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Microsoft Sales, Profit Gain; Shares Drop on Azure Concern

27 Jul 2021 27 Jul 2021

(Bloomberg) — Microsoft Corp. reported sales and profit that exceeded analysts’ estimates for a 10th straight quarter, though investor optimism was tempered by concern about slowing growth in the software giant’s Azure cloud-computing business. Shares slipped in late trading.

Sales in the fourth quarter, which ended June 30, climbed 21% to $46.2 billion, the Redmond, Washington-based company said Tuesday in a statement. That compared with the $44.3 billion average estimate of analysts polled by Bloomberg. Net income rose to $16.5 billion, or $2.17 a share, while analysts had predicted $1.92.

Microsoft’s market value now tops $2 trillion, and the high-flying shares have led investors to expect results to outdistance projections by a wide margin. Azure’s sales increase of 51% in the period disappointed some investors because it was partially fueled by currency fluctuations — the number drops to 45% without that boost, representing a slowdown from the prior period. While Azure has been growing steadily, the business faces steep competition for big corporate deals from Amazon.com Inc., the dominant cloud service, and Google, which ranks third in the market but is pouring resources into the business to catch up.

“People are not happy if Azure decelerates — they’re worried the good days are over,” said Mark Moerdler, an analyst at Sanford C. Bernstein. “People seem to worry Azure will never be as big as Amazon.”

Azure revenue had gained 50% from a year earlier for the two prior quarters, not taking into account currency fluctuations. In constant currency, Azure posted a 46% sales gain in the March quarter.

Microsoft shares dropped about 2.6% in extended trading following the report, after declining to $286.54 in New York. The stock rose 15% in the fiscal fourth quarter, compared with 8.2% for the S&P 500 Index, reflecting investor ebullience about growth prospects for Azure, Office, artificial intelligence and gaming. The recent period marked the second quarter in a row that initial analysts’ notes highlighted Microsoft’s better-than-expected performance in sales and profit, while shareholders were less pleased with specific details.

Still, Chief Financial Officer Amy Hood hailed the Azure performance as better than she had forecast and said demand remains strong across all of Microsoft’s cloud businesses, including Azure, Office and Dynamics software services.

“Forty-five percent was both better than we expected and driven by consumption growth, which is very good,” said Hood, in an interview. “Demand is healthy, the overall execution was better than I expected.”

Commercial cloud sales in the fiscal third quarter rose 36% to $19.5 billion, Microsoft said. Gross margin, or the percentage of sales left after subtracting production costs, in that business widened 4 percentage points to 70%, the company said in a slide posted on its website. Total company gross margins have been benefiting from an accounting change that’s related to current and future server and network equipment, and this may be the last quarter where that leads to an improved margin, according to Bloomberg Intelligence analyst Anurag Rana.

“This year has been great because of the accounting change but that particular boost is hiding the fact that gross margin is being hurt by the faster-growing Azure business,” Rana said before the results.

In the Productivity unit, mostly made up of Office software, sales were $14.7 billion, compared with an average analysts’ estimate of $14 billion. LinkedIn, which Microsoft acquired in 2016, became the third business in three years to top $10 billion in annual revenue, Hood said, and Teams, the Microsoft product that competes with Slack Technologies Inc., reached 250 million monthly active users, a huge jump from the 145 million the company reported in April.

Sales of Intelligent Cloud products, made up of Azure and server software, rose to $17.4 billion, above analysts’ expectations for revenue of $16.4 billion.

In the More Personal Computing unit, which includes products like Windows, Surface and Xbox, sales were $14.1 billion. Analysts had expected $13.9 billion. Sales of Windows software sold to PC manufacturers declined 3%, a drop that reflects the surge in laptop buying in the same quarter a year earlier, when Covid-19 lockdowns were forcing many workers to do their jobs remotely.

