
ECB Rate Decision – 26/10
Is the ECB finished with its rate hikes? The decision to raise rates to a record high of 4.5% back in September came as somewhat of a surprise, especially considering the prior statements made by ECB President Christine Lagarde leading up to the decision. It’s becoming increasingly evident that there are clear divisions within the governing council regarding the future direction of monetary policy. The northern part of the euro area, particularly Germany, is inclined to maintain pressure on interest rates to prevent potential inflation, despite recent declines in the headline inflation rate.
About a week after the decision to raise rates, Bank of Latvia Governor Martins Kazaks argued that the September increase was justifiable, and he didn’t rule out the possibility of future rate hikes due to the risks associated with higher energy costs and real income growth. However, the tone at the September press conference suggested a wait-and-see approach from here on, especially after the downward revision of growth forecasts for 2023 and 2024. These revisions lowered the growth projections to 0.7% for 2023 (from 0.9%) and 1% for 2024 (from 1%), while inflation expectations were adjusted upwards to 5.6% in 2023 and 3.2% in 2024. Considering the ongoing poor economic data, it’s likely that there will be a pause in rate hikes this week.
US Q3 GDP – 26/10
Apart from the easing inflation pressures, the US economy has maintained its resilience, and recent indicators suggest that Q3 might be the strongest quarter of the year as we approach the final quarter of 2023. In Q1, the US economy expanded by 2.2%, followed by 2.1% in Q2. The final revision for Q2 saw a significant downward adjustment in personal consumption, from 1.7% to 0.8%, while the headline figure remained unchanged at 2.1%. The decline in consumer spending during Q2 raised concerns, given that a significant portion of the US economy relies on consumption. However, the summer retail sales data indicates a robust recovery.
Additionally, there was a substantial upward revision in business investments in factories, attributed to the effects of the Inflation Reduction Act. Growth forecasts for Q3 are more optimistic, with some estimates reaching as high as 4.5%, primarily due to strong retail sales between July and September, marking the strongest quarter since Q4 of 2021. With a robust labor market and strong US earnings, there is a notable upside risk that a strong economic performance this week could lead the Fed to consider one more rate hike before the year’s end.
Microsoft Q1 24-24/10
The Nasdaq’s upward trajectory this year has been primarily driven by the technology sector, contributing significantly to the overall gains in the US markets year-to-date. Microsoft, one of the “Magnificent 7,” has shown robust performance since its October lows last year, reaching a new record high in July after reporting strong Q4 and annual results.
In Q4, Microsoft’s revenues surged by 8% to reach $56.2 billion, setting a new record for a single quarter. This substantial increase pushed the total annual revenues to $211.9 billion, with quarterly profits at $2.69 per share and annual profits at $9.68 per share. The company’s various business segments performed well, with the Intelligent Cloud segment seeing a 15% increase to $24 billion. Cloud services revenue from Microsoft 365 and Office 365, for both commercial and consumer products, exhibited strong growth.
However, the personal computing segment experienced a 4% decline in revenue, totaling $13.9 billion. This decline was primarily attributed to weak Windows OEM revenue, which fell by 12%, and a 20% decrease in device revenue for the quarter. On a more positive note, Xbox content and services revenue increased by 5%, with optimism surrounding the completion of the Activision deal by October 18th, which was subsequently approved by UK regulators.
Despite reaching peaks in July, Microsoft’s shares have slightly retreated amid concerns that Azure’s revenue growth might slow. It is expected to rise between 25% and 26% in Q1, compared to 42% the previous year and 48% in the year before. Some disappointment has arisen regarding the performance of its OpenAI venture, as it did not deliver higher estimates. Q1 revenues are projected to reach $54.5 billion, with commercial cloud revenue expected to be $30.7 billion, an increase from $25.7 billion a year ago.
Amazon Q3 23-26/10
In terms of its stock performance, Amazon has had a lackluster quarter, despite experiencing a notable upswing following its Q2 earnings report in August. The stock reached a one-year high in September but has faced some challenges since then.
During Q2, Amazon posted revenues of $134.38 billion, marking an 11% increase. Strong performance was observed in the online stores segment and Amazon Web Services (AWS). Profits also exceeded expectations, amounting to $0.63 per share. Online stores generated $52.97 billion in revenue, while AWS reported a 12% sales increase, reaching $22.14 billion. Amazon’s online subscription services also witnessed growth, with revenues rising to $9.89 billion from $8.7 billion, partly driven by the success of shows like Citadel and the film Air.
Amazon has been reducing its workforce over the past year, addressing an over-hiring phase during the COVID-19 pandemic. During Q2, the company eliminated 5,000 jobs. Additionally, Amazon upgraded its Q3 sales guidance to a range of $138 billion to $143 billion. Investors will be keen to see revenue growth in both online stores and AWS, with expectations of AWS revenues reaching $23.2 billion.
Recent data suggests that Amazon has rebounded from a challenging 2022 when it reported significant losses, leading to substantial cost-cutting measures and workforce reductions. Looking ahead to Q4, Amazon may face challenges from a potential slowdown in consumer spending. The company is also investing up to $4 billion in the AI start-up Anthropic, indicating a focus on future technology. Profit expectations for Q4 stood at $0.58 per share.
conclusion
In conclusion, the week ahead promises to bring about crucial financial insights and developments across various sectors. Keep a close watch on the UK unemployment report, the ECB rate decision, the US Q3 GDP data, and the earnings reports of tech giants Microsoft and Amazon.