Underestimating overestimation

I know it is quite a confusing title but basically I mean there is a widespread overestimation for company earnings by Wall Street and the market is still underestimating the extent of such overestimation. So we will see more surprises moving forward that will trigger more downward drifts for the market. While I do see the budding of a newly emerging bull market that may come some time this year, I think it is way too early to think the bear market is over. I wish we will see another strong leg down in the weeks ahead with positive long term divergence to show up. This will tell us more decisively a bottom has been hit. I cannot say confidently that's the case now!

Big Tech Stocks Roll Out Their Earnings

After riding a high in investor's portfolios for many years, the FAANG stocks – Meta Platforms, Inc. (META), Amazon.com, Inc. (AMZN), Apple, Inc. (AAPL), Netflix, Inc. (NFLX) and Alphabet, Inc. (GOOG) – took a tumble in 2022. And, unfortunately, some stumbled again in the wake of their latest earnings announcements this week. Let's see how they did.

Meta Platforms, Inc. (META) – Announced Wednesday, February 1

Meta's fourth-quarter revenue declined 4% year-over-year to $32.2 billion but did beat Wall Street consensus estimates for revenue of $31.5 billion. Meanwhile, earnings per share fell 52% year-over-year to $1.76 per share, down from earnings of $3.67 per share in the same quarter of last year. On a more positive note, the monthly active Facebook users rose 2% to 2.96 billion.

During the earnings call, CEO Mark Zuckerberg took the time to address the difficulties of the past year, such as the massive layoffs in November. He emphasized his new management theme for 2023, the "year of efficiency," while focusing on what the company can do now to improve productivity, speed and cost structure. He stated:

2022 was a challenging year, but I think we ended it having made good progress on our main priorities and setting ourselves up to deliver better results this year as long as we keep pushing on efficiency. I said last quarter that I thought our product trends look better than most of the commentary out there suggest. I think that's even more the case now.

Looking to the first quarter of 2023, Meta Platforms anticipates revenue between $26 billion and $28.5 billion. Analysts were calling for revenue of $27.1 billion. The company also expects expenses to be between $89 billion and $95 billion, due to "slower anticipated growth in payroll expenses and cost of revenue." Earnings per share are forecast to come in at $2.82, down from earnings per share of $3.53 a year ago. Company management also revealed that it would increase its stock buyback plan by $40 billion.

META shares surged 18% on Thursday following its earnings announcement.

Amazon.com, Inc. (AMZN) – Announced Thursday, February 2

Amazon rounded out its fiscal year 2022 with a mixed fourth quarter. The company reported adjusted earnings of $0.03 per share, which came in below analysts' estimates for earnings of $0.15 per share. Revenue rose 7.9% year-over-year to $149.2 billion, well above analysts' projections for revenue of $145.37 billion. This compares to earnings of $1.39 per share and revenue of $137.4 billion in the same quarter of last year. Amazon Web Services (AWS) revenue increased 20% year-over-year to $21.3 billion, just shy of analysts' estimates for $21.76 billion.

Total sales for fiscal year 2022 came in at $514 billion, up 9% compared to $469.8 billion in 2021. For full-year 2023, revenue is expected to jump to $556.57 billion. For the first quarter of 2023, Amazon anticipates that revenue will rise between 4% and 8% to $121 billion and $126 billion, with growth driven by Amazon's need to make customers' lives better and easier every day. Earnings per share are forecast to come in at $1.58, down from earnings per share of $3.24 a year ago.

CEO Andy Jassy said in a statement that "in the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon."

AMZN shares fell more than 6% on Friday in the wake of its earnings results.

Apple, Inc. (AAPL) – Announced Thursday, February 2

Apple's earnings results for its first quarter in fiscal year 2023 came in at $1.88 per share, which was 3.1% below analysts' estimates for earnings of $1.94 per share. Quarterly revenue of $117.2 billion was down 5% year-over-year and missed analysts' expectations of $121.2 billion by 3.3%.

iPhone sales declined to $65.8 billion and missed Wall Street's estimates of $68.3 billion. Meanwhile, iPad revenue came in at $9.4 billion, beating estimates of $7.7 billion despite ongoing supply chain constraints.

Also important to note: Apple's revenue for its Services business, which includes music and video subscriptions and sales from its App Store, hit an all-time high, coming in at a record $20.8 billion and above analysts' expectations for $20.4 billion. For its December quarter, paid subscriptions were 935 million.

CEO Tim Cook stated, "As we all continue to navigate a challenging environment, we are proud to have our best lineup of products and services ever, and as always, we remain focused on the long term and are leading with our values in everything we do."

Apple shares fell 3% Friday morning, though they rebounded later in the afternoon.

Alphabet, Inc. (GOOG) – Announced Thursday, February 2

Alphabet, Inc. disappointed Wall Street on Thursday evening with its fourth-quarter earnings and sales. The company reported earnings of $1.05 per share and sales of $76.05 billion. Analysts were calling for earnings of $1.18 per share and $76.53 billion.

Full-year 2022 earnings of $4.56 per share were down from $5.61 per share in full-year 2021. Full-year 2022 revenue increased 10% to $282.8 billion, up from full-year 2021 revenue of $257.6 billion.

Digging a little deeper into the report… Alphabet noted a nearly 8% decrease in its YouTube advertising revenue. Google Cloud sales jumped 32% to $7.3 billion in the fourth quarter.

CEO Sundar Pichai stated, "There's great momentum in Cloud, YouTube subscriptions, and our Pixel devices. We're on an important journey to re-engineer our cost structure in a durable way and to build financially sustainable, vibrant, growing businesses across Alphabet."

GOOG shares slipped more than 3% on the heels of its weak earnings report.

Netflix, Inc. (NFLX) – Announced Thursday, January 19

A couple of weeks ago we took a deep dive into Netflix's fourth-quarter earnings. As you may recall, Netflix reported earnings of $0.12 per share, down a whopping 91% from earnings of $1.33 per share in the same quarter last year. Analysts were calling for earnings of $0.45 per share, so Netflix missed estimates by 73.3%. Revenue of $7.85 billion was up slightly from $7.71 billion a year ago. This was in line with analysts' expectations.

In a huge surprise, Netflix added 7.66 million paid subscribers in the fourth quarter – topping the company's own (and final) forecast of 4.5 million.

Looking to the first quarter of 2023, Netflix anticipates that revenue will rise 3.9% to $8.17 billion, with growth driven by more paid memberships and more money per paid membership. Earnings per share are forecast to come in at $2.82, down from earnings per share of $3.53 a year ago.

The stock jumped 7.8% on Friday on the surprising new subscriber numbers.

A Mixed Earnings Bag

As we can see, the big tech's earnings were a mixed bag. While some beat analysts' expectations, the reality is their fundamentals remain weak, as evidenced by the continued decline in earnings.

Based on the post-earnings stock moves, it's clear fundamentals still matter, which is why it's important to focus on stocks with strong fundamentals, i.e., companies that are consistently growing their sales and earnings and posting positive forward-looking guidance.

by Louis Navellier