Overall gaming revenue jumped 11% in the recent period, Microsoft said, with Xbox hardware sales more than doubling. A global semiconductor shortage has constrained sales of Xbox consoles following the release of a new machine late last year, and growth in video-game and gaming services fell 4% in the quarter compared with the pandemic-boosted year-ago period.

Component shortages are also hurting PC and Surface availability, Hood said. Surface sales dropped 20% in the quarter. Hood expects some impact from chip and part shortages to persist into the new fiscal year, which began July 1.

(Updates with CFO’s comments starting in seventh paragraph.)

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Apple Warns That Growth Will Slow After Record-Setting Sales

27 Jul 2021 28 Jul 2021

(Bloomberg) — Apple Inc. slipped as much as 2.9% in late trading after warning that sales growth may be slowing and supplies are getting tight, putting a damper on investor excitement following a record-setting third quarter.

The company said on a conference call Tuesday that supply constraints will affect the iPhone and iPad in the current quarter. Decelerating demand for services also will drive the slowdown. Apple declined to provide specific revenue forecasts, a practice it adopted during the pandemic.

The cautious remarks followed a sales gain of 36% in the third quarter, with revenue of $81.4 billion shattering Wall Street’s $73.8 billion estimate. But investors are sticking to a wait-and-see attitude. The parts shortages and a patchwork of Covid restrictions will continue to weigh on Apple’s business this year.

The Cupertino, California-based company’s lack of specific guidance for the fourth quarter continued a trend it started when Covid-19 first struck in 2020. And Apple isn’t unique. Many businesses have curtailed their outlooks in the face of pandemic uncertainties.

For now, business is booming. The iPhone, Apple’s core product, grew about 50% to $39.6 billion last quarter, beating projections of $34.6 billion. The third quarter is typically one of Apple’s slowest periods — with consumers holding out for new phone launches around September — but the 5G iPhone 12 appears to have helped the company buck that trend.

And the company still expects “strong” double-digit growth in the fourth quarter.

“Our record June quarter operating performance included new revenue records in each of our geographic segments,” Chief Financial Officer Luca Maestri said in a statement. Apple continues to make significant investments to support long-term growth, generated $21 billion of operating cash flow, and returned $29 billion to shareholders during the third quarter, he added.

Supply Constraints

Apple reported $7.37 billion, or 12% growth, in revenue for the iPad, topping expectations of $7.13 billion. Apple debuted new iPad Pro models in April, but the line was constrained due to problems building new screens for the larger models. For the Mac, Apple reported revenue of $8.24 billion, or growth of 16%, exceeding the $8 billion estimate.

Apple previously warned that third-quarter revenue would take a hit of $3 billion to $4 billion because of the chip shortage affecting some iPad and Mac components. Earnings for the third quarter were $1.30 a share, compared with an estimate of $1.01 a share.

Services revenue reached $17.5 billion, above the the $16.3 billion estimate and a third higher than the same period last year. That business is heavily reliant on sales from in-app purchases and third-party app downloads, and Apple recently decreased the cut it takes for most apps to 15% from 30%. The company has launched a slew of new services in recent years, including Apple TV+ and Apple Arcade, but it hasn’t said how those are performing.

Apple Watches

Apple also saw its wearables, home and accessories segment grow 36% to $8.78 billion. That category includes the Apple Watch, AirPods, Apple TV, the HomePod and various other accessories. Apple hasn’t updated the AirPods earbuds since 2019, last year’s Apple Watch upgrades were minor, and this year’s Apple TV updates were focused on a faster processor and redesigned remote.

All of Apple’s retail stores reopened as of June, and the company has also started a hybrid program to help staff work from home or stores with more flexibility.

Return-to-Work Delays

The emergence of the Covid Delta variant has already led Apple to push back an employee office return mandate by at least a month, and it has reinstated masking rules inside of retail stores.

Even with the muted reaction to the results, Wedbush Securities analyst Dan Ives said they should help lay the groundwork for Apple to reach a $3 trillion market value over the next year. The stock has climbed 11% so far this year, giving it a valuation of about $2.5 trillion.

