Written by Norman Isaac Mwambazi

What to know this week: Amazon and Alphabet earnings, January jobs report

Last week, the stock market was hit by the unexpected surging of shares of struggling companies GameStop, AMC, BlackBerry, among …

Last week, the stock market was hit by the unexpected surging of shares of struggling companies GameStop, AMC, BlackBerry, among others fuelled by Reddit discussions of small investors. This surge was felt by Wall Street and professional investors.

Unlike the unexpected events last week, investors have expectations for this week, and this is none other than the release of quarterly earnings reports and economic data from a range of companies, some of which make up Big Tech.

Following in the steps of social network giant Facebook which released its earnings report last week on Wednesday, January 27, 2021, other Big Tech companies Alphabet, the parent company of Google and online retailer Amazon are set to release their earnings reports this week, after market close on Tuesday to be exact.

Alphabet

While Facebook’s social media ad business is not a perfect analogy to Alphabet’s search-driven ad business, their results showed that the environment for online advertisers is still strained as the coronavirus continues to disrupt business customers.

This week, analysts expect Alphabet to report accelerating revenue growth in Q4 FY2020 versus the Q3 FY2020, as improving operating conditions for its advertising customers helped boost results at the end of the year. Consensus analysts are looking for sales, excluding traffic acquisition costs, to grow 18 per cent to $44.16 billion, compared to the 15 per cent growth posted in Q3.

Alphabet google stock earnings week

Doug Anmuth, an analyst at J.P. Morgan wrote in a note to investors last week that:

“Our checks with SEMs [search engine marketers] suggest search spending accelerated from Q3 to Q4. Certain verticals heavily affected by COVID-19, including travel that we believe represented 10 – 15% of search revenue prior to the pandemic, likely remained challenged throughout 4Q given resurgence and related shutdowns.

“We believe recovery in these verticals will happen through ’21 as consumers continue to get vaccinated, driving further acceleration in ad revenue.”

Search is not the only business division of Alphabet that has grown. Other smaller areas of the company’s business like Google Cloud business grew revenues nearly 45% year-over-year during the Q3, higher than Q2 growth of 43%.

Still in Q3, Alphabet CEO Sundar Pichai announced Google would break out Google Cloud’s operating profit for the first time ever in fourth-quarter results, offering a glimpse at the return the company received after years of investment to compete with cloud leaders like Amazon’s AWS and Microsoft’s Azure.

“Following years of heavy investment in Google Cloud, we believe Cloud around breakeven or marginally profitable would show both profitability path for Cloud and margin stabilization/expansion potential for the remainder of the Google Segment,” Anmuth said.

Amazon

As mentioned earlier, e-commerce giant Amazon is also releasing its Q FY2020 earnings on Tuesday and analysts expect the company to report another chartbuster quarter amid the accelerating shift to online shopping during the pandemic. The company will likely post its first-ever quarter doing more than $100 billion in revenue, which would bring full-year 2020 revenue to an astounding $379 billion. Yes, the pandemic had nothing on them.

Although retail sales across the U.S. scaled back across most consumer categories towards the end of last year, this was not the same for online retailers, as their sales remained strong. Government data showed that in December 2020, U.S. e-commerce platforms grew sales 19% over the same month in 2019.

Stephen Ju, an analyst at Credit Suisse wrote in a note to investors last week thus:

“Thematic data points we have gathered throughout 2020 […] collectively point to consumers globally becoming increasingly comfortable purchasing online every day as opposed to every now and then.

“These factors amount to the following near to long-term potential implications for Amazon:

  1. Upside to GMV [gross merchandise value] estimates in 2021 and beyond and
  2. Moderating customer acquisition/retention costs as greater purchase frequency reinforces Amazon/Prime brand.”

Although sales likely soared yet again over the fourth quarter and holiday shopping season, Amazon is committed to pump even more capital back into the business to sustain its growth and increase safety for its workers during the pandemic.

Amazon said its operating income in the fourth quarter would come in between $1 billion and $4.5 billion, when factoring in costs of about $4 billion in costs related to the COVID-19 pandemic.

That compares to operating income of $3.9 billion in Q4 FY2019. Amazon’s estimated costs doubled from the $2 billion it said it would spend on COVID-related expenses in the third quarter of 2020.

January jobs report

On Friday, the U.S. Labour Department will release a report of January jobs and it is expected to show that the economy resumed adding back payrolls at the start of 2021, after a dip in hiring in December.

Consensus economists expect to see the unemployment rate hold steady at 6.7% for a third straight month and a modest rise in non-farm payrolls. Specifically, economists anticipate non-farm payrolls rose by 58,000 in January, after declining by a net 140,000 in December 2020, the first time they dropped since April 2020. This was mainly attributed to a resurgence in COVID-19 infections around the holiday season coupled with weakening hiring trends during the winter.

