As investors continue to digest last week’s Reddit-fueled volatility, they will also look this week to the regular cadence of quarterly earnings reports and economic data.
Facebook’s (FB) results last Wednesday offered a mixed picture of the internet advertising landscape against the ongoing pandemic. The company’s fourth-quarter advertising revenue handily topped estimates, though the company noted “significant uncertainty” remained over the trajectory of its ad business heading into 2021. While Facebook’s social media ad business is not a perfect analogy to Alphabet’s search-driven ad business, the results suggested a still-strained environment for online advertisers with the virus still inflicting disruptions across business customers.
Analysts are looking for Alphabet to report accelerating revenue growth in its fiscal fourth quarter versus the third quarter, as improving operating conditions for its advertising customers helped boost results at the end of the year. Consensus analysts are looking for sales, excluding traffic acquisition costs, to grow 18% to $44.16 billion, versus the 15% growth posted in the third quarter.
“Our checks with SEMs [search engine marketers] suggest search spending accelerated from 3Q to 4Q,” JPMorgan analyst Doug Anmuth wrote in a note last week.
“Certain verticals heavily affected by COVID-19, including travel that we believe represented 10-15% of search revenue prior to the pandemic, likely remained challenged throughout 4Q given resurgence and related shutdowns,” he added. “We believe recovery in these verticals will happen through ’21 as consumers continue to get vaccinated, driving further acceleration in ad revenue.”
Other smaller areas of Alphabet’s business have been growing strongly. Google’s Cloud business grew revenues nearly 45% year-over-year during the third quarter, ticking up slightly from the previous quarter’s 43% growth. And last quarter, Alphabet CEO Sundar Pichai announced Google would break out Google Cloud’s operating profit for the first time ever in fourth-quarter results, offering a glimpse at the return the company received after years of investment to compete with cloud leaders like Amazon’s AWS and Microsoft’s Azure.
“Following years of heavy investment in Google Cloud, we believe Cloud around breakeven or marginally profitable would show both profitability path for Cloud and margin stabilization/expansion potential for the remainder of the Google Segment,” Anmuth said.
Meanwhile, e-commerce behemoth Amazon is likely to report another blockbuster quarter amid the accelerating shift to online shopping during the pandemic. The company will likely post its first-ever quarter doing more than $100 billion in revenue, which would bring full-year 2020 revenue to a staggering $379 billion.
While retail sales across the U.S. scaled back across most consumer categories in the final months of the year, sales at online retailers remained robust. Government data showed that in December, U.S. non-store retailers — or e-commerce platforms — grew sales 19% over the same month in 2019.
“Thematic data points we have gathered throughout 2020... collectively point to consumers globally becoming increasingly comfortable purchasing online every day as opposed to every now and then,” Credit Suisse analyst Stephen Ju wrote in a note last week. “These factors amount to the following near to long-term potential implications for Amazon: 1) upside to GMV [gross merchandise value] estimates in 2021 and beyond ... and 2) moderating customer acquisition/retention costs as greater purchase frequency reinforces Amazon/Prime brand.”
But while sales likely soared yet again over the fourth quarter and holiday shopping season, Amazon has also vowed to funnel even more capital back into the business to sustain its growth and increase safety for its workers during the pandemic. Amazon said its operating income in the fourth quarter would come in between $1.0 billion and $4.5 billion, when factoring in costs of about $4.0 billion in costs related to COVID-19. That compares to operating income of $3.9 billion in the fourth quarter of 2019. And Amazon’s estimated costs doubled from the $2 billion it said it would spend on COVID-related expenses in the third quarter of 2020.
January jobs report
On Friday, the U.S. Labor Department’s January jobs report will likely show that the economy resumed adding back payrolls at the start of 2021, after a dip in hiring in December.
Consensus economists expect to see the unemployment rate hold steady at 6.7% for a third straight month and a modest rise in non-farm payrolls. Specifically, economists anticipate non-farm payrolls rose by 58,000 in January, after declining by a net 140,000 in December. That had marked the first drop since April, as a resurgence in coronavirus infections around the holidays coupled with weakening hiring trends during the winter. And as of December, employment was still 9.8 million below its pre-pandemic levels from February of 2020, after even seven straight months of payroll gains failed to fully recover the jobs lost at the worst points of the pandemic.