“We would characterize this as a ‘gold medal’ performance by Apple during the quarter especially when considering the chip shortage,” he said.

(Updates share reaction starting in first paragraph.)

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Amazon Starts Trading in Canada Via CIBC Depositary Receipts

27 Jul 2021 28 Jul 2021

(Bloomberg) — Shares of Amazon.com Inc. traded on a Canadian stock exchange for the first time after Canadian Imperial Bank of Commerce launched a new product for investors who want to own U.S. stocks while hedging their currency risk.

The first Canadian depositary receipts, or CDRs, are listed on Neo Exchange, an upstart equity market that competes with the Toronto Stock Exchange. They’re modeled on American depositary receipts, which have been used for decades by U.S. investors to buy shares of foreign companies without having to trade through a foreign exchange.

Trading volume on the Amazon CDRs was modest on the first day, with 18,033 shares exchanged in Toronto. The receipts closed at C$22.82; each CDR represents 0.005 of a share of Amazon.

In New York, Amazon fell 2% to $3,626.39.

Elliot Scherer, managing director and head of sales at CIBC’s Wealth Solutions group, said the idea for CDRs came in response to complaints from clients who’ve seen their U.S. stock gains reduced by a rise in the Canadian dollar.

“The S&P 500 was making all these all-time highs, Canadians in Canadian dollar terms weren’t seeing that big lift,” said Scherer.

Currency Hedge

Last year, the S&P 500’s 16.3% increase was cut to 14.4% in Canadian dollars. In 2019, a strong loonie lopped more than 6 percentage points off the U.S. equity benchmark’s 28.9% gain.

The Canadian depositary receipts are designed to allow investors to buy foreign shares in loonies. There’s a built-in hedge so that the investor’s returns are based on how the stock performs, regardless of moves in the exchange rate.

Retail investors who handle their own portfolios and have “no easy way” to hedge currency risks are the product’s initial target, Scherer said. However, CIBC aims to gain traction with investment advisers as well, he said.

CIBC and Neo Exchange plan to offer CDRs soon for Alphabet Inc., Apple Inc., Tesla Inc. and Netflix Inc., the companies said in a statement.

(Updates with day-end trading volume and prices in third and fourth paragraphs)

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Alphabet Beats Analysts’ Estimates on Rebound of Digital Ads

27 Jul 2021 27 Jul 2021

(Bloomberg) — Google parent Alphabet Inc. reported quarterly sales that topped Wall Street estimates, driven by robust digital ad spending from marketers eager to get consumers buying again during an uneven pandemic reopening.

Second-quarter revenue, excluding payments to distribution partners, was about $51 billion, the Mountain View, California-based company said Tuesday in a statement. Analysts projected $46.1 billion, according to data compiled by Bloomberg. Profit was $27.26 a share, topping the average estimate of $19.35.

After a digital-ads slowdown a year ago during the Covid-19 pandemic, Google’s advertising business rebounded, buoyed by marketers spending more on search to convince consumers to travel and shop in stores again. The increase in digital advertising sales in the period ended June 30 followed similar results reported last week by social media companies Twitter Inc. and Snap Inc. Google is the world’s largest digital advertiser and is on target to finish the year with almost 29% of the global market, according to analyst EMarketer.

The sales growth “reflect elevated consumer online activity and broad-based strength in advertiser spend,” Chief Financial Officer Ruth Porat said in the statement.

In a conference call after the results, Chief Business Officer Philipp Schindler said retail was “by far” the biggest contributor to the bump in advertising, with the travel, financial services, media and entertainment sectors also growing during the quarter.

Alphabet Chief Executive Officer Sundar Pichai has targeted e-commerce as a major growth area for the internet giant. He deepened his company’s relationship with Shopify Inc., to sharpen its commerce efforts while it continues to chase Amazon.com Inc. Subsidiary YouTube has also joined in. The world’s largest video platform bought an Indian company, Simsim, earlier this month to push deeper into video commerce.

