Microsoft & Tesla Rise While Facebook Falls (On Earnings)


Microsoft’s Blowout Earnings

It was yet another great earnings report for Microsoft which continues to fire on all cylinders. This was Microsoft’s 2Q 2020. The firm reported EPS of $1.51 which destroyed estimates for $1.32. Revenues were $36.91 billion which beat estimates for $35.68 billion. 

Revenues were up 14% yearly. Its stock is up 63% in the past year. That’s partially because it’s stock, like most, was too cheap last year. It had a nice combination of earnings and multiple expansion. As a result of this quarter, its stock rose 4.14% after hours.

As you can see from the chart below, the firm’s revenue growth was driven by Azure which had 62% growth. That’s an uptick from last quarter’s 59% growth. And, as it gets larger, its growth is falling. Anytime growth increases, it’s a great sign. 

Goldman Sachs expected 58% growth, making this a 4 point beat. Biggest win for Azure this past quarter was the $10 billion (over a decade) contract with the U.S. Department of Defense. Furthermore, Salesforce is using Azure to run its Market Cloud service.

Intelligent Cloud segment which includes Azure, GitHub, SQL Server, and Windows Server and enterprise services had 27% revenue growth which brought it to $11.87 billion. Its largest segment, More Personal Computing, includes Windows, Surface, Xbox, and Bing. This only had revenue growth of 1.6% as it reached $13.1 billion. 

Xbox hardware revenues fell 43% as consumers await its next generation Xbox Series X product which will come out during the 2020 holiday season. Productivity and Business Processes revenue growth was 17% as it reached $11.83 billion. This segment includes LinkedIn, Office, and Dynamics.

The firm issued great guidance which is partially why its stock rose after hours. It expects $34.5 billion in Q3 revenue which is 13% growth and beat estimates for $34.14 billion. Because of its favorable product sales mix in 1H 2020, the firm raised full year operating margin guidance by 2% to 36%. Microsoft is a long term winner as it takes cloud market share from Amazon.

Facebook Crashes After Hours

Facebook stock crashed 6.96% after hours as the firm’s cost growth caused its operating margins to fall. Costs and expenses rose 51% in 2019 as the were $6.71 billion. That dropped operating margins from 45% in 2018 to 34% in 2019. The firm has been on a spending binge to make its platform more safe and secure. 

Problem is these are long term spending programs. I don’t see its operating margin widening back to where it was before the 2016 presidential election. This coming election is critical to keeping its users happy and avoiding any restrictions/fines from the government.

The firm reported EPS of $2.56 which beat estimates by 3 cents. It reported revenues of $21.08 billion which beat estimates for $20.89 billion. As you can see from the chart below, the firm had 24.7% revenue growth which was its lowest growth rate as a public company. 

It was the 4th straight quarter it had below 30% revenue growth. This secular growth firm is likely feeling the heat of the cyclical slowdown. Look for revenue growth to increase in 2020 as the economy recovers.

Big blue app, Facebook’s namesake, had 1.66 billion daily active used which beat estimates by 10 million. As you can see from the chart below, Facebook’s average revenue per user rose to $8.52 which beat estimates for $8.38. The firm announced a $10 billion buyback program. It might buyback stock during this fall related to this earnings report. Its family of apps which includes WhatsApp, Instagram, and Messenger along with its namesake have 2.89 billion monthly active users which is up from 2.8 billion. 

Facebook released a new metric which is average revenue per user in its family of apps. Its family ARPU was $7.38. That means the ARPU of the non-namesake apps is much below that of Facebook. It’s probably the lowest for Messenger and WhatsApp.  

Tesla Stock Is On Fire

Tesla has been one of the best big cap stocks of the year. This latest quarterly release will only add fuel to the fire. The firm reported EPS of $2.14 which beat estimates for $1.72. Revenues were $7.38 billion which beat estimates for $7.02 billion. Gross margins fell slightly to 22.5%. 

As you can see from the chart below, operating free cash flow and free cash flow have been positive for 3 straight quarters. Its vehicle deliveries have been exploding. In 2020, the firm stated it should “comfortably exceed 500,000 units.” Model Y sales will start in the next few months. Production has already started.

The firm’s solar business deployed 54 megawatts of power which was up 26% from last quarter. It had revenues of $436 million. The firm expects solar and energy storage deployments to rise 50% in 2020. Its services and other business had $580 million in revenues. Store and services locations were only up 13% yearly.  Its mobile service fleets increased 3% from last quarter. 

Slow growth in these areas helped boost profitability. It had 10% sequential growth in the number of Supercharger stations to 1,821 and a 34% yearly increase in individual connectors which brought the total to 16,104. Obviously, even though the company looks to be doing well, there is a lot of risk this year. Customers might not like Model Y as much as expected. Personally, I think it will sell very well. Its stock is another beast as its valuation makes me balk.


Microsoft reported an amazing quarter and is still a clear buy. I also think Facebook is a long term winner. It should successfully deal with the 2020 election given how much money it has spent on security and safety. 

As you can see from the chart below, it trades at a discount to the market just like Apple used to. I think the Model Y will have strong sales. Obviously, Tesla’s valuation is a whole different story as speculators continue to bid it up. The stock rose 11.62% after hours on its great report.

The post Microsoft & Tesla Rise While Facebook Falls (On Earnings) appeared first on Theo Trade.

Source: First Rebuttal

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