Update on FAAMG stocks’ recent financial results

It is that time again when all the Technology companies start to report financial results. With the FAAMG stocks accounting for approximately 25% of the overall Market Cap of the S&P 500, Wall Street investors will be keeping a careful eye on how these companies are performing. Going into this upcoming CY3Q the Street was looking for solid revenue growth in the high-single-digit to mid-teens.

Alphabet (GOOGL) -- reported revenues for 3Q22 of $57.26 Bn +6.8%. Internet ad spend rates continue to be impacted by the Ukraine conflict, macro-environment headwinds and increasing competition for advertising dollars that are now growing more slowly for Alphabet, SNAP, Twitter, Meta and Amazon and is creating an overall smaller advertising pool. According to a recent study from Winterberry Group overall spend rates for online media players are expected to slow to 16.6% in FY22, following a massive gain of 36.0% in FY21. For the 3Q22, Alphabet delivered ad revenues of $54.48 Bn, +2.5%. During its 2Q22 results, GOOGL highlighted the benefits of long-term investments in artificial intelligence and commerce. Alphabet’s GCP unit (+35.5% YoY in 2Q22) posted revenues of $6.86 Bn, +37.6% in the 3Q22, which gives strong evidence that the enterprise datacenter cloud space is still very buoyant. GOOGL’s revenue estimates have come down 1% - 3% across 2022-2024, with lower revenue at YouTube.

Microsoft (MSFT) -- posted revenues for 1Q23 of $50.12 Bn +10.6%. Software companies are calling out the more difficult macro environment. What is occurring is deal cycle elongation for the biggest/most expensive projects. This is a step one response to a more uncertain environment. During its 4Q22 report, Microsoft shares rose after the company issued a rosy income forecast for the year ahead, despite issuing quarterly results that failed to reach Wall Street consensus. Heading into the 1Q23, a broadening solution portfolio and increasing consolidation of spend enabled Microsoft to stand out within a softening macro environment. For the 1Q23, the highly watched Intelligent Cloud unit posted revenues of $20.3 Bn, +19.9%. MSFT’s top line maybe under pressure as IT budget growth expectations continue to moderate, FX becomes more unfavorable, and PC data likely pressures Windows OEM results. There are two key factors that could have made earnings a clearing event for the MSFT shares:

1. Continued strength in Azure (Cloud) – Achieved a 35% YoY growth rate, that fell shy of the projected 43% YoY growth. For the Q223 guided to high-to-mid 30%s growth.


2. Reset expectations for FX and PCs. The More Personal Computing unit may be impacted the results from a recent study by International Data Corporation (IDC), showing that shipments of traditional PCs are forecast to decline 12.8% in 2022 to 305.3 million units while tablet shipments will fall 6.8% to 156.8 million. With the shipment data weakening in both consumer and commercial segments, Microsoft likely sees mounting pressure on the Windows OEM business in FY23.