Google has become a chief target of antitrust regulators around the world, who have alleged the company has rigged swaths of the internet to kneecap rivals and aid its growth. The company is facing four lawsuits at home, one from the U.S. Department of Justice and the other three brought by coalitions of state attorneys general. The European Union also formally opened an antitrust probe into Google’s ad technology business last month.

Shares gained about 3% in extended trading after closing at $2,638. The stock has jumped 50% this year.

Search and other related businesses generated fiscal second-quarter sales of $35.8 billion. Analysts, on average, estimated $32.2 billion.

YouTube ad revenue increased 84% to $7 billion. Analysts were looking for $6.33 billion.

“YouTube was the fastest-growing segment during the quarter and points to the continued strength of video advertising for both direct response and brand goals,” said Nicole Perrin, EMarketer principal analyst at Insider Intelligence. “Growth in Google’s Network was the slowest among the three segments, but represented the strongest overperformance compared to our expectations — suggesting the overall programmatic display market continues to grow strongly.”

The company’s cloud division, led by Thomas Kurian, has gained some market share but still lags far behind leaders Amazon Web Services and Microsoft Corp. Google Cloud revenue jumped 54% to $4.63 billion, beating Wall Street expectations of $4.3 billion. The unit narrowed its operating loss to $591 million from $1.42 billion, helped, in part, by a reduction in depreciation expense after the company adjusted the estimated useful life of is servers to four years from three years.

Payments to Google’s distribution partners such as Apple Inc. increased 63% — about the same growth rate as revenue. The company added 13% more employees in the quarter, bringing its total workforce to more than 144,000.

(Updates with comments from chief business officer in the fifth paragraph.)

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Washington Post to Require Staff to Show Proof of Vaccination

27 Jul 2021 28 Jul 2021

(Bloomberg) — The Washington Post will require employees to prove they are vaccinated, joining the ranks of companies that are mandating workers get inoculated against Covid-19 as caseloads rise.

The newspaper, owned by Amazon.com Inc. founder Jeff Bezos, will require employees to show proof of full Covid-19 vaccination “as a condition of employment” when they return to the office in September, Publisher Fred Ryan said in a memo to staff.

The Post will exempt employees with documented medical conditions and religious concerns, he said.

“Even though the overwhelming majority of Post employees have already provided proof of vaccination, I do not take this decision lightly,” Ryan said. “However, in considering the serious health issues and genuine safety concerns of so many Post employees, I believe the plan is the right one.”

Post employees will be expected to be in the office at least three days a week starting Sept. 13, he said. “I urge you to move quickly to arrange for vaccination,” Ryan said.

On Monday, California and New York City announced they would require government employees to get vaccinated or face weekly coronavirus testing, while the U.S. Department of Veterans Affairs said its frontline health-care employees must get the vaccine or possibly be fired.

While media companies have encouraged employees to get the vaccine, they typically don’t require it. Several have begun telling employees to be in the office at least three days a week, starting in September. CNN also has mandated full vaccinations for everyone working in the office and the field.

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Apple Sales Top Estimates on Demand for 5G iPhones

27 Jul 2021 27 Jul 2021

(Bloomberg) — Apple Inc. reported record third-quarter revenue on demand for iPhones, iPads and services, bolstered by retail stores reopening globally and consumers embracing new 5G networks.

Sales grew 36% to $81.4 billion from a year earlier, the tech giant said on Tuesday. Analysts were expecting revenue of $73.8 billion. The iPhone, Apple’s core product, generated $39.6 billion, beating projections of $34.6 billion. The third quarter is typically one of Apple’s slowest periods — with consumers holding out for new phone launches around September — but the 5G iPhone 12 appears to have helped the company buck that trend.

The results suggest that Apple is gaining momentum as the company navigates its way through the pandemic and readies a fresh iPhone lineup in coming months. Still, parts shortages and a patchwork of Covid restrictions continue to weigh on its business.