US December jobs report

The December jobs report that was released last month showed that employment was still 9.8 million below its pre-pandemic levels from February of 2020, after even seven straight months of payroll gains failed to fully recover the jobs lost at the worst points of the pandemic.

As other sectors are expected to pull through, the services sector, which had the biggest drop of jobs in December 2020 (498,000) as leisure and hospitality industries, is expected to still drop in the January jobs reports. However, with the vaccine continuing to be rolled out and the latest $900 billion stimulus package takes its course in the economy, this phenomenon is expected to change in the coming months.

“We estimate that non-farm payroll employment was broadly unchanged in January, but the recent fiscal support and drop-back in new virus cases suggest the labour market recovery will resume soon,” Capital Economics senior U.S. economist Andrew Hunter said in a note Thursday. “Excluding leisure and hospitality, employment in most other industries continued to rise in December and the early signs are that continued in January.”

January has had two sides of the unemployment coin. One side is the number of jobs lost. During the survey week, or the week including the 12th of the month, first-time unemployment claims spiked above 900,000, almost reaching August unemployment levels.

The other side is that there have been re-entrants in the workforce during January and this is evidenced by the retreatment of claims for federal pandemic-era unemployment benefits.

“Since the beginning of the January non-farm payrolls survey period, continuing claims in regular state programs, Pandemic Emergency Unemployment Compensation, and extended benefits have declined 160k, consistent with our view that the labour market likely stabilized in January,” Nomura Chief Economist Lewis Alexander wrote Thursday.

Here is this week’s earnings calendar

Monday: Warner Music Group (WMG) before market open

Tuesday: Alibaba (BABA), McKesson (MKC), ConocoPhillips (COP), SiriusXM Holdings (SIRI), Harley-Davidson (HOG), UPS (UPS), Pfizer (PFE), Marathon Petroleum (MPC), Exxon Mobil (XOM) before market open; Amgen (AMGN), Alphabet (GOOGL), Match Group (MTCH), Amazon (AMZN), FireEye (FEYE), Electronic Arts (EA), Chipotle Mexican Grill (CMG) after market close

Wednesday: Apollo Global Management (APO), AbbVie (ABBV), Humana (HUM) before market open; Qualcomm (QCOM), Align Technology (ALGN), IAC (IAC), eBay (EBAY), PayPal (PYPL), GrubHub (GRUB), Qorvo (QRVO), Allstate (ALL) after market close

Thursday: Merck (MRK), Bristol-Myers Squibb (BMY), The New York Times (NYT), Tapestry (TPR), Clorox (CLX), Cigna (CI), Ralph Lauren (RL), Phillip Morris (PM) before market open; Zendesk (ZEN), Prudential Financial (PRU), GoPro (GPRO), Activision Blizzard (ATVI), Snap (SNAP), Gilead (GILD), Pinterest (PINS), Peloton (PTON), Ford (F) after market close

Friday: Regeneron Pharmaceuticals (REGN) before market open

Economic Calendar

Monday: Markit US manufacturing PMI, January final (59.1 expected, 59.1 in prior print); Construction spending month-over-month, December (0.8% expected, 0.9% in November); ISM Manufacturing, January (60.0 expected, 60.7 in December)

Tuesday: Wards total vehicle sales, January (16.10 million expected, 16.27 million in December)

Wednesday: MBA mortgage applications, week ended January 29 (-4.1% during prior week); ADP employment change, January (50,000 expected, -123,000 in December); Markit US Composite PMI, January final (58.0 in prior print); Markit US services PMI, January final (57.5 in print print); ISM Services Index, January (56.8 expected, 57.7 in December)

Thursday:

Challenger job cuts, year-over-year, January (134.5% in December);

Initial jobless claims, week ended January 30 (847,000 during prior week);

Continuing claims, week ended January 23 (4.771 million during prior week);

Factory orders, December (1.0% expected, 1.0% in November);

Durable goods orders, December final (0.2% in prior print);

Durable goods orders excluding transportation, December final (0.7% in November);

Non-defense capital goods orders excluding aircraft, December final (0.6% in prior print);

Non-defense capital goods shipments excluding aircraft, December final (0.5% in prior print)

Friday:

Change in non-farm payrolls, January (50,000 expected, -140,000 in December);

Unemployment rate, January (6.7% expected, 6.7% in December);

Average hourly earnings, month-over-month, January (0.3% expected, 0.8% in December);

Average hourly earnings, year-over-year, January (5.0% expected, 5.1% in December);

Labour force participation rate, January (61.5% in December);

Trade balance, December (-$66.5 billion expected, -$68.1 billion in November);

Consumer credit, December ($12.500 billion expected, $15.274 billion in November).

Courtesy photos.