Over the next two weeks, five of the world’s biggest tech companies–Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Netflix (NFLX) and Facebook (FB)–will report earnings. In Q2, all beat expectations, despite COVID-19 disrupting every other sector, accounting for nearly $5 trillion in market value.
Last quarter, the NYSE FAANG index dominated other indices with a 46% gain (YTD as of July 24th). These massive market gains continued throughout the third quarter.
- In Q1, Netflix reported 15.77 million new subscribers globally, over double their projections, noting that “during the first two months of the Q1, our membership growth was similar to the prior two years, including in [the U.S. and Canada], and then with lockdown orders in many countries starting in March, many more households joined Netflix to enjoy entertainment.”
- Last quarter, all FAANG stocks noted that COVID continues to present an uncertain future, particularly for guidance, but that they were optimistic about Q3 and Q4 results.
- Amazon pushed its annual Prime Day from Q3 to Q4 (October 13th – 14th), and is expected to generate $10 billion in sales.
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After Q2 earnings, FAANG stocks saw a slight uptick in sentiment, after dropoff in Q1. They are slowly rebounding after positive Q2 earnings. This chart does not reflect Q3 earnings. | Sentiment analysis for Amazon, Netflix, Apple, Facebook, and Google vs. Peer Median
What were the major trends in executive commentary last quarter? And what assumptions can we make about FAANG’s Q3 earnings? We’ve compiled highlights from last quarter’s earnings, including major themes, executive commentary, and ungated document links to help you prepare for this week’s big bank earnings.
FAANG Earnings This Week:
- October 20th: Netflix – NFLX (After Market Close)
- October 22nd: Amazon – AMZN (After Market Close)
FAANG Earnings Next Week:
- October 26th: Alphabet – GOOG (After Market Close)
- October 29th: Apple – APPL (After Market Close)
- October 29th: Facebook – FB (After Market Close)
- Review Amazon’s Q2 Earnings Call Transcript
- Q2 results: AMZN outpaced expectations, with a reported $88.91 billion in earnings during the quarter and $10.30 per share. AWS was up nearly $10 billion in run rate as of Q2 2020, with customer usage growth QoQ.
On overall performance from Q2: “Our consolidated revenue and operating income significantly exceeded the top end of our guidance range. Strong top line performance was driven by increased consumer demand, led by Prime members. We continue to see high Prime member engagement throughout the quarter. Prime members shop more often with larger basket sizes. Worldwide streaming video hours doubled year-over-year driven largely by Prime video. We’re reaching more customers with our grocery offerings. Online grocery sales tripled year-over-year. Existing Prime member renewal rates improved, and the Prime member growth rate accelerated both in the U.S. and worldwide.
On AWS growth: “Turning to AWS. This is now a $43 billion annualized run rate business, up nearly $10 billion in run rate in the last 12 months. Customer usage remains strong, although growth varies across industries as a result of the COVID-19 crisis.”
- Review Apple’s Q2 Earnings Call Transcript
- Q2 results: AAPL delivered revenue growth over 10% (largely thanks to the iPhone)
On Q2 results: “Total revenue was $59.7 billion, a new June quarter record, up 11% from a year ago despite a 300 basis point headwind from foreign exchange. Our performance was strong across our entire portfolio as we grew revenue in each of our product categories and set June quarter records for Mac, for wearables and for services. Similarly, our results were very strong all around the world, with growth in all geographic segments and new June quarter records in the Americas, in Europe, in Japan and rest of Asia Pacific.Products revenue was $46.5 billion, up 10% and a June quarter record. iPhone returned to growth and we saw very strong double-digit growth from iPad, Mac and wearables.”
- On Mac performance: “Revenue was $7.1 billion, up 22% over last year and a June quarter record.”
- On wearables, home, and accessories: “Wearables, Home and Accessories established a new June quarter record with revenue of $6.5 billion, up 17% year-over-year
- On iPad performance: ”Pad performance was equally impressive with revenue of $6.6 billion, up 31% and our highest June quarter revenue in 8 years.”
On uncertainty due to COVID and planning for Q3: “Similar to last quarter, given the uncertainty around the world in the near term, we will not be issuing revenue and margin guidance for the coming quarter…”
- Review Facebook’s Q2 Earnings Call Transcript
- Q2 Results: $18.3 billion, a 10% YoY increase
On revenue growth throughout Q2: “After seeing flat year-over-year revenue growth in the first few weeks of April, we saw a considerable recovery in May and June. Our total ad revenue for Q2 was $18.3 billion, which is a 10% year-over-year increase.”
