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Wednesday October 23, 2019



Amazon's Shares Stumble on Revenue Miss, Inc. (AMZN) released its quarterly earnings report on Thursday, October 25. The e-commerce giant's sales and revenue projections fell below analysts' expectations.

Amazon reported quarterly revenue of $56.58 billion. This is up from last year's third quarter revenue of $43.74 billion, but fell below the $57.10 billion that Wall Street predicted.

"Amazon Business has now reached a $10 billion annual sales run rate and is serving millions of private and public-sector organizations in eight countries," said Amazon CEO Jeff Bezos. "And we're not slowing down - Amazon Business is adding customers rapidly, including large educational institutions, local governments, and more than half of the Fortune 100. These organizations are choosing Amazon Business because it increases transparency into business spending and streamlines purchasing, with increased control."

The company announced earnings of $2.88 billion for the quarter, which is up from earnings of $256 million one year ago. On an adjusted earnings per share basis, the company reported earnings of $5.75 per share, which was more than the $3.11 per share that analysts predicted.

On Thursday, Amazon announced that it expects revenue for the current quarter ending in December to fall between $66.5 billion and $72.5 billion. The revenue projections disappointed investors who expected a revenue forecast of $73.8 billion. The lower-than-expected projections, coupled with Amazon's revenue miss, caused shares to fall 8.8% in after-hours trading following the earning's release., Inc. (AMZN) shares ended the week at $1,642.81, down 7.9% for the week.

Alphabet's Revenue Falls Short

Alphabet Inc. (GOOG) reported quarterly earnings on Thursday, October 25. The parent company of Google posted revenue and earnings that missed Wall Street's estimates.

Alphabet announced revenue of $33.74 billion for the third quarter. This is up 21% from revenue of $27.77 billion reported in the same quarter last year, but fell below the $34.04 billion in revenue that Wall Street expected.

"Our business continues to have strong momentum globally, led by mobile search and our many products that help billions of people every day," said Alphabet CFO Ruth Porat. "Alphabet revenues were $33.7 billion, up 21% versus the third quarter of 2017, and we remain focused on delivering on the opportunities we see."

The company reported earnings of $9.19 billion for the quarter, up from earnings of $6.73 billion one year ago. On an adjusted earnings per share basis, the company posted earnings of $13.06 per share, which was above analysts' estimates of $10.42 per share.

The company's advertising sales accounted for the majority of its third quarter revenue. Advertising revenue topped $28.95 billion, up 20.3% from $24.07 billion in the same quarter last year. Alphabet's "other revenues," which includes smartphones and Nest devices, topped $4.64 billion compared to $3.59 billion one year ago.

Alphabet Inc. (GOOG) shares ended the week at $1,071.47, down 2.9% for the week.

Microsoft's Earnings Surge

Microsoft Corp. (MSFT) announced quarterly earnings on Wednesday, October 24. The company reported better-than-expected earnings and revenue for the quarter, causing shares to rise 4% after the report's release.

Revenue for the first quarter reached $29.08 billion. This was up 19% from revenue of $24.54 billion reported during the same quarter last year and above the $27.90 billion in revenue that analysts expected.

"Our record results for Q1 reflect our commitment to long-term strategic investments and consistent execution to drive revenue growth and operating margin expansion," said Microsoft CFO Amy Hood. "We see continued demand for our cloud offerings, reflected in our commercial cloud revenue of $8.5 billion, up 47% year over year."

Microsoft reported quarterly net earnings of $8.82 billion, which is more than last year's first quarter earnings of $6.58 billion. On an adjusted earnings per share basis, the company posted earnings of $1.14 per share, which exceeded the $0.96 per share that analysts predicted

The company's better-than-expected revenue and earnings in the first quarter was largely due to Microsoft's surging cloud-computing business. Microsoft's Azure sales surged 76% in the quarter, while its entire intelligent cloud division jumped 24% to revenue of $8.6 billion. The company also benefited from its gaming business, which includes its Xbox software and services. Gaming revenue increased 44% year-over-year while Xbox hardware revenue jumped 95% thanks to the company's launch of Xbox One X.

Microsoft Corp. (MSFT) shares ended the week at $106.96, down 2.2% for the week.

The Dow started the week of 10/22 at 25,492 and closed at 24,688 on 10/26. The S&P 500 started the week at 2,774 and closed at 2,659. The NASDAQ started the week at 7,487 and closed at 7,167.

Yields Inch Higher After Hitting Three-Week Lows

After falling to three-week lows, yields on U.S. Treasury bonds rose on Friday after the release of better-than-expected gross domestic product (GDP) data. Earlier in the week, Treasury yields were pushed lower by housing data that fell short of analysts' expectations.

On Friday morning, the Commerce Department released the latest GDP data, which showed the economy grew at a faster rate than analysts expected. The report revealed that GDP grew by an annual rate of 3.5% in the third quarter, surpassing the 3.4% rate that economists predicted.

Following the release of this data, the yield on the 10-year Treasury note rose to 3.094%. This is up from a three-week low of 3.077% before the data was released.

"It was a pretty good GDP result on balance," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. "It seems like the Treasury markets are taking this as modestly economically positive, bond negative."

Earlier in the week, yields on U.S. Treasuries were impacted by weaker-than-expected housing data. On Wednesday, the Commerce Department announced that new home sales fell 5.5% in September, reaching their lowest level since December 2016. The yields on the 10-year Treasury note fell from 3.166% on Tuesday to 3.122% on Wednesday following the housing data's release.

"It is increasingly apparent that homes are getting too expensive to afford both on price and on financing costs," said Chris Rupkey, chief economist at MUFG in New York. "One thing is for certain, the economy cannot grow at a sustainable 3% pace for long if new home sales continue to tumble."

The 10-year Treasury note yield closed at 3.08% on 10/26, while the 30-year Treasury bond yield was 3.32%.

Mortgage Rates Edge Higher

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, October 25. The report revealed average mortgage rates were slightly higher this week than they were one week ago.

The 30-year fixed rate mortgage averaged 4.86% this week, up from 4.85% last week. During this time last year, the 30-year fixed rate mortgage averaged 3.94%.

This week, the 15-year fixed rate mortgage averaged 4.29%, up from last week when it averaged 4.26%. Last year at this time, the 15-year fixed rate mortgage averaged 3.25%.

"We expect rates to continue to rise, which will put downward pressure on home buying activity," said Sam Khater, Chief Economist at Freddie Mac. "While higher borrowing costs will keep some people out of the market, buyers with more flexibility could take advantage of the decreased competition."

Based on published national averages, the money market account closed at 1.22% on 10/26. The 1-year CD finished at 2.57%.

Published October 26, 2018
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