All five U.S. tech giants reported this past week. Here’s a look at some disclosures from the companies’ earnings reports and calls that stood out for me.
1. Reopening Are More of a Tailwind for Apple Than a Headwind
Driving much of Apple’s (AAPL) $8 billion June-quarter sales beat: iPhone revenue rose 50% annually to $39.6 billion, beating consensus by over $5 billion. In addition, Services revenue increased 33% to $17.5 billion and beat consensus by over $1 billion, and Wearables, Home and Accessories segment revenue advanced 36% to $8.8 billion, beating consensus by nearly $1 billion.
As CFO Luca Maestri indicated on Apple’s call, iPhone and Apple Watch sales benefited from (amid vaccine rollouts and the easing of pandemic restrictions) consumers getting out of their homes more — including to make trips to Apple Stores. And within the Services segment, AppleCare purchases got a boost from greater Apple Store foot traffic, while higher online ad spend boosted Google’s search ad revenue (and with it, Apple’s share of Google search ad revenue involving the Safari browser).
Also: While iPad and Mac sales growth cooled off relative to recent quarters — not surprising, given how notebook and tablet sales have benefited from greater remote work and learning activity — they each still grew at a double-digit annual clip, and would have grown faster if not for supply constraints.
2. AWS Arguably Had Its Best Quarter in a While
Though Amazon.com (AMZN) missed second-quarter sales estimates, AWS doesn’t deserve any blame for this. The public cloud giant saw revenue grow 37% annually (its highest growth rate in two years) to $14.81 billion, beating consensus by more than $500 million.
Moreover, AWS’ contract backlog rose 15% sequentially and 48% annually to $60.7 billion, with its weighted-average long-term contract length rising to 3.6 years from the first quarter’s 3.3 years. On Amazon’s call, CFO Brian Olsavsky indicated AWS has seen pickup in cloud migrations, as businesses reconsidered during the pandemic whether they want to run their own data centers.
AWS’ 2022 revenue consensus stands at $76.1 billion, and that number might prove conservative given AWS’ recent backlog growth. If AWS was to generate, say, $80 billion in revenue next year and AWS was given a 10x sales multiple on that figure (less than what many high-growth cloud names currently receive), the business would be worth $800 billion, or nearly 45% of Amazon’s current market cap. Food for thought.
3. Facebook Thinks Instagram Reels Can Become a Top-Line Growth Driver
On Facebook’s (FB) call, Mark Zuckerberg disclosed Instagram’s Reels short-form video service/TikTok rival is now the largest contributor to Instagram’s engagement growth. Later, COO Sheryl Sandberg added that Reels, which only launched in August 2020 and only introduced ads in mid-June, is now running ads in nearly all of the markets in which the service has launched.
Sandberg also suggested that in time, Reels ads should prove as popular as Instagram’s now-quite-successful Stories ads.
“It’s a pretty similar format to Stories [ads],” she said. “It’s full screen and in between Reels videos [of] up to 30 seconds. We think it’s a pretty natural fit in Reels. It’s a really great discovery surface. And we’re seeing engagements and effectiveness parallel to some of our other products…It’s still early, but we think this has a lot of potential.”
4. YouTube’s Ad Business Is Firing on All Cylinders
After growing 49% annually in the first quarter to $6 billion, Alphabet’s (GOOGL) YouTube ad sales rose 84% annually in the second quarter to $7 billion, beating consensus by more than $600 million. An easier annual comparison contributed to this acceleration in growth, but so did soaring advertiser demand.
Much like AWS, YouTube is benefiting from how businesses have been rethinking how to do things in recent months, as brand advertisers choose to direct more of their video ad spend towards online services relative to traditional TV. In addition, YouTube is now seeing a bigger payoff from its years-long efforts to flesh out its direct response ad business.
“Nielsen found that U.S. advertisers who shifted just 20% of spend from TV to YouTube generated a 25% increase to the total campaign reach within their target audience while lowering their cost per reach point by almost 20%,” said chief business officer Philipp Schindler on Alphabet’s call. The video ad strength that YouTube is seeing might bode well for the top-line numbers set to be shared by Roku (ROKU) and The Trade Desk (TTD) , which respectively report on Aug. 4 and Aug. 9.
5. Microsoft’s Dynamics App Business Has Hit an Inflection Point
Thanks to 49% annual sales growth for its Dynamics 365 cloud apps, Microsoft’s (MSFT) Dynamics business app franchise registered 33% annual sales growth in the June quarter. That’s respectively up from 26%, 21%, 19% and 13% in the prior four quarters.
And it looks like the good times are set to continue: On Microsoft’s call, CFO Amy Hood guided for high-20s September quarter Dynamics revenue growth, and Microsoft has a history of guiding conservatively.
Strong momentum for Microsoft’s Power Apps developer tools and Power Automate workflow automation tools (they’re counted under Dynamics 365 revenue) contributed to the growth. CEO Satya Nadella disclosed the number of organizations using Power Apps more than doubled annually.
Nadella also argued that Microsoft’s efforts to tightly integrate Dynamics 365 apps addressing business functions such as sales, marketing, customer service and supply chain management are paying off. And he added that Dynamics’ integration with Teams and Microsoft’s business process automation tools (such as Power Automate) is increasingly a selling point.
“[You] do not want to have a system of record for anything, whether it is a customer or a part or a forecast, that you don’t want to collaborate on, that you don’t want to communicate on,” he said. “I think tracking what’s happening with Power Platform, Dynamics and Teams…and its intersection to even some of our data layers in Azure, is perhaps the best indication of some of our competitive differentiation at scale already.”
(AAPL, AMZN, FB, GOOGL and MSFT are holdings in Jim Cramer’s Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
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