To The Moon

Key Takeaways:

1. Fundamental and Valuations of Six Giants Companies

2. Business and Expectations of Each Company.

TIANFENG securities, an investment research institution, sorted out the PE giants tech companies in the United States and received the following acknowledge:

From a fundamental point of view: in Q1 2022, the growth resilience of technology giants has been continuously tested under the adverse wind of rising inflation, lower consumer demand and tight supply chain.

In the long run, the headwind test is more reflected in:

1) Enterprise operation efficiency and capital operation efficiency;

2) Industrial chain status and bargaining power;

3) The mental status of consumers and the ability to maintain market share.

Specifically, the Q1 data of$Apple(AAPL)$ ,$Amazon.com(AMZN)$ , $Microsoft(MSFT)$ , $Alphabet(GOOG)$ , $Netflix(NFLX)$ , $Meta Platforms, Inc.(FB)$ are as follows:

Earnings Highlight：

• $Apple(AAPL)$ slightly exceeded expectations, but the future supply chain might be heavy affected;

• $Amazon.com(AMZN)$ 's guidance for the next quarter is lower than expected, which is greatly affected by inflation and rising oil prices;
• $Microsoft(MSFT)$ slightly exceeded expectations, and it's cloud computing business expects continue to be strong;
• $Alphabet(GOOG)$ was basically in line with expectations, while YouTube suffered from competition and its revenue fell, contributing to a negative net profit;
• $Netflix(NFLX)$ , the user was less than expected, it has lowered the guidance for the next quarter;
• $Meta Platforms, Inc.(FB)$ was influenced by the input of meta-universe, and the guidance for the next quarter was decreased.

You must have to know, according to the FactSet's data, 68 companies provided negative EPS guidance of Q1, the highest number since Q4 2019.

You are encouraged to learn the detailed business and headwinds of each company after the following valuation part content.

From the perspective of valuation, the long-term valuation centers of top technology giants remain relatively stable, as shown in the table below:

According to the data, it is found that the PE of mature platform technology enterprises change greatly in the years as they go through different development stages or different cycles, but their long-term PE actually remains relatively stable.

Specifically, the valuation of $Apple(AAPL)$ , $Microsoft(MSFT)$ and $Alphabet(GOOG)$ three years ago does not differ much from the current valuation. Apple (24x PE), Amazon (29x PE) and Microsoft (25x PE) have a relatively stable premium.

At present, the discount of $Meta Platforms, Inc.(FB)$ , $Netflix(NFLX)$ and etc, may be mainly due to the sharp reduction of earnings in recent two quarters compared with the consensus expectation of Bloomberg, and the market gives more discount expectations.

$Meta Platforms, Inc.(FB)$ , if follow the PS and TTM PE data, the current relative valuation of 13.7x PE is quite different from the 28x PE of 2018~2021 average data. Same like $Netflix(NFLX)$ ,The current 16x PE also very different from the average 112x PE of the previous three years.

As for technology giants, the following 3 factors may have the greatest impact:

1) Will the FED's interest rate cut lead to the early arrival of the recession?

2) When the recession comes, the headwinds that technology giants may face?

3) Is the company's product matrix and customer structure healthy enough when the purchasing power of individuals and enterprises is impaired?

According to the analysis, in the face of capital contraction and recession, the technology giant may form a certain support for the stock price by virtue of its relatively healthier cash flow and continuous repurchase plan.

For example, alphabet announced a buyback of $70 billion this quarter, and Amazon announced the first buyback in many years last quarter, with a total amount of no more than $10 billion.

Next, Let's learn about the brief but every detailed business highlights and expectations of the six technology companies.

1. $Apple(AAPL)$

-Apple's Record Quarterly Performance & Exceeded Expectations:

1) Apple achieved an operating revenue of $97.278 billion, a YOY increase of 9%. The gross profit was $42.559 billion, an increase of 11.77% yoy.

2) IPhone revenue hit a new high (+5%) and drove strong double-digit growth in performance and EPS, with MAC (up 15% YOY), wearable devices (up 12% YOY) and services (up 17% YOY).

3) Affected by severe supply constraints, iPad revenue decreased by 2% YOY, mainly due to the high base of iPad demand since the outbreak, and the growth rate of tablet demand in 2022 slowed down.

4) The overall demand is strong, and the supply chain management ability can basically ensure the hardware supply and stable sales. The software and service business created a historical revenue record of $19.8 billion. Appstore, music, cloud services and AppleCare all set a historical record. Video, advertising and payment services also set a quarterly record in March. Paid subscriptions grew strongly.

