BIG TECH WEEKLY | Netflix Surge on Q3, Could Google or Meta reach ATM?
Big-Tech’s Performance
US treasury yields hit new highs, partially due to term premium, but the supply-demand imbalance also made auctions dismal. Despite Powell's little hint for no rate hike in November, the U.S. stock market still inclined on risk-off mode.
As close on October 19th, almost all major-tech companies have experienced retractions over the past 5 trading days, with only $Microsoft(MSFT)$ maintaining a +0.05% return. The largest decline was $Tesla Motors(TSLA)$ ‘ -14%, due to a 9.3% drop on earnings day, others like $Alphabet(GOOG)$ -0.88%, $Apple(AAPL)$ -2.91%, $Amazon.com(AMZN)$ at -2.97%, $Meta Platforms, Inc.(META)$ at -3.5%, and $NVIDIA Corp(NVDA)$ at -10.32%.
Notably, $Netflix(NFLX)$ surged by 16.05% on earnings.
Next week, Google, Microsoft, Meta, and Amazon will release .
Big-Tech’s Top Newsfeed
- iPhone 15's initial sales in China decreased by 4.5% compared to iPhone 14.
- Commerce Minister Wang Wentao met with Apple CEO Cook.
- In China's smartphone market in the 40th week, Huawei leads with a 19.4% sales market share, surpassing Apple's 17.4%.
- Microsoft completed the acquisition of $Activision Blizzard(ATVI)$ and issued $36.5 billion in bonds for the transaction.
- OpenAI sold shares, and its valuation was further confirmed at $86 billion, three times its initial valuation.
- Amazon plans to expand its drone delivery service in Europe and the U.S. by 2024.
- The Biden administration plans to block the export of high-performance AI chips, including from NVIDIA.
- $Taiwan Semiconductor Manufacturing(TSM)$ capacity utilization rate is rising, and customers like Apple and NVIDIA are increasing their chip orders.
- NVIDIA and Foxconn Technology plan to jointly build an AI factory, advancing Industrial Fulian.
- Tesla's Q3 earnings report showed revenue growth slowing to 9%, below expectations, and a 37% drop in EPS. They reiterated their goal of producing 1.8 million vehicles this year.
- Tesla announced plans to use AI technology to train the robot Optimus, and the Cybertruck electric pickup will be delivered this year.
- $Toyota(TM)$ and Tesla reached an agreement to use Tesla's supercharging stations in North America.
- Meta set platform rules banning praise of Hamas.
- $Tencent(00700)$ may be handling an upgraded version of Meta Quest 2 VR headset.
Big-Tech’s Key insights
Netflix's surge highlights its ability to increase cashflows
It’s subscribers growth for five consecutive quarters and perform well in its advertising business.
Effective estimate management is essential. Lowering market expectations for unclassified ad revenue in September, even after a month of retractions, still resulted in a 70% QoQ increase in Q3. This logically led to an upgrade in Q4 guidance.
Standard packages (without ads) saw price increases in major markets, prompting price-sensitive users to choose ad-supported packages, boosting ad revenue and profit margins.
Tradings on October 19 shows a significant increase of institutional orders, which also proves the better "fundamentals. From a valuation perspective alone, as the marginal profit margin improves, the profit multiple has dropped to around 30x, making it more attractive.
Google and Meta are aiming for ATM (all time highs)?
Investors' pessimistic sentiment towards Google in the first half of the year stemmed from the consensus that advertising companies would optimize spending and face a bleak outlook in a high-interest-rate, high-inflation environment.
However, during the Q2 earnings season, companies with significant advertising revenue such as Google and Meta showed strong performance.
-Googles ads revenue consensus 9% YoY growth for Q3, which could turn double digits in Q4. If Q3 performs even better, it is not impossible for Google's stock to hit a new historical high of $151. Based on the current market consensus for the company's earnings per share in 2023, Google's forward PE ratio is around 24x.
-Similarly, Meta's consensus for Q2 revenue growth rate has also exceeded 20%. Based on the consensus for earnings per share in 2023, the forward PE ratio is around 23x, indicating potential for growth.
Both companies also have expectations in AI. Google has its large-scale model Gemini, while Meta can commercialize its open-source llama platform, potentially even faster than Microsoft.
The Big-Tech Portfolio
We combine the seven largest companies into an investment portfolio called the "TANMAM" portfolio. By backtesting this portfolio with equal weights and quarterly weight adjustments, its performance since 2015 has far exceeded that of the $SPDR S&P 500 ETF Trust(SPY)$ with a total return of 1202.7%, compared to SPY's 143.05%.
Since the beginning of the year, the portfolio's total return is 85.3%, with a Sharpe ratio of 4.4, while SPY's total return during the same period is 12.8%.
The past week saw a retracement of -5.1% for the portfolio and -1.7% for SPY.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
From a historical perspective GOOG tends to outperform on its Earnings Report anytime NFLX beats! —- It’s as if, NFLX sets the tone and tenor for BIG- Techs outperformance during earnings season, and NFLX led off with a grand slam right out the gate!🚀👍📈
This market is going to roll over as interest rates are not dropping. Many companies will default on debt rollovers and cut Ad budgets and Google cloud and Advertising. This is why the market is tanking, msft is the last soldier plus apple and google to drop.
Google is the king with lots of cash. It can continue to generate tons of cash with or without interest rate pause.
You're absolutely right about that! 🙌💯 META will follow NFLX! Blowout earnings next week!
I just doubled down on META! Holding onto those META shares like a champ. 🚀💪
Great ariticle, would you like to share it?