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Big Tech has made earnings look better, but here come Disney and PayPal


Most of the first-quarter earnings blizzard has passed, and the results, overall, haven’t been as bad as expected — thanks in large part to the nation’s biggest tech companies: Apple Inc., Amazon.com Inc. and Microsoft.

The S&P 500 index
SPX,
+1.85%

has largely moved sideways over the past few weeks, as markets try to stomach concerns about a brittle regional-banking ecosystem and the Federal Reserve’s efforts to navigate the economy through rising prices and past the threat of a recession. But more of the companies that make up that index are turning out stronger-than-normal results.

“At this late stage of the Q1 2023 earnings season, S&P 500 companies are recording their best performance relative to analyst expectations since Q4 2021,” FactSet Senior Earnings analyst John Butters said in a report on Friday. “Both the number of companies reporting positive EPS surprises and the magnitude of these earnings surprises are above their 10-year averages.”

The fourth quarter of 2021 was when markets started to turn sour, and Wall Street’s expectations were subdued heading into the first quarter of this year. Still, with 85% of S&P 500 companies having reported quarterly results so far, 79% of those have reported a per-share profit that has topped Wall Street’s expectations. That’s above the 10-year average of 73%.

The results so far represent a 2.2% earnings decline for the quarter, according to the FactSet report. If they hold, they would mark the second straight quarter where per-share profits fell, and the predicted earnings recession. But that 2.2% figure is better than expectations for a 6.7% earnings drop Wall Street expected for the first quarter at the end of March.

Companies in the Information Technology sector helped lead the charge for the better-than-expected first-quarter results. Butters said that within that sector, results from Apple
AAPL,
+4.69%
,
Microsoft
MSFT,
+1.72%

and Intel
INTC,
-0.80%

were “substantial contributors” to mitigating that sector’s decline in earnings.

“As a result, the blended earnings decline for the Information Technology sector improved to -10.6% from -15.1% over this period,” Butters said.

Elsewhere, results from Amazon
AMZN,
+1.59%
,
Ford Motor Co.
F,
+3.72%

and General Motors Co.
GM,
+4.95%

have buoyed the results of consumer discretionary consumer discretionary companies. Butters said that results from those companies helped push the blended earnings growth rate for that segment — or actual results combined with estimated ones for companies that still have to report — to 53.6% from 33.8%.

The swings underscore the tech giants’ outsize influence on quarterly earnings and the index overall, as those companies look for firmer footing after the pandemic led to an explosion in digital demand that later faded.

Apple’s results benefited from a surprise gain in iPhone sales, while Microsoft’s bolder-than-anticipated forecast lifted its stock following strong sales gains in its cloud business. Intel still reported a massive loss, but the results overall surpassed estimates. Amazon’s results also beat estimates. However, the stock took a hit after its chief financial officer warned of a slowdown in cloud revenue.

This week in earnings

For the week ahead, 32 S&P 500 companies will report quarterly results, including one from the Dow Jones Industrial Average, Walt Disney Co.
DIS,
+3.15%

Videogame companies are some of the most prominent this week, with developer Electronic Arts Inc.
EA,
+1.14%

following up layoffs and disappointing results while executives decide whether to delay or pull the plug on some game releases. Also due this week is Roblox Corp., monetization engines Unity Software Inc.
U,
+6.61%

and AppLovin Corp.
APP,
+3.25%

Also on the docket are Tyson Foods Inc.
TSN,
+0.93%
,
as customers look for more relief at the grocery store from price increases that helped boost the food industry’s sales and profit. Fast-food chains Wendy’s Co.
WEN,
+2.68%

and Krispy Kreme Inc.
DNUT,
+1.42%

also report, amid some signs that restaurants might back off of similar price increases, but other signs that restaurant prices haven’t eased as much as grocery prices.

Robinhood Markets Inc.
HOOD,
+4.36%
,
Beyond Meat Inc.
BYND,
+0.62%

and Charles Schwab Corp.
SCHW,
+3.95%

also report.

The calls to put on your calendar

Lots of media companies, lots of distress: Hollywood writers are on strike for the first time in some 15 years, threatening to grind production to a halt and leave viewers with a lot more reruns. Digital-media outlets that were once the envy of the industry are reckoning with layoffs and closures after years of aggressive growth. Executive commentary on earnings calls during the week — from the likes of Disney, Endeavor Group Holdings Inc.
EDR,
+1.50%
,
BuzzFeed Inc.
BZFD,
-5.15%

and the New York Times Co.
NYT,
+2.46%

— could address what the industry might look like ahead after steep retrenchments.

Those results will arrive as investors shift their focus from growth to profitability after a decade’s worth of chasing news traffic and streaming subscriptions. Following the explosion of digital demand during the pandemic, more questions have also been raised over how much the digital economy values, or devalues, the writers and reporters at its foundation.

The results from BuzzFeed and the New York Times will follow the shutdown of BuzzFeed news, layoffs at outlets like Vice Media and Insider, the cancellation of “Vice News Tonight,” and a widening financial divide between the biggest news sites and smaller ones. While shares of BuzzFeed have plunged 88.4% over the past 12 months, the New York Times’ are up 11.7% over that period.

While it still depends on the craziness of election cycles for subscribers, the New York Times consists of its namesake news outlet, Wirecutter and the Athletic, as well as games and recipes. But even as consumers grow more cautious on spending, JPMorgan analysts recently said they were expecting the company to raise its prices.

“The decision to take price on news we think reflects NYT’s confidence not only in the stand-alone value of its product — even in a period of economic softness — but also in its bundle strategy, as some subscribers may opt for All-Access because of the relative value,” the analysts said in a note in March.

Meanwhile, results from Disney and Endeavor — Hollywood mogul Ari Emanuel’s entertainment conglomerate — could yield more detail on how both companies are navigating a potentially larger work stoppage, after the union representing TV and film writers went on strike following an impasse with studios over pay and protections for streaming and concerns about being replaced with AI. Disney CEO Robert Iger will have even more issues to discuss, including dueling lawsuits with the state of Florida and layoffs that have been rippling through the media giant.

The number to watch

PayPal and consumer spending: Payments platform PayPal Holdings Inc.
PYPL,
+4.40%

reports quarterly results on Monday, ahead of leadership changes at the top and in-limbo online spending. The results will be a proxy for consumer spending overall, after e-commerce demand surged and then faded through the pandemic.

Earnings Outlook: PayPal seems on track to ‘clear a low bar.’ Is that enough to help its stock?

PayPal could also face more questions about its future during its earnings call, after Chief Executive Dan Schulman in February said he planned to retire from the company at the end of the year. BofA analysts, in a research note last month, said further detail on Schulman’s successor in the months ahead would be a key focal point, after the stock, a steady gainer for years, shed a good chunk of those increases in 2021. The analysts added that “we continue to believe that tech product development / deployment needs to be a core skill set of the new leader.”



This story originally appeared on Marketwatch

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