Three Things (4/26)

"Listening was the most important thing I accomplished each day because it would build the foundation of my leadership for years to come.” - Satya Nadella, CEO of Microsoft

Big tech beats

Microsoft and Google both reported earnings after the bell on Tuesday and results were better than feared. For Google, Ad revenues outpaced expectations, cloud turned profitable and the company announced $70 billion in buybacks (yes, with a B). For Microsoft, Azure came in line, Bing daily active users impressed and the company guided expectations higher - an important signal of strength for the entire technology complex.

Heading into earnings season, investors (us included) were wondering whether we might see a decline in earnings as a result of economic instability. The Generals have once again proven themselves as a class above the rest and, for the time being, calmed fears surrounding a material slow down in earnings.

Pricing power fuels profits

Consumers are still willing to pay up for everyday goods (diapers, burgers, soft drinks, and more) according to the early results of this quarter’s earnings. This willingness is driving growth: PepsiCo raised its forecasts after increasing prices by ~13% last quarter, McDonald’s diners shrugged off higher prices as same store sales grew by more than 12%, and Procter & Gamble saw profits and sales jump following price increases of ~10%. (WSJ)

Inflated prices have yet to impact the demand side of the equation but we wonder how long this dynamic might last. Said differently, will consumers begin voting with their wallets or change their habits to say, enough is enough? A more worrying trend: rarely do companies cut prices after raising them. The silent erosion of real income may have an outsized impact on pockets of the economy for years to come.

The Louis Vuitton Don

Luxury goods giant LVMH became the first European company to surpass $500 billion in market value. Reminder: LVMH is the parent company of crown jewel assets such as Louis Vuitton, Moet & Chandon, Tiffany & Co, Givenchy and others. The company reported a 17% rise in first-quarter sales, lifted by rising prices and sturdy demand from Asia. (CNBC)

The results are thought provoking: 1. The luxury market appears to be incredibly resilient as high-end spenders continue to spend 2. It’s curious that the continent’s largest company by market cap is a cost intensive, luxury goods conglomerate. We wonder if this is revealing of the current regulatory environment for innovative technology.