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Zacks Earnings Trends Highlights: Microsoft, Google, Exxon Mobil and Netflix

For Immediate Release

Chicago, IL – April 29, 2021 – Zacks Director of Research Sheraz Mian says, “Total earnings for reported Tech companies are up +39.3% from the same period last year on +13.7% higher revenues, with 100% of the companies beating EPS estimates and 96% beating revenue estimates."

The Tech Sector Earnings Machine

Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

  • The picture emerging from the Q1 earnings strength is one of all-around strength and momentum, even though big slices of the economy are still dealing with the pandemic’s effects.

  • Earnings and revenue growth for the 40% of S&P 500 members that have reported Q1 results (201 index members) tracking above even this group’s pre-pandemic performance. But even more importantly, the tone and substance of guidance is favorable, which is helping sustain the favorable revisions trend that has been in place since last Summer.

  • Total earnings for the 201 S&P 500 companies that have reported Q1 results are up +49.8% on +7.2% higher revenues, with 84.6% beating EPS estimates and 76.6% beating revenue estimates. The outsized earnings growth is largely due to very strong numbers from the Finance sector.

  • For the 64.1% of the Finance sector’s market capitalization that have reported Q1 results, total earnings and revenues are up +149.0% and +8.3%, respectively, with 88.2% beating EPS estimates and 72.5% beating top-line estimates. A combination of easy comparisons and unusually strong capital markets business drove the group’s strong results.

  • Excluding the Finance sector’s strong growth, Q1 earnings growth for the remainder of the companies that have reported results would be up +23.0% (vs. +49.8%) on +7.0% (vs. +7.2%) higher revenues, which is still the strongest growth for this cohort of companies in recent quarters.

  • For the Technology sector, we now have Q1 results from 47.6% of the sector’s total market capitalization in the S&P 500 index. Total earnings for these Tech companies are up +39.3% from the same period last year on +13.7% higher revenues, with 100% of the companies beating EPS estimates and 96% beating revenue estimates.

  • Looking at 2021 Q1 as a whole, combining the results that have come out with estimates for the still-to-come companies (the ‘blended’ view), total S&P 500 earnings are now expected to be up +35.2% from the same period last year on +7.2% higher revenues, with a combination of easy comparisons and strong gains in a number of sectors giving us the growth rebound.

  • The ‘blended’ Q1 total earnings are on track to reach a new all-time quarterly record, thanks to impressive results from Finance and Technology, the two largest earnings contributors to the S&P 500 index.

  • Estimates for the current and coming quarters are steadily going up, a trend that has been in place since last Summer. We expect this favorable revisions trend to accelerate in the coming months as we start looking past the pandemic.

  • For the June quarter, S&P 500 earnings are currently expected to be up +54.7% on +15.8% higher revenues, as the year-earlier period represented the bottom of the Covid hit to earnings. The +54.7% earnings growth rate is up from +50.6% at the end of March and +41.6% at the start of January 2021.

  • The sectors with positive earnings growth in Q1 include: Finance (+94.6% earnings growth), Technology (+37.3%), Autos (+219.0%), Retail (+44.2%), Medical (+20.4%), Basic Materials (+69.8%), Construction (+53.1%), Industrial Products (+29.3%), Utilities (+5.8%), and Consumer Staples (+8.7%).

  • The weakest earnings growth in Q1 is expected to come from the Transportation (-160.8% earnings decline), Consumer Discretionary (-34.1%), as well as the Energy (-4.4%) sector.

  • Looking at the calendar-year picture for the S&P 500 index, earnings are projected to climb +28.0% on +8.7% higher revenues in 2021 and increase +13.1% on +6.3% higher revenues in 2022. This would follow a decline of -13.1% in 2020 on -1.7% lower revenues.

  • The implied ‘EPS’ for the S&P 500 index, calculated using the current 2021 P/E of 24.0X and index close, as of April 27th, is $174.17, up from $136.03 in 2020. Using the same methodology, the index ‘EPS’ works out to $196.95 for 2022 (P/E of 21.3X). The multiples have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.

  • For the small-cap S&P 600 index, we now have Q1 results from 134 index members or 22.3% of the index’s membership. Total earnings for these 134 index members are up +108.9% on +7.7% higher revenues, with 85.8% beating EPS estimates and 70.9% beating revenue estimates.

The market didn’t seem to be overly impressed with the Microsoft MSFT earnings report, when it not only beat top-and bottom-line estimates, but came out with earnings and revenue growth of +38% and +19.1%, respectively. Just to give you a sense of the magnitude of Microsoft’s earnings power, the company earned $14.8 billion in earnings on $41.7 billion in revenues.

The market was happier with Alphabet’s GOOGL results, which also beat EPS and revenue estimates and whose Q1 earnings and revenues represented year-over-year growth rates of +162.3% and +35.3%, respectively. The actual Q1 dollar amounts for Alphabet are $10.6 billion earnings on $45.6 billion in revenues.

Back in the day, we used to have this magnitude of earnings only from the likes Exxon XOM when it was operating on all cylinders and oil prices were above $100. Exxon is still a very profitable company, but it is expected to earn ‘only’ $2.5 billion when it reports its March quarter results at the end of the week.

Notwithstanding all the headlines about Netflix’s NFLX weak results, the tone and substance of the ongoing Q1 earnings season remains very positive and strong. Not only are most companies beating Q1 estimates, but they are also providing positive guidance and favorable commentary about coming periods.

The big 5 Tech companies – Apple, Microsoft, Alphabet, Amazon and Facebook – are combined expected to earn +68.6% more in Q1 on +33.5% higher revenues.

If one were to look for ‘negatives’ in the above picture, it would probably be the coming periods of deceleration in the group trend. But given the very positive revisions trend currently in place, I would hazard that estimates for the coming periods will most likely get revised higher.

These are growth rates typically associated with start-ups and much younger companies, not seasoned operators like Microsoft and Co.

The Earnings Big Picture

Looking at Q1 as a whole for the S&P 500 index, combining the actual results that have come out with estimates for the still-to-come companies, total earnings and revenues are now expected to be up +35.2% and +7.2%, respectively.

Please note that excluding the Finance sector’s hefty contribution, Q1 earnings growth for the remainder of the index would be +22.3%.

We remain positive in our earnings outlook, as we see the full-year 2021 growth picture steadily improving through the first half of the year as more of the population gets vaccinated.

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