-Apple's Current Core Competitive Advantage Lies in:

1) Strong ecosystem and user stickiness built by the integration of software (IOS) and hardware (from the whole machine to the chip)

2) It can lead the greatest common divisor of consumer demand with a small number of models, thus greatly reducing the development cost and the difficulty of supply chain management and control. 3) an open corporate culture of continuous innovation.

It is believed that in the second quarter, the advantage of the company's ecosystem will continue to be reflected in the software revenue, while the supply chain control ability will be reflected in Apple's product supply ability.

-In the future, wearing AR devices may start a new growth curve.

According to reports, Apple's new generation of AR headgear has been displayed by the board of directors. We believe that the market should focus on:

1) The marginal influence of supply chain on production capacity;

2) In the generally adverse consumer electronics market, the resilience and performance of Apple products;

3) News about the new generation of head gear or the further smart car program.

2. $Microsoft(MSFT)$

-Tier1 customers' cloud computing usage is still increasing

Microsoft achieved a total revenue of $49.4 billion in the quarter, an increase of 18% YOY. The net profit reached $16.7 billion, a YOY increase of 8%, and the net interest rate was 33.89%. Q3 diluted EPS is $2.22.

By business:

1) Productivity and business process business revenue was $15.8 billion, up 17% YOY, mainly driven by the growth of seats in paid office and dynamics.

2) The revenue of Intelligent Cloud business was $19.1 billion, a YOY increase of 26%, and the revenue exceeded the expectation. Among them, azure's revenue increased by 46% YOY, excluding the impact of exchange rate, with a YOY increase of 49%, and continued to maintain high growth.

3) Personal computing business income was $14.5 billion, an increase of 11% YOY.

4) The search business and windows business performed strongly. The news collection function of start added by windows on the start menu is gradually opening a new advertising commercialization path.

5) The company's Xbox became the market leader in North America and Europe in this quarter, and azure cloud game business increased by 66% YOY.

-The company's guidelines for the next quarter slightly exceeded expectations:

1) Productivity business and personal computing business grew steadily, and Intelligent Cloud business maintained rapid growth.

2) Productivity and business processes business revenues range from $16.65 billion to $16.9 billion.

3) The revenue of smart cloud is between $21.1 billion ~ $21.35 billion, and the revenue growth rate of azure is reduced by about 2% at the constant exchange rate.

4) The estimated revenue of personal computing business is between $14.65 billion and $14.95 billion.

-Optimistic Expectations Under Inflation:

1) The cloud computing business benefited from the rapid increase of Tier1 usage load in this quarter, including the continuous increase in the usage of sap, Lufthansa and other customers. It is expected that super major customers will not reduce their digital cloud computing spending in an inflationary economic environment.

2) This quarter, Microsoft completed the acquisition of $Nuance(NUAN)$ , which will strengthen the company's accumulation in medical cloud and voice recognition; Microsoft also announced the acquisition of Minit, a process mining company, which is expected to enhance the strength of the company's crmerp suite dynamics.

3) The usage of basic software layer and software development and deployment (data governance and database related) tools continues to increase rapidly.

4) The demand for personal PCs benefits from returning to the office after the epidemic. The use of office and games by individual users has increased, and the driving force is expected to continue into the next quarter.

3. $Amazon.com(AMZN)$

-Both Revenue and Net Profit were Lower than Bloomberg's Consensus Expectations

1) $(Amazon)$ achieved net sales revenue of $116.444 billion in the Q1 of 2022, an increase of 7.3% YOY. Excluding the impact of YOY changes in exchange rates throughout the quarter, the YOY growth was 9%. The operating revenue was $3.7 billion, a YOY decrease of 58.4%.

2) The net loss was negative $3.844 billion, a YOY decrease of 147%, of which $7.6 billion was the valuation loss of marketable equity securities caused by $Rivian Automotive, Inc.(RIVN)$ 's equity investment.

-3 Business Segments: AWS, North America and International, only AWS Business has Realized Profitability

1) AWS business segment has become the main revenue, and the company has reached new cooperation with telecommunications, aerospace and sports. AWS business segment created a historical revenue record of $18.441 billion in the Q1 of 2022, with a YOY increase of 44%. The growth in revenue has prompted the company to accelerate its investment in AWS, including infrastructure deployment and the launch of a new generation of databases around the world.

2) The net sales of the North American business segment accounted for the largest proportion of the total sales, but the profit was far lower than the market expectation, with a YOY decrease of 145%. The operating expenses of this sector increased by 16.2% YOY, far exceeding the YOY increase in net sales revenue (7.5%).

3) In addition, Amazon has expanded the privileges of prime members, innovated environmental protection products, and used 3D technology to enhance customers' shopping experience. Designed to enhance customer stickiness. Launch the industry's first purchase tool (Punch In) for enterprises to simplify the purchase process of enterprises.

