Alphabet share price leaves Amazon in the dust after earnings
Q2 earnings disappoint for Amazon on costly Prime upgrade, while Alphabet plans $25 billion share buyback.
The reaction to earnings from FAANG (Facebook, Apple, Amazon, Netflix and Google) stocks rarely disappoint, and the dual release from tech titans’ Amazon and Alphabet (Google) resulted in a divergence in their respective share prices’ performance, with Alphabet surging nearly 10% and Amazon down less than 2%.
The catalyst for the move had to do with earnings, so let’s break down both to figure out how Google managed to outperform while Amazon lagged.
Based on figures alone, earnings per share (EPS) for the e-commerce giant came in at $5.22 and below analysts’ expectations of $5.57, upsetting five consecutive quarters of beating Wall Street’s projections. Revenue outperformed, with growth rising from the first quarter's (Q1) 17% to 20%. That revenue outperformance was due to the uptick in demand for its Prime service following an upgrade from the previous two-day shipping to a now one-day shipping. It came at a cost however, with the expensive upgrade denting profitability according to Amazon’s chief financial officer (CFO) Olsavsky. Q3 guidance was also lowered, as the company sacrificed current profits for future growth. The other key item that disappointed was its cloud service, Amazon Web Services, where revenue fell slightly short of expectations and is where the online company’s most lucrative business is located.
Despite the price drop, Wall Street analysts still recommend the tech titan, and it’s no surprise why. The trade off of profit for growth will continue to appeal to long-term investors preferring a buy-and-hold strategy that doesn’t sacrifice long-term growth for short-term gains. A lower than expected EPS in the context of long-term growth is a small price to pay.
Where Amazon disappointed, Alphabet shined, with Q2 earnings coming in at $14.21 per share and well above expectations of $11.30. In terms of revenue, it’s $38.9 billion figure also topped the $38.15 billion forecasts, with operating income rising 16% year over year to $10.4 billion, and advertising revenue within Google up 16% to a whopping $32.6 billion. Google Properties, Google Cloud, and Google Play all impressed, and strong growth in the cloud business with the aim to rival the likes of Amazon Web Services (which we mentioned previously is the company’s most profitable aspect) and Microsoft Azure.
Furthermore, stock repurchase plans always aid in lifting share prices, and a massive $25 billion certainly did the trick. The net result was a massive opening gap on Friday and finishing nearly 10% higher for the session. It also helped power the Nasdaq to a fresh record close above 8000 and keep the tech index’s bull trend technicals lighting green.
In terms of short interest, it has risen for both but remains relatively close to the lows, with the bias still relatively heavy long amongst larger investors in search of promising, consistent, and reliable returns, with both companies continuing to hold buy ratings amongst Wall Street analysts. Year to date, it’s Amazon’s stock that’s outperforming both Alphabet and S&P 500, the latter two up 28% while the former is up nearly 38% even after the retracement following its earnings announcement.
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