Friday, Jul 31st 2020

Q2 Earnings Blowout: Apple, Amazon, Facebook, Google


  • Thursday marked a big earnings day for the Titan portfolio, with four portfolio holdings each reporting earnings after hours.
  • Strong results were reported across all four companies, with three rising more than 5% after hours.
  • Key takeaways from each earnings report are below.

Apple: Strong hardware sales and a stock split

  • Apple rose 6% after exceeding analyst revenue and profit estimates by 14% and 26%, respectively. Despite COVID-related headwinds, the company was able to grow revenue by 11% year-over-year and book its best fiscal third quarter in history.
  • This outperformance was largely driven by strength across of its entire range of hardware products, from iPads to wearables.
  • We believe increased consumer reliance on Apple's hardware products (driven by work-from-home and shelter-in-place dynamics) helped offset the impact of COVID-related store closures and supply chain disruptions throughout the quarter.
  • The company also announced a stock split (the fifth in its history) that would effectively split each individual share of its stock into four.
  • This move is primarily aimed at making individual shares (which now approach $400 territory) more accessible for individual investors to invest in.

Amazon: International segment drives massive profit beat

  • Amazon rose 5% after exceeding analyst revenue and profit estimates by 9% and nearly 600%, respectively, despite incurring over $4 billion of COVID-related expenses through the quarter.
  • We believe the huge beat on EPS (which nearly doubled its prior year number and at over $10, breezed past analysts' $1.50 estimates) points to the strong operating leverage inherent in Amazon's heavy fixed cost model.
  • While analysts had projected growing losses on Amazon's more emerging international segment, surging demand in key international markets led to higher utilization of its fulfillment capacity, driving the segment to profitability in the quarter.
  • Management remarked seeing many of the same trends they witnessed in the U.S. previously in key international markets, such as more frequent Prime purchases and larger order/basket sizes.
  • While Amazon will likely continue to invest and expand its international capacity to accommodate further growth, we saw this as a strong signpost of the ultimate end-game for Amazon's long-term growth playbook.

Facebook: Solid traction on new business services

  • Facebook rose 6% after exceeding revenue and earnings estimates by 8% and 30%, respectively.
  • The company saw its monthly active users grow nearly 4% vs. the prior quarter as social distancing measures drove increases in user activity across its properties.
  • Despite this, management baked healthy conservatism into its financial outlook and guided for flat to slightly down active user counts in Q3 in anticipation of easing sheltering in place dynamics.
  • We were particularly pleased to hear the management's commentary around its nascent non-advertising focused product offerings, with Facebook Shops starting to gain traction and Whatsapp Business now boasting 50 million customers (up from 5 million last year).
  • We see these initiatives as very additive over the long-run as Facebook evolves from having a primarily advertising-focused toolkit to encompass a broader set of digital services and tools for businesses of all sizes.

Google: Steady recovery in search and strong cloud growth

  • Google rose 1% after exceeding revenue and earnings estimates by 3% and 28%, respectively.
  • Through the quarter, the company reported seeing month-over-month improvement in its Search business, which began the quarter down mid-teens year-over-year, but slowly recovered as search patterns returned to more commercial topics.
  • Despite the topline headwinds, we were pleased to see management continue to invest heavily in key growth segments like Cloud, which grew 43% year-over-year as large customers continued to make new multiyear commitments to the platform.
As of this writing, AAPL, AMZN, FB, GOOG were a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
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