Apple reported $7.37 billion in revenue for the iPad, topping expectations of $7.13 billion. Apple debuted new iPad Pro models in April, but the line was constrained due to problems building new screens for the larger models. For the Mac, Apple reported revenue of $8.24 billion, exceeding the $8 billion estimate.

Apple previously warned that third-quarter revenue would take a hit of $3 billion to $4 billion because of the chip shortage affecting some iPad and Mac components. The Cupertino, California-based company didn’t provide revenue guidance for the fourth quarter, continuing a trend it started when the Covid-19 pandemic first struck the company in 2020.

Services revenue reached $17.5 billion, above the the $16.3 billion estimate. That business is heavily reliant on sales from in-app purchases and third-party app downloads, and Apple recently decreased the cut it takes for most apps to 15% from 30%. The company has launched a slew of new services in recent years, including Apple TV+ and Apple Arcade, but it hasn’t said how those are performing.

Apple also saw its wearables, home and accessories segment grow to $8.78 billion. That category includes the Apple Watch, AirPods, Apple TV, the HomePod and various other accessories. Apple hasn’t updated the AirPods earbuds since 2019, last year’s Apple Watch upgrades were minor, and this year’s Apple TV updates were focused on a faster processor and redesigned remote.

Earnings for the third quarter were $1.30 a share, compared with an estimate of 1.01 a share. The stock rose less than 1% on the news.

All of Apple’s retail stores reopened as of June, and the company has also started a hybrid program to help staff work from home or stores with more flexibility.

As economies have continued to reopen due to vaccines, demand for Apple devices has generally increased. However, with Covid cases again rising and the chip shortage continuing, challenges are expected to persist through the holiday season. The emergence of the Covid Delta variant has already led Apple to push back an employee office return mandate by at least a month, and it has maintained masking rules inside of retail stores.

More stories like this are available on bloomberg.com

AMD Gives Optimistic Outlook, Beats Estimates, on Strong Demand

27 Jul 2021 27 Jul 2021

(Bloomberg) — Advanced Micro Devices Inc. gave a bullish third-quarter earnings forecast, indicating it’s gaining market share from Intel Corp. in the lucrative market for server chips.

AMD, the second-largest maker of computer processors behind Intel, predicted third-quarter revenue will be about $4.1 billion, plus or minus $100 million. On average, analysts had projected revenue of $3.8 billion. The company also raised its annual outlook and now expects revenue to increase by 60% up from a previous forecast for 50%.

Chief Executive Officer Lisa Su has brought the company back from the brink of irrelevance with a raft of new products that customers see as competitive with Intel’s offerings for the first time in years. Investors have poured money into AMD’s stock over the last five years, expecting Su’s changes to result in higher market share and earnings. So far this year, however, the stock has slid about 2%, compared with the Philadelphia Stock Exchange Semiconductor Index’s 13% gain, as the market looks for evidence of sustained progress.

“We are growing significantly faster than the market with strong demand across all of our businesses,” Su said in a statement.

AMD’s earnings report Tuesday indicates the company is taking market share at Intel’s expense. Intel, the world’s largest superconductor manufacturer, reported a 6% decline in second quarter revenue. AMD also competes with Nvidia Corp. in the market for graphics processors used in cards for gaming PCs.

Santa Clara, California-based AMD reported second-quarter profit that more than tripled to $710 million, or 58 cents a share, beating analysts’ estimates. Revenue rose 99% to $3.8 billion.

AMD shares rose 2.2% in extended trading following the announcement after closing at $91.03 in New York.

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Alphabet Tops Analysts’ Estimates on Rebound of Digital Ads

27 Jul 2021 27 Jul 2021

The sales growth “reflect elevated consumer online activity and broad-based strength in advertiser spend,” Chief Financial Officer Ruth Porat said in the statement.

Shares gained about 4.5% in extended trading after closing at $2,638. The stock has jumped 50% this year.

Search and other related businesses generated fiscal second-quarter sales of $35.8 billion in the first quarter. Analysts, on average, estimated $32.2 billion.

