Earnings season is in full swing with over 20 percent of the S&P 500 companies reporting this week. Of the 49 percent of companies that have reported so far, 86 percent have beat the market consensus as of the market close on Thursday as measured by Bloomberg’s S&P 500 Positive Surprises Index.
However, not all companies have reported great numbers as can be seen by Facebook. The company did beat on adjusted earnings per share by 4 percent but missed on revenue by ¾ of a percent and lowered their guidance for the next quarter.[1] The Cambridge Analytica scandal is said to have caused users to shy away; Facebook calculated it had 1.47 billion daily users in June but missed the 1.48 billion analysts were expecting.[2]
Facebook closed 19 percent down on Thursday, the worst trading day in its history. This caused the market value of the company to decrease by almost $20 billion and now is the largest single day market cap decline in history. This drop prompted us to ask the question; How big of a loss is it really? To give some perspective, with the amount of money lost in market capitalization in just one day from Facebook, you could have bought three iconic U.S. companies: Harley-Davidson, Caterpillar and General Mills.
On the other spectrum, Amazon, a holding for some Surevest clients in our Core Strategies, reported better-than-expected adjusted earnings in the second quarter of the year. Amazon’s cloud-computing division reported revenue growth of 49 percent, beating the first quarter growth. The other business units, that is mostly comprised of advertising sales, increased by 129 percent, just shy of the first quarter growth. Amazon was up a couple of percentage points in Thursday’s after-hours trading.[3]
The Week Ahead
Next week will be another important week as two of our Core Strategies holdings report; Avalon Bay Communities is expected to report on Monday after-market and Apple will report after Tuesday’s normal trading day. The economic calendar will also be busy with Pending Home Sales released on Monday and the ISM Manufacturing PMI released on Wednesday.
Disclosure:
This is not an endorsement of any security mentioned. Please consult with your financial advisor for investment advice. As of this writing, some Surevest model portfolios and some employees own AMZN, GIS & AVB mentioned in this article.
-Luis Galdamez, CFA®, CFP®
Director of Research and Trading
Surevest Private Wealth
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[1] “Facebook’s user growth is showing signs of stalling out (FB): Bloomberg
[2] Facebook Revenue, User Growth Miss Estimates as Scandal Hit: https://www.bloomberg.com/news/articles/2018-07-25/facebook-revenue-user-growth-miss-estimates-as-scandals-pile-up
[3] Amazon Profit Tops Analysts’ Estimates on Cloud, Advertising: Bloomberg
