For Immediate Release
Chicago, IL – May 3, 2021 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Amazon.com, Inc.
AMZN
, Alphabet Inc.
GOOGL
, Apple Inc.
AAPL
, Facebook, Inc.
FB
and Microsoft Corporation
MSFT
.
Are Big Tech’s Best Growth Days Behind It?
This might be a very odd claim to make after seeing Amazon, Alphabet, Apple, Facebook and Microsoft report results in recent days that can only be described as blockbuster.
I don’t think we need to dwell on how good the quarterly numbers from these ‘Big Tech’ players have been, but let me take a moment to present the sales and earnings numbers for just two of these five players – Amazon and Apple.
Amazon’s Q1 earnings of $8.1 billion on $108.5 billion in revenues not only topped consensus estimates, but represented year-over-year growth rates of +219.8% and +43.8%, respectively. In other words, just the change from the year-earlier period amounted to $5.6 billion in earnings and more than $33 billion in revenues. On the other hand, the iPhone maker earned $23.6 billion on $89.6 billion in revenues, representing year-over-year growth rates of $110.1% and $53.6%, respectively.
Needless to say, these are mindbogglingly big numbers.
Looking at this elite group of five ‘Big Tech’ players as a whole, these companies earned $74 billion in earnings in the March quarter on $311.6 billion in revenues. This group’s Q1 earnings and revenues are up +104% and +29% from the year-earlier period, respectively.
So are we claiming that this group’s best growth days may be behind it?
Our sense is that this is probably as good as it ever will get, with the growth trajectory steadily decelerating going forward.
It is reasonable to assume that these estimates will go up as we move forward, with 2021 Q4 and 2022 Q1 significantly above what is currently expected. Given the history of these companies and their enormous earnings power, they will likely continue to have positive earnings growth, but not the preceding period’s +41.2%, Q1’s +104% or even the June quarter’s +35.8%.
In other words, they will continue to have positive earnings growth, but not the type of growth we have become used to seeing in recent periods.
Beyond the big 5 Tech players, total Q1 earnings for the Technology sector as a whole are expected to be up +50.3% from the same period last year on +23.4% higher revenues.
This big picture view of the ‘Big 5’ players as well as the sector as a whole shows a decelerating growth trend. That said, unlike this ‘quarterly view’, the annual picture shows a lot more stability.
Q1 Earnings Season Scorecard (As of Friday, April 30
th
)
We now have Q1 results from 302 S&P 500 members or 60.4% of the index’s total membership. Total earnings (or aggregate net income) for these 302 companies are up +51.1% from the same period last year on +8.3% higher revenues, with 86.1% beating EPS and 77.8% beating revenue estimates.
We remain in the heart of the Q1 reporting cycle this week, with more than 1200 companies on deck to report results, including 140 S&P 500 members. By the end of this week, we will have seen Q1 results from more than 88% of the index’s total membership.
The growth comparison is likely not fair, given the unusually high year-over-year growth rates in the Finance sector, a function of big reserve releases and easy comparisons in 2021 Q1.
The Finance sector still remains a big factor in the outsized Q1 earnings growth rate, even though the aforementioned ‘Big Tech’ numbers are no less outstanding. On an ex-Finance basis, the Q1 earnings growth for the remaining companies that have reported results drops to only +35.1%.
But even on an ex-Finance basis, the Q1 earnings growth rate still compares favorably to other recent periods.
Overall Expectations for 2021 Q1
Looking at Q1 as a whole, combining the actual results that have come out with estimates for the still to come companies, total earnings for the S&P 500 index are expected to up +42.6% on +6.8% higher revenues.
Part of the strong growth in Q1 is reflective of easy comparisons, as the last month of 2020 Q1 was weighed down by the pandemic, though the full impact showed up in Q2. Those easy comparisons are notable for the Finance, Consumer Discretionary, Transportation and Energy sectors. Profitability in these sectors is notably above the Covid-hit levels of the year-earlier period, but they are still below the comparable period in 2019 (2019 Q1), except for the Finance sector.
But it isn’t just easy comparisons that is giving us the strong aggregate growth in 2021 Q1. A number of sectors, including the all-important Technology sector, are on track to produce genuine growth, i.e., 2021 Q1 profitability growth above pre-Covid levels. These include, in addition to Technology, Construction, Medical, Basic Materials, Consumer Staples and Utilities.
That said, the 2021 Q1 total at $415.4 billion is a new all-time quarterly record.
2021 earnings and revenues are expected to be up +28.3% and +8.8%, respectively, which follows the Covid-driven decline of -13.1% in 2020.
On an index ‘EPS’ basis, the 2021 expectation works out to $175.64, up from $136.93 per ‘Index share’ in 2020.
These full-year estimates have been going up as well.
We envision this favorable revisions trend to accelerate over the next few months as the vaccination effort reaches a critical mass and greater ‘normalcy’ returns to life.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>
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