YouTube ad revenue came in at $7 billion. Analysts were looking for $6.33 billion.

More stories like this are available on bloomberg.com

Beijing Crackdown Sparks Record Slide for Chinese Stocks in U.S.

27 Jul 2021 28 Jul 2021

(Bloomberg) — The slump in U.S.-listed Chinese shares accelerated Tuesday, wrapping up another day of heavy losses, as investors shunned the assets amid a broad-based crackdown by regulators in Beijing.

In the span of three trading days, the Nasdaq Golden Dragon China Index — which tracks 98 of China’s biggest firms listed in the U.S. — has plunged more than 19%, its biggest such drop on record. Stocks included in the index have seen $829 billion in value erased since hitting a record high in February with the benchmark being nearly halved.

The gauge was already under pressure after China unveiled sweeping policy changes to the technology sector but the rout deepened as regulators pivoted to also target other industries like online education and property management.

“We do not see a buy-the-dip opportunity. China’s recent regulatory crackdowns are the beginning, not the end, of increased control and command by Chinese leaders,” said David Trainer, chief executive officer of New Constructs, an investment research firm, based in Nashville.

Markets across China slumped on Tuesday as rumors circulated that U.S. funds were dumping Chinese and Hong Kong assets, with analysts warning that gains may be short-lived. Meanwhile, tech-giants including Alibaba Group Holding Ltd., JD.com Inc., NIO Inc. and Baidu Inc. were among the biggest decliners in New York, all slumping by 2% or more.

Still, shares of education stocks like TAL Education Group, Gaotu Techedu Inc. and New Oriental Education & Technology Group managed to stage a rebound on Tuesday. All three gained by at least 12%, though they remain lower by an average of 91% on the year. Other companies, including Meten EdtechX Education Group Ltd. and 17 Education & Technology Group Inc. also closed higher.

Read more: Beijing Crackdown Breathes New Life Into ‘America First’ Trade

Despite the rebound in some education firms, not everyone’s convinced the selling pressure has abated. “I think it’s kinda of a dead cat bounce,” said Matt Maley, chief market strategist for Miller Tabak + Co. “It’s way too early to be catching the falling knife,” he added.

(Updates pricing throughout.)

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Bucks Owner Lasry Says NBA Title Sparks New Sponsor Interest

27 Jul 2021 28 Jul 2021

(Bloomberg) — The Milwaukee Bucks are reaching new levels of commercial appeal and marketability, thanks to their first NBA title in 50 years.

Co-owner Marc Lasry, who runs the hedge fund Avenue Capital Group, told Bloomberg TV that the Bucks are being approached by brands looking to capitalize on the team’s newfound success and the elevated profile of its superstar player Giannis Antetokounmpo.

“Ultimately, because of what’s happened, you’ve just got all these different companies who want to associate with us,” Lasry said. “As we’re sifting through all the different proposals, we’ll figure that out in the next couple of weeks.”

The Bucks were already busy signing new deals just before the playoffs began in May, agreeing to a multiyear partnership with Motorola Solutions Inc., bringing the telecommunications firm on as the new patch on its jersey. Other sponsors include Molson Coors Beverage Co, the transaction processing company Fiserv Inc. and BMO Financial Group.

The championship has been a merchandising coup for the Bucks. The team sold more merchandise than all but three other NBA title winners after they emerged victorious against the Phoenix Suns earlier this month, according to data from the sports merchandise company Fanatics Inc.

Antetokounmpo, named the most valuable player in the NBA Finals, had more merchandise sales the day after the Bucks clinched the title than the three prior weeks combined, according to Fanatics. Only LeBron James and Steph Curry had more jerseys sold than him over the course of the season.

Lasry and Fortress Investment Group’s Wes Edens, both known for their investments in distressed assets, bought the Bucks in 2014 for $550 million as the team languished at the bottom of the standings.

“Trust me, I’ll revel for a while,” Lasry said of the title win.

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