The Big Tech earnings season has kicked off with Alphabet and Tesla reporting their results first.
Alphabet Keeps Revenue Growth Steady
Alphabet (GOOGL / GOOG) reported a 14% rise in revenue, slightly lower than the 15% year-over-year increase in the previous quarter, but still in line with expectations.
The only laggard was Google Network, which saw a 5% decline in revenue. This segment encompasses third-party ads where Google partners with other websites to publish its advertisements. In contrast, revenues from Google’s own properties remained robust, with YouTube revenue growing by 13%. The key growth driver was Google Cloud, boasting a 28% year-over-year growth and surpassing $10 billion in revenue, reaching this milestone before YouTube ads.
Alphabet continues to trim staff costs, with a 1% reduction in the number of employees from a year ago. Enhanced cost control measures led to a 29% increase in net profit for Q2 2024. Following the initiation of a dividend program last quarter, Alphabet announced a $0.20 per share dividend for this quarter as well. This dividend represents about 11% of the quarter’s net income, leaving sufficient funds for future growth. I believe Alphabet will likely increase its dividend on an annual basis moving forward.
In other news, Wiz, an acquisition target for Google, decided to forgo the $23 billion deal in favor of pursuing an IPO. Wiz is a cybersecurity company that could enhance Google Cloud’s offerings. This strategic acquisition was aimed at improving Google Cloud’s value proposition and helping it catch up with Microsoft’s very own security suite, which Satya Nadella projected to reach $100 billion by 2030. Given Google Cloud’s strong growth, the acquisition was seen as crucial. Unfortunately, with talks breaking down, Google will need to seek alternative opportunities.
Tesla Continues to Disappoint
Tesla (TSLA) shareholders are no strangers to the roller coaster ride of its share price. At the end of last year, Tesla’s share price started to plunge, and by April this year, it was down by almost 50%. However, a strong rally since May recovered the loss to breakeven.
Following its latest Q2 2024 results, Tesla’s share price slipped by 8% during after-market hours trading.
Tesla’s revenue growth continues to be sluggish, with just a 2% year-over-year increase. Quarterly revenue data compiled by CNBC reveals that Tesla’s revenue has not grown significantly over the last 1.5 years. In an industry as fast-growing as EVs, Tesla’s revenue is expected to grow in tandem, not flat-line.
This stagnation is the effect of competition, something Warren Buffett has long warned about. As industries grow, they attract many competitors, leading to price wars when supply outstrips demand growth. Some companies will go bust, while others may survive but not thrive. Tesla has been cutting prices to boost sales, which has taken a toll on its profits. While Tesla maintained sales, net profit has been falling. Tesla once boasted higher operating margins than other automotive manufacturers, but this chart is conspicuously absent from the latest presentation deck.
This does not mean Tesla is doomed. My view is that Tesla needs a new model to rejuvenate its growth. Its compact crossover is only coming in 2025. Initially, Tesla planned to redesign the entire factory process to drive down costs significantly for the new line of EVs but later decided that the current lines would suffice. This suggests they are rushing out the compact crossover. However, I believe Tesla will need to redesign its workflow to regain its cost superiority over competitors and report impressive margins again. Meanwhile, Tesla shareholders will have to wait and endure the roller coaster ride of its share price.
Spotify Stock Doubled From a Year Ago
Spotify (SPOT) shone among the earnings results yesterday, continuing to deliver double-digit growth in both user base and revenue. Monthly active users grew by 14% year-over-year, and revenue jumped by 20%. Now profitable, Spotify is on track to show margin improvement, indicating that economies of scale have been achieved, and peak margins are yet to come. We can expect good numbers for many more quarters as Spotify rides this strong growth momentum.
Following the earnings release, Spotify’s share price surged by 12%, and the stock has doubled since a year ago. Despite being one of the less-watched stocks, it has proven its worth and delivered impressive returns. I picked up this stock using the momentum strategy in December 2023 and am still holding it today. Let’s see how long the stock can continue its upward trajectory.
There were other stocks that did well:
- GE Aerospace (GE): The share price rose by 6%, with the stock up 95% over the past year. This increase followed management’s decision to raise its outlook, bolstered by an 18% jump in orders.
- Lockheed Martin (LMT): The defense company raised its sales forecast, resulting in a 6% increase in its stock price.
- MSCI (MSCI): The indexing company impressed with a 14% revenue growth, and earnings beat analysts’ estimates. The stock surged by 8%.
Lastly, 8 spot Ethereum ETFs eight Ethereum ETFs have begun trading:
- BlackRock’s iShares Ethereum Trust ETF (ETHA)
- Invesco Galaxy Ethereum ETF (QETH)
- 21Shares Core Ethereum ETF (CETH)
- Fidelity Ethereum Fund (FETH)
- Franklin Ethereum ETF (EZET)
- VanEck Ethereum ETF (EFUT)
- Bitwise Ethereum ETF (AETH)
- Grayscale Ethereum Trust (ETHE)
The market hasn’t shown the same excitement as it did for Bitcoin ETFs. Ethereum’s price dipped by 1%, likely due to the anticipation of the launch wearing off. However, in the long term, this development is positive for Ethereum, as it will likely attract more funds into the cryptocurrency.