By far the biggest contributor to the December drop in payrolls had services sector employees, as leisure and hospitality industries shed a net 498,000 jobs in the final month of 2020. This phenomenon may be reflected again in January before alleviating in the coming months, as funds from the latest $900 billion fiscal stimulus package and broadening vaccine-conferred immunity to COVID-19 percolated through the economy.
“We estimate that non-farm payroll employment was broadly unchanged in January, but the recent fiscal support and drop-back in new virus cases suggest the labour market recovery will resume soon,” Capital Economics senior U.S. economist Andrew Hunter said in a note Thursday. “Excluding leisure and hospitality, employment in most other industries continued to rise in December and the early signs are that continued in January.”
Initial jobless claims during the survey week for the non-farm payrolls report suggests some downside risk to the January report, however. During the survey week, or the week including the 12th of the month, first-time unemployment claims spiked above 900,000, closing back in on levels not seen since August. But at the same time, continuing claims and claims for federal pandemic-era unemployment benefits also retreated, suggesting some reentrants into the workforce during the month.
“Since the beginning of the January NFP [non-farm payrolls] survey period, continuing claims in regular state programs, PEUC [Pandemic Emergency Unemployment Compensation] and extended benefits have declined 160k, consistent with our view that the labor market likely stabilized in January,” Nomura Chief Economist Lewis Alexander wrote Thursday.
Monday: Warner Music Group (WMG) before market open
Tuesday: Alibaba (BABA), McKesson (MKC), ConocoPhillips (COP), SiriusXM Holdings (SIRI), Harley-Davidson (HOG), UPS (UPS), Pfizer (PFE), Marathon Petroleum (MPC), Exxon Mobil (XOM) before market open; Amgen (AMGN), Alphabet (GOOGL), Match Group (MTCH), Amazon (AMZN), FireEye (FEYE), Electronic Arts (EA), Chipotle Mexican Grill (CMG) after market close
Wednesday: Apollo Global Management (APO), AbbVie (ABBV), Humana (HUM) before market open; Qualcomm (QCOM), Align Technology (ALGN), IAC (IAC), eBay (EBAY), PayPal (PYPL), GrubHub (GRUB), Qorvo (QRVO), Allstate (ALL) after market close
Thursday: Merck (MRK), Bristol-Myers Squibb (BMY), The New York Times (NYT), Tapestry (TPR), Clorox (CLX), Cigna (CI), Ralph Lauren (RL), Phillip Morris (PM) before market open; Zendesk (ZEN), Prudential Financial (PRU), GoPro (GPRO), Activision Blizzard (ATVI), Snap (SNAP), Gilead (GILD), Pinterest (PINS), Peloton (PTON), Ford (F) after market close
Friday: Regeneron Pharmaceuticals (REGN) before market open
Monday: Markit US manufacturing PMI, January final (59.1 expected, 59.1 in prior print); Construction spending month-over-month, December (0.8% expected, 0.9% in November); ISM Manufacturing, January (60.0 expected, 60.7 in December)
Tuesday: Wards total vehicle sales, January (16.10 million expected, 16.27 million in December)
Wednesday: MBA mortgage applications, week ended January 29 (-4.1% during prior week); ADP employment change, January (50,000 expected, -123,000 in December); Markit US Composite PMI, January final (58.0 in prior print); Markit US services PMI, January final (57.5 in print print); ISM Services Index, January (56.8 expected, 57.7 in December)
Thursday: Challenger job cuts, year-over-year, January (134.5% in December); Initial jobless claims, week ended January 30 (847,000 during prior week); Continuing claims, week ended January 23 (4.771 million during prior week); Factory orders, December (1.0% expected, 1.0% in November); Durable goods orders, December final (0.2% in prior print); Durable goods orders excluding transportation, December final (0.7% in November); Non-defense capital goods orders excluding aircraft, December final (0.6% in prior print); Non-defense capital goods shipments excluding aircraft, December final (0.5% in prior print)
Friday: Change in non-farm payrolls, January (50,000 expected, -140,000 in December); Unemployment rate, January (6.7% expected, 6.7% in December); Average hourly earnings, month-over-month, January (0.3% expected, 0.8% in December); Average hourly earnings, year-over-year, January (5.0% expected, 5.1% in December); Labor force participation rate, January (61.5% in December); Trade balance, December (-$66.5 billion expected, -$68.1 billion in November); Consumer credit, December ($12.500 billion expected, $15.274 billion in November)
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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