implications from tech earnings +3

09:17 04-Feb-22

So much for no surprises... this morning's employment numbers were monster beats, not only for January (467K vs 180K estimated), but in the revisions for December (510K from 211K) and November (647K vs 249K).  Average hourly earnings continued to rise, but the average work week fell.  That last, at least, probably actually was attributable to the pandemic, but even so, there's still now way that wages are keeping up with inflation.  The Participation Rate and Employment Population Ratio were substantially unchanged.  This should push the Fed to further hawkishness and pressure growth stocks.

Xebec also announced a collaboration to produce helium with Air Liquide that was completely devoid of numbers.  Consequently the only way to comment on the significance is to point out that Air Liquide has  over 70x Xebec's market cap, and could be an acquirer if it likes what it sees.

As expected, Amazon earnings seem benign, but they do show 32% YoY growth in advertising and 40% growth in AWS, which is accelerating.  Despite such data, GOOG has rebounded from today's losses in after hours trading.  Equity futures are still pretty negative, but that may be due to trepidation about tomorrow's employment report.  I'd guess that any reaction will pass quickly and that GOOG will recover somewhat tomorrow.  Despite reasonable valuation, though, I see nothing to sway me from the outlook already given for a gradual decline toward pre-earnings levels, with regulatory action being a further medium term risk to Google,

That's all else being equal in the market, which I still expect to be choppy but mostly sideways for the time being.  €/$1.144 will be a drag while it lasts, and the Nasdaq index in particular may also gradually decline due to rotation out of mega-cap tech.   Barring surprises, that will be all the week.  To explain why I'll probably have little concern for the jobs reports, I'll finish with an edited quote from the White House Press Secretary, as an example of what nonsense most government numbers are:

If a worker was out sick during the week the survey was taken ... and did not receive paid leave, they are counted as having lost their job. 

Now, that is an inaccurate depiction... Because Omicron was so highly transmissible, nearly 9 million people called out sick in early January when the jobs data was being collected ...  And as a result, the month’s jobs report may show job losses in large part because workers were out sick from Omicron at the point when it was peaking ... the week where the data was taken.

On 2/2/22 12:45, Esekla wrote:

Everything I've seen in morning trade confirms my expectations.  Maybe it's coincidence that the GOOG stock split makes shares more accessible to neophyte investors just as big funds are likely to want to dump growth stocks ahead of a rising rate environment.  I continue to want yield, and I think VOD being up 4% to almost $18 in response to an underwhelming report shows that I'm not alone.  The Vantage report was slightly better, but I'm still glad I exited Vodafone shares at $19.  American natural gas has been jumping around at elevated prices between $5 and $6, and Altus looks like a MUCH better option to me, with another routine ALTM OMIB hitting the books today.

For those who think I'm being too harsh on Alphabet, I cite the PayPal's modest headline miss and the 25% decline in its shares as evidence of the danger of broken growth stories in this environment.  Google isn't there yet, but the trailing data presented isn't evidence to the contrary.  I think the market will gradually fade GOOG gains, and further tumbles may lie in wait as antitrust and customer service issues continue to manifest.  The only growth shares I want to own right now are BGCP, HIMX, and VIRT.  Even that last is primarily a market hedge at prices near $31, but I will be increasingly wary of market rebounds going forward in the face of inflation.

On 2/2/22 01:59, Esekla wrote:

Amdocs reported on its fiscal first quarter:

• $1.20 of EPS beat by 2 cents
• from $1.1b of revenue, which was in line
• quarterly dividend increased to 39.5 cents with March 30th as the next ex-date
  
• guides 2Q22 to $1.25+/-0.03 from $1.13b of revenue, missing by 5 cents from in line sales

From a technology standpoint, the most interesting of this month's spate of this quarters spate of announcements is a CBRS deal with Samsung America.  This dovetails with major network launches and Akoustis comments.

Some of the guidance miss is dollar strength, but that has rebounded from the strength I noted almost back to €/$1.13 supporting the late day rally.  Analyst questions showed that they are joining me in being wary of wage and competitive pressures, though.  They certainly should be, due to this line in the ISM Manufacturing report:

The Prices Index registered 76.1 percent, up 7.9 percentage points compared to the December figure of 68.2 percent.

That's our best forward look at inflation, and it supports my view that it will continue to outpace wages and corporate earnings.  AMD projecting increased server demand with its strong report also points to businesses spending more than consumers.  That should be the kiss of death for Intel, and it is ultimately unsustainable at a macro level.  Thus, for the short term, I think we can expect analysts to flog the Alphabet report which came in above headline numbers, as expected:

• $30.69 of EPS beat by $3.11
• from $75.3b of revenue, which beat by $3.1b
• 20 for 1 stock split with a June 30th ex-date

Even here there are signs of long term trouble, though.  Google's rigged advertising monopoly drove the beats in an unusual, pandemic economy.  It seems clear to me that monopoly will be broken up and I suspect that as the world reopens and people get back out into reality, the backlash will continue over how horribly Google executes on its stated goal

to organize the world's information and make it universally accessible and useful.

If we changed "world's information" to "internet content" it would be somewhat closer, but the world is full of information which is NOT digitized.  More to the point, though, I see what Google shows on search results as having become utterly warped by a reliance on big business and ad spend, regardless of what management says.

As for the other segments, Google Cloud revenue grew 45% YoY, but slowed slightly on a sequential basis.  Bloomberg noted it does not seem to have enough momentum to overtake Amazon or Microsoft, despite my long term outlook from years ago.  I note that it still shows an operating loss.  YouTube also seems to be falling behind other major content providers.  Pixel phones also hit a quarterly sales record, though I'll never buy one again due to complete lack of support, which is in marked contrast to the Polestar experience.  That brings me full circle... Analysts were more veiled with their inflation related questions here, and management conceded elevated headcount after having touted increased investment in machine learning; I see corporate brain drain.

That won't hurt Alphabet results immediately, and it seems likely that the financial community is set to try to push market leverage up again.  However, there is limited headroom for that and the real economy is not looking likely to cooperate over the medium to long term.  GOOG rose 10% after hours, yet American equity futures were curiously stagnant.  I'll be watching closely as real trading proceeds and am likely to follow up.