Earnings Release Season
Fountainhead News: Feb 1, 2017
With yesterday’s release of Apple’s holiday quarter financials, we are squarely in Earnings Season. Facebook reports tonight, Amazon reports their results tomorrow, and NVIDIA reports February 9th.
It really doesn’t matter how well a company does, all that matters is whether they beat analyst expectations. This is why many bellweather companies have managed earnings down the a penny per share of accuracy, like longstanding GE. They would set expectations just low enough that they were believable, and report earnings just above expectations. They ran the business to make money, but also to cater to Mr. Market.
Apple, for instance, has come in exactly at or just below earnings for the last 4 quarters, save for yesterday, and Wall St didn’t exactly reward them for that. The expectations for a company based on world-changing innovation were so lofty that not even NASA could reach those heights.
Even so, Apple is currently trading at their All-Time High.
In contrast, Amazon has controlled their own narrative for so long that they’ve trained the Street to expect zero earnings because they “reinvest everything back into the business” and choose growth over profits. Typical startup lingo now, but executed masterfully on a grade stage. Even with actual earnings all over the map, well under and well above analyst expectations, Amazon’s been rewarded with their stock price going from $500-ish a year ago when we bought in to $800-ish today.
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Then there’s NVIDIA. With their billion-dollar investment into new GPUs positioned squarely at AI for VR, Video, Gaming, and Self-Driving, they’ve consistently beat expectations by a greater and greater amount over the last 4 quarters, creating the big gains in the stock price. Their release on February 9th will be very telling. If they once again handily beat expectations, expect the stock to jump $10 to $20 per share (or more) the moment earnings are released.
The question is will some of the downward pressure of Google starting to build their own chips for AI (TPUs) matter, and whether all the data center buyers of NVIDIA DGX-1s have already bought them. With self-driving cars in their infancy, and only a few Drive PX2’s being purchased, are we still in the first inning. Lest we forget about their platform business on top of their chips, which they expect researchers and developers alike to invest in, thereby creating lockin for their future chips and products.
I think it’s still early days for NVIDIA if I’m reading the long-term tea leaves. Unless of course, the market takes a crash and then everything will be affected.
Finally, lets look at Facebook. It’s no secret that they’re reaching a saturation point for ads in the news feed and are looking for new areas to enable ads (i.e., Instagram Stories and Apple TV apps). So, as they continue to connect the entire world with basis-point growth, take a few losses on their laser-shooting drones and manage the SpaceX crash, I expect them to beat earnings by a little bit and their stock price to go up a little bit.
Since Facebook’s IPO, they dipped and have taken the same steady stock-price climb as their number of Monthly Active Users. As long as that trend continues their price will continue upwards. But you have to look at that and question: what happens to their growth in 10 years when they’ve connected everyone on the planet and its a core app. Where will the growth come from? New products like Oculus? That’s a long-term stretch as the Rest of World can barely afford the original iPhone 5s (India’s $1000 iPhone is so luxury that it represents a year’s salary).
There’s still time, Christmas was good. Earnings are good (unless you’re in retail). So, expect the market to march on up, unless the fear comes out of left field and kills the current rally.
I suggest watching everything like a hawk and being prepared to push that sell button at a moment’s notice. Trump’s antics don’t even seem to stop the up-and-to-the-right progress, but when 550 of top American CEOs cite in impending recession as their #1 worry due to 90 months of a steady stock market march upward, you have to keep your finger on the trigger.
— Sean