4) $(Amazon)$ plans to double its network size in the next 2 years. $(Amazon)$ completed its acquisition of $MGM Resorts International(MGM)$ this quarter, providing customers with more choices of digital media content. The profit of the international business segment was much lower than the market expectation, with a YOY decrease of 202%. The net sales revenue of this sector decreased by 6.6% year-on-year.

-Amazon's Profit is the Most Severely Affected by the Adverse Wind

Due to the high proportion of logistics cost (especially the oil price cost) in the cost of e-commerce business, the net profit was significantly lower than the consensus expectation, and the gross profit margin of e-commerce business turned negative.

The impact of Enterprise Cloud Computing demand has not yet been reflected. In this quarter, Amazon cloud, Google cloud and Microsoft cloud continued to maintain high revenue growth. Apple and Microsoft as a whole continued to slightly exceed expectations. Among them, the number of large orders from Microsoft's major customers is still increasing rapidly.

4. $Alphabet(GOOG)$

-The company's income and net profit basically meet the expectations:

Alphabet 's FY22Q1 comprehensive income is $68billion. It's four major business segments are Google services, Google cloud, otherbets and other revenue. Among them, Google service sector still accounts for the biggest profit.

The total revenue of Google's service department was US $61.5 billion, an increase of 20%, and the demand for tourism and retail advertising recovered. Google Search and other advertising revenue grew 24% in the quarter.

YouTube advertising revenue grew 14% to $6.9 billion. The slowdown of YOY growth rate is mainly due to the high base in Q12021. Driven by AdSense and AdMob, online advertising revenue increased by 20% to $8.2 billion.

-There are Some Hidden Worries about The Growth of Youtube.

The substantial growth of YouTube's non advertising revenue was driven by the growth of YouTube music, premium and Youtube TV subscribers, which was largely offset by the year-on-year decline in play revenue, mainly due to pricing adjustments. Meanwhile, the results of the second quarter will continue to reflect the continuing impact of the suspension of Russian business.

-The operating revenue of Google cloud segment was US $5.8 billion, an increase of 44%, and continued to grow at a high speed. It still takes time for the profit to become positive. GCP's revenue growth again exceeded that of cloud computing, reflecting the significant growth of infrastructure and platform services. Driven by the digital transformation, the demand for Google cloud is strong. More and more customers choose Google cloud to help use Google's global infrastructure products.

-Otherbets' revenue was $440million. Other income was $6.8 billion, up 5%.

5. $Meta Platforms, Inc.(FB)$

-Meta's DAU Recovers Growth Trend

Revenue in the first quarter was $27.9 billion. Among them, the family of apps revenue was $27.2 billion, the advertising revenue was $27billion, and the  meta-universe VR business -realitylabs revenue was $700 million, an increase of 30% YOY. In the first quarter, Facebook's average DAU was 1.96 billion, a YOY increase of 4%. Since the first month on month decline in the fourth quarter of last year, the growth trend has resumed.

-Meta Raised its Revenue Guidance in the Second Quarter

1) Meta's revenue guidance in the second quarter was US $28-30billion, which was mainly affected by global inflation, exchange rate changes, Russia Ukraine conflict, tiktok competition, etc.

2) In addition, Apple's new privacy policy last year and the stricter regulation of the Internet industry in the ios16 system, the European Union and the world have become potential risks.

3) The unfavorable factors in revenue may cause the company to slow down its investment, including the infrastructure related to artificial intelligence and machine learning.

-Meta's Meta-universe Business is still in its Early Stage, but There Are Profit Opportunities in the Short term

1) The company's long-term outlook for the business of meta-universe is to use the profits from the traditional business for the development of meta-universe business. At the same time, the company will also measure the pace of capital expenditure of new businesses and invest in a planned way.

2) The core of meta meta-universe strategy is the social platform horizon, but it is still in its early stage. It is expected to launch a web version of horizon by the end of this year;

3) In terms of hardware, a high-end VR device code named Cambria will be released at the end of this year, with the goal of eventually replacing computers as office equipment.

3) In addition, it also has face and eye tracking functions, and can upload expressions to horizon in real time. Although the investment cycle of meta-universe is long in the long term, the company still has profit opportunities in the short term. For example, it cooperates with advertisers to open stores in the virtual world and promotes them through feeds, reels and other advertising forms.

Macroeconomic Risk:

1. macroeconomic will have a significant impact on the valuation of technology companies in terms of numerator (profit) and denominator (discount rate).

2. Intensified competition between cloud computing and autonomous driving: the competition intensifies or affects the market share and investment of enterprises.

3. Less than expected technological progress: less than expected technological progress will affect the long-term value of science and technology enterprises.