Superb figures from Alphabet and Microsoft leave Tesla in the shade
Both Google-owner Alphabet and software titan Microsoft beat market expectation with their latest quarterly earnings.
The performance helped to boost global stock market sentiment and demonstrated that despite the rotation out of growth into value stocks, areas of the technology growth space remain operationally buoyant in the wake of the pandemic.
Results from Alphabet were particularly impressive with earnings way ahead of forecasts. The digital shift has accelerated across a variety of sectors helping online advertisements, where Alphabet is the market leader, to take a greater share of the overall global advertising spend.
This means the company is well positioned as economies recover and spending on advertising begins to increase. In the first three months of 2021, advertising revenue from Alphabet-owned YouTube was up 50% year-on-year and overall, the group saw its strongest earnings growth in eight years.
Alphabet’s reliance on advertising is reflected in the fact that it accounted for 81% of first quarter revenue. The risk is that such outstanding results will catch the eye of policymakers and regulators in the US and increase the clamour to put checks on the company’s power and influence as it faces up to monopoly lawsuits from several different parties including the US government.
REINVENTION OF MICROSOFT CONTINUES
Growth in cloud computing as businesses have had to show flexibility amid Covid restrictions helped Microsoft to a smaller but still material beat of earnings estimates.
In the run up to the numbers the company had been on the acquisition trail, buying speech recognition technology Nuance Communications for $16 billion earlier in April and gaming play Zenimax for $7.5 billion in October 2020.
This shows the reinvention of the business under Satya Nadella is set to continue. Since taking over in 2014, Nadella has helped revive the fortunes of a company which had lost its way after dominating the personal computing explosion of the 1980s and 1990s, and made the business fit for the 21st century. Since his appointment the share price has increased nearly seven-fold.
While quarterly earnings from Tesla on 28 April of 93c per share were also well above Wall Street’s forecast of 80c the market reaction was negative, reflecting the fact this was a poor-quality beat driven by sales of environmental credits and bitcoin, and not cars.
Analysts were disappointed with the company’s electric vehicle sales, which were a shade below estimates, and the lack of a specific target for 2021 deliveries. Tesla merely said it expected to grow production by 50% ‘over a multi-year horizon’.