On ad revenue growth and decline: “On a user regional basis, ad revenue growth was strongest in U.S. and Canada, Asia Pacific and Europe, which grew 14%, 11% and 9%, respectively. Rest of world declined 6% and was impacted by challenging macroeconomic conditions as well as foreign currency headwinds.”
On July performance: “In the first 3 weeks of July, our year-over-year ad revenue growth rate was approximately in line with our Q2 ad revenue growth rate of 10%. We expect our full quarter Q3 year-over-year ad revenue growth rate to be roughly similar to this July performance.”
- Review Alphabet’s Q2 Earnings Call Transcript
- Q2 Results: $38.94 billion in Q2 2019, with operating income at $6.38 billion and net income of $6.96 billion for this quarter. For comparison, Alphabet reported $41.16 billion in revenue and $6.84 billion in net income for Q1.
On COVID’s impact: “The macroeconomic environment caused by the pandemic created headwinds for our business. Our revenue declined on a reported basis and is flat year-over-year on a fixed FX basis. Like other companies, this quarter, we saw the early signs of stabilization as users return to commercial activity online. This is true across most of our advertising verticals and geographies. Of course, the economic climate remains fragile.”
On search trends and ad revenue: “I would say that following a rough end to the first quarter, ads revenue gradually improved in the quarter, not only in Search, but YouTube and Network. And so for Search, we ended March at a midteens percentage decline in year-on-year revenues. And then as we progressed through the second quarter, we saw a gradual return in user search activity to more commercial topics, and then that was followed by an increase in spending by advertisers. So that resulted in a gradual improvement in year-on-year Search revenue trends in the second quarter. We ended basically flat to last year by the end of June and you know to carry it forward, although we’re pleased that ads revenue gradually improved throughout the quarter.”
- Review Netflix’s Q2 Earnings Call Transcript
- Q2 Results: Netflix was free cash flow positive for the second consecutive quarter, coming in at +$899 million versus -$594 million in the second quarter last year.
“In Q1 and Q2, we saw significant pull-forward of our underlying adoption leading to huge growth in the first half of this year (26 million paid net adds vs. prior year of 12 million). As a result, we expect less growth for the second half of 2020 compared to the prior year.”
“…growth is slowing as consumers get through the initial shock of Covid and social restrictions. Our paid net additions for the month of June also included the subscriptions we canceled for the small percentage of members who had not used the service recently.”
On 2021: “for 2021, based on our current plan, we expect the paused productions will lead to a more second-half weighted content slate in terms of our big titles, although we anticipate the total number of originals for the full year will still be higher than 2020.”
- Competition: “In addition, TikTok’s growth is astounding, showing the fluidity of internet entertainment. Instead of worrying about all these competitors, we continue to stick to our strategy of trying to improve our service and content every quarter faster than our peers.”
- On content successes: “In Q2, we notched successes in many of our key content verticals. In English scripted TV, Never Have I Ever, a fun, young adult dramedy from Mindy Kaling, broke through with 40m households choosing to watch this show in its first four weeks, and 40m households for our new comedy Space Force (starring Steve Carell). On the heels of Love is Blind, Too Hot to Handle and Floor is Lava are the latest in our line of buzzy unscripted shows (51m and a projected 37m households, respectively, in the first four weeks).”
- On Q2 performance and Q3 guidance: “When we think about the guidance for Q3, we’re not thinking about Q3 just in and of itself. We have to look at it in the context of what just happened in Q2. And we just added 10 million members, which is the largest growth we’ve ever had in a second quarter. And if you look at the — so we kind of look at the totality across the Q2 and Q3 period. And if we look at that quarterly period, 2 quarters in a row, the best we’ve ever done in that period is actually 2 years ago in 2018, where we grew by 11.5 million numbers. So if we, this year, deliver on that Q3 guidance, that means we’re growing 12.5 million members in that same time period, which is 1 million more than we’ve ever done, which is we think big growth on top of what was already a very big Q1.”
- On user retention amid COVID: “Actually, the retention across every cohort is as good or better than pre-COVID”