Analysing the Performance of Pandemic Boom Firms
October 28 2020 - Team Stockal
With U.S. markets witnessing a volatile year so far, Wall Street indexes have hit multi-year lows and record highs in a span of 10 months. The volatility has also been fueled by jitters ahead of corporate earnings and delays in the passage of a COVID-19 stimulus package.
On Monday, the Dow fell to its steepest since September 3 and recorded its first close below 28,000-mark since October 6. In fact, for October so far, the Nasdaq and the S&P 500 have managed to eke out minor gains, while the Dow is down about a percent.
As we enter the thick of the earnings season, with major tech names set to announce their September quarter performance, investors are fence-sitting to gauge the impact of the pandemic on corporate earnings after a set of frenzied buying in the past two quarters. As economies gradually reopened and consumer buying steadied from a stockpiling spree, the September quarter and the subsequent quarters are likely to give a clearer picture.
But that doesn’t take away the fact that several stocks have risen considerably during the pandemic period, ranging from tech to consumer discretionary to home improvement to healthcare, among others. Tech, in particular, had helped the market recover from its lows. The likes of FAANG – Facebook, Apple, Amazon, Netflix and Google had helped the market stay afloat.
Here’s a look at FAANG stocks’ performance in the year so far.
Another firm that investors bet big was Snap Inc. The company’s multimedia messaging app witnessed stellar growth, and this was reflective in the stock’s yearly performance — a whopping 145.94 percent on a year-to-date basis as of writing this article.
Quarterly performance by tech companies further added weight to their rally as more people opted for tech solutions for businesses or entertainment during the first half of the year.
Take these numbers, for instance. Apple recorded Q2 revenues of $59.69 billion, the highest ever revenue for the quarter, while Facebook, with its revenue at $18.7 billion beat analyst estimates too, with the profit for the quarter having doubled. Amazon too, saw a stellar growth in revenues to $88.91 billion, with grocery sales surging three times.
Not just tech names, with more customers stocking up on essentials, hygiene products and consumer appliances, consumer discretionary earnings also surged during the first two quarters.
Kimberly-Clark, which makes toilet paper brands such as Scott and Cottonelle, also reported strong growth, while refrigerator-maker Whirlpool reported an earnings per share of $6.91 in the previous quarter.
The Crucial Earnings Quarter
For these pandemic stocks and others in general, the third quarter remains crucial. While one-off purchases, frenzied buying and filling up stocks at home boosted consumer names, and tech firms were boosted by the use of digital solutions for work and entertainment during the previous quarters – this quarter is likely to see steadying of the economy and consumer behaviour, likely to reflect in the companies’ earnings as well.
In fact, analysts recommend watching trends if big pandemic boom stocks were just a one-time or one-off phenomenon or whether customers have permanently shifted their buying behavior over the past few months. In the case of Whirlpool, investors are thinking if the sales have reached their peaks for the company. Netflix, on the other hand, reported a higher-than-expected revenue, but earnings per share and global paid net subscriber additions missed estimates. With 2.2 million additions of global paid users, versus an expectation of 3.57 million, the question of a limited-time windfall gain does arise.
In the past two weeks of the third-quarter earnings season, the major entities to have reported earnings are banks along with some popular tech names such as Snapchat. Among the companies that have reported earnings so far, nearly 86 percent have beat analysts’ expectations.
Major banks such as Bank of America, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Citigroup reported healthy earnings, with Wells Fargo being an exception. In fact, big Wall Street banks signaled preparedness for loan defaults that are likely in the second half of next year.
Goldman’s revenues rose sharply, helping it post a profit of $3.62 billion, surpassing expectations of $2 billion for the third quarter. Bank of America’s investment banking business boomed, while JPMorgan Chase’s trading revenue rose 21 percent. Morgan Stanley beat revenue estimates of $1 billion as it reported a quarterly revenue of $11.7 billion.
But the star of the past two weeks’ earnings season has been Snap Inc, the maker of Snapchat messaging app. The company’s revenue for the third quarter comfortably beat analysts’ expectations with a 52 percent year-on-year jump at $678.7 million. Such was the optimism from the earnings beat that its stock soared more than 20 percent in after-hours trading.
The earnings per share of 1 cent also widely surpassed analysts’ expectations of a loss of 5 cents, while daily active users rose 18 percent year-on-year to 249 million. The estimate stood at 244.6 million users.
Snap’s CEO Evan Spiegel highlighted both revenues and user growth for the company were at their highest levels in the past three years, with help from a recovery in digital ad spending.
Snap has said that it is currently in the process of launching some major changes to its format. In June this year, the company had said it was adding a navigation bar to help users find features on their app. Spiegel said during the earnings conference call that this update was the first time it had ‘prototyped and launched’ a redesign for Android users.
Snapchat’s earnings also paved the way for some optimism for major tech earnings that are set to be reported this week. The likes of Facebook, Apple, Amazon, Google’s parent Alphabet, and Twitter, will be reporting their earnings in this crucial quarter.
Other major companies that will be reporting their earnings include Boeing, Mastercard, Gilead, General Electric,, Blackstone, UBS, Starbucks and Ralph Lauren, among others.