Facebook in the second quarter doubled its net profit and revenue by 56%. Net income in April-June was $ 10.394 billion, or $ 3.61 per share, compared to $ 5.178 billion, or $ 1.8 per share, received in the same period last year. Revenue increased to $ 29.077 billion from $ 18.687 billion a year earlier, while advertising revenues increased by 56% – to $ 28.58 billion. The market consensus assumed earnings growth to $ 3.04 per share on revenue of $ 27.85 billion.
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The market continued to slightly correct
Last week, major US indices continued to correct. So the S&P 500 fell 0.4%, while the NASDAQ 100 lost 1%. Nevertheless, at the end of July, the indices rose by 1.8% and 2.8%, respectively, and since the beginning of the year the indicators have added 16-17%. The reporting season remains the focus of traders’ attention. The profit of 89% of S&P index companies, which have already reported results, exceeded analysts’ expectations. The largest tech companies released their quarterly earnings last week. Thus, the results of Microsoft, Facebook and Google and Apple were significantly better than market expectations, while the reports of Amazon disappointed investors. The company’s revenue fell below market consensus.
Microsoft reported a record net profit and revenue
Microsoft posted record-breaking net income and revenues for fiscal 2021 that ended June 30, which far surpassed market consensus. The company’s net profit rose 38% to $ 61.27 billion, adjusted profit increased 37% to $ 60.65 billion. Revenue increased 18% to $ 168.1 billion. In the fourth fiscal quarter, net income jumped 47% – to $ 16.458 billion, or $ 2.17 per share, compared with $ 11.202 billion, or $ 1.46 per share received in the comparable period of the previous year. Quarterly revenue increased by 21% and reached $ 46.152 billion against $ 38.033 billion a year earlier. The market expected the company’s quarterly earnings of $ 1.92 per share on revenue of $ 44.22 billion.
And the paths went their separate ways
The post-coronavirus recovery in China peaked in Q2, so economic activity is expected to slow down in the second half of the year. Nevertheless, there is no reason for panic yet, as corporate capital investments are still quite high, export flows remain stable, and high demand in the real estate market will stimulate the construction sector, despite some tightening of monetary policy since the beginning of the year. A few weeks ago, China’s central bank launched a preemptive monetary easing, not because the regulator is alarmed by the prospects for growth, but because it is adopting a new “cross-cyclical” style of managing the national economy.
The central bank of China will seek to move away from the old policy of massive incentives, while the regulator plans to make fewer significant adjustments to monetary policy in the early stages of the new cycle of economic growth and give more freedom, in order, firstly, to reduce the volatility of financial markets, and, secondly and at the same time reduce the systemic financial risks associated with the lending boom. In practice, this could result in lower interest rates by the end of this year, combined with continued restrictions on investment in real estate and infrastructure. We believe that under the current policy, global commodity prices should remain stable, the yields on China’s sovereign bonds may decline, and the value of falling Chinese stocks is likely to begin to rise soon.
Notable is the seemingly endless persecution of internet companies, which has taken a new and draconian turn with the ban on private tutoring. Shares of registered online education companies fell 40% to 70% last Friday. While Beijing is beginning to ease monetary policy to support economic growth, the authorities are tightening regulation in a variety of sectors to address the backlog of structural problems. The reforms are aimed not only at tightening regulation in the technology sector, but also at strengthening supervision of the real estate market and in more energy-intensive industries such as the steel and mining industries.
Looking beyond China, the picture of the global economy is rather unpredictable. In the United States, the Federal Reserve and the White House seem determined to embark on a course of tightening monetary policy. However, the market’s confidence in the continuation of the reflationary trend implied by the “tightening the nuts” policy is noticeably weakening. The yields on US government bonds have dropped significantly, and the growth in the value of stocks of companies affected by the pandemic last year has stalled. In Europe, hopes for a sustained early recovery continue to be dim due to new outbreaks of coronavirus in selected regions, posing new risks for the European regulator. The ECB is likely to pursue a more dovish policy for several years to support the European economy.
ASML announces new buyback program
The Netherlands-based ASML Holding NV, Europe’s largest chip maker, increased its second-quarter net profit and improved its annual revenue forecast, and announced a share buyback program of up to € 9 billion by the end of 2023. ASML’s revenue last quarter was € 4.02 billion, up from € 3.33 billion in the same period in 2020. The market consensus assumed the figure at the level of 4.09 billion eurosю
Southwest Airlines Returns to Profits in Q2
Southwest Airlines recorded net income of $ 348 million, or $ 0.57 per share, in the second quarter of 2021, thanks to a one-off payment of $ 724 million received under the government’s anti-crisis employment program. A year earlier, Southwest Airlines had a net loss of $ 915 million, or $ 1.63 per share. The loss excluding one-off factors in April-June amounted to $ 206 million, or $ 0.35 per share. Market consensus assumed a loss of $ 0.23 per share. Southwest is the largest local airline in the United States and is considered by many to be the industry’s pricing trendsetter. We maintain a positive outlook on the company’s business.
Johnson & Johnson increased quarterly revenue in all divisions
Johnson & Johnson posted strong 2Q2021 results. The company increased its net profit in the second quarter of 2021 by 73% thanks to the growth of revenue in all major divisions. J&J’s quarterly revenue increased 27% to $ 23.312 from $ 18.336 billion. The consensus forecast for this indicator was $ 22.49 billion. According to a J&J press release, net profit in April-June rose to $ 6.278 billion, or $ 2.35 per share, up from $ 3.626 billion, or $ 1.36 per share, in the same period the previous year. Profit excluding one-off factors was $ 2.48 per share, beating the market average forecast of $ 2.29 per share.
Snap doubled its quarterly revenue
Snap, the owner of the Snapchat app, posted excellent quarterly results. The company reduced its net loss in the second quarter of 2021 and more than doubled its revenue as the advertising market continues to recover. The company’s revenue in the second quarter was $ 982 million, compared with $ 454 million a year earlier. The indicator exceeded the consensus forecast of analysts at $ 846 million. Snap’s net loss in April-June decreased by 53% – to $ 151.6 million compared to $ 326 million in the same period last year. Loss on a per share basis declined to $ 0.1 from $ 0.23 on the average market forecast of $ 0.21.
Markets Peak Again Despite Delta Strain
Last week, the main indices completely won back the correction of the week before last and again reached their absolute historical values. The capitalization of the S&P 500 increased by 2%, and the index itself rose to the level of 4,412 points. The Nasdaq 100 rose 3% and finally broke through the 15,000 mark, consolidating at 15,112. Investors started buying tech stocks again amid optimism about the sector’s growth ahead of reports from some of the industry’s biggest names. We previously noted that we expect the technology sector to outperform the broad market.
A bet on the hydrogen economy
Air Products and Chemicals (APD) posted marginally gains following positive management communication. The press release states that the Jazan and Lu’An projects have returned to normal operating rhythm. This is a positive signal, which should lead to a positive revision of the forecast for the company’s financial indicators and an increase in capitalization. We believe that the comments regarding Lu’An were not understood by all market participants, therefore the news was not taken into account by the market in full. However, the fact that the Jazan project has been relaunched and is likely to be operational by the end of this year is great news that has yet to be played out. We raise our target price for the stock from $ 340 to $ 360.