Tech Earnings Preview

This is a huge week for the market as over 20% of the S&P 500 market cap and over 45% of the Nasdaq 100 are set to announce earnings this week. That may sound like a lot of companies, but it’s not. Just five companies make up that amount of value!

It probably won’t take you long to rattle off many if not all of them. They are companies that we directly relate with everyday for work or play. They’re on your phone, and most have used the platforms of these companies to communicate or purchase something. OK, I’ll stop teasing and give you the list along with their earnings date:

• Microsoft Corp (NASDAQ: MSFT)—10/27/2020 AMC
• Apple Inc (NASDAQ: AAPL)—10/29/2020 AMC
• Amazon.com, Inc (NASDAQ: AMZN)—10/29/20 AMC
• Facebook, Inc (NASDAQ: FB)—10/29/20 AMC
• Alphabet Inc (NASDAQ: GOOG)—10/29/2020 AMC

You’ll notice that Microsoft is the odd duck having announced earnings on Tuesday after the market close (AMC). The company topped estimates on the top and bottom line on cloud and gaming demand, and yet the stock fell around $3.50 after the bell.

Let’s take a closer look at the remaining companies set to announce this week.

AAPL Earnings Expectations

As you gauge earnings expectations, it’s good to understand what the options market is anticipating, price history suggests and what analysts are estimating.

Options Market Expectations

This week’s expected move, that encompasses the earnings release, for AAPL is +/- $5.99. With a closing price on Tuesday of $116.60, that gives a one standard deviation range of $110.61 to $122.59. As you consider a trading strategy to apply to Apple over the earnings, a good starting point is whether you feel the price will move more or less than the expected move.

Price History

Here are the price statistics over the past three years and 12 earnings reports.

• Gaps Up: 9  
• Average Gap Up: 4.03%
• Max Gap Up: 6.96%
• Ave 6-Day Post Earnings Report Moves: 7.36%
• Gaps Down: 3
• Average Gap Down: 3.11%
• Max Gap Down: 5.7%
• Ave 6-Day Post Earnings Report Moves: 6.48%

The currently expected move of 5.99% is higher than both the average gap higher and lower.  

Analyst Estimates

Apple has beaten analyst estimates in all four of the last four earnings reports. Over those four reports, the company has progressively beaten analyst estimates by a wider and wider margin. For example, the company’s report for Q1 2020 beat analyst estimates by 14.3% and then beat estimates by 25.5% in Q2 2020.

The progressive trend of wider earnings beats hasn’t led to significant EPS revisions for the current quarter, next quarter, current year, or next year. Looking at the current quarter estimates, the company is expected to see earnings decline from $0.76 last year to $0.71 projected this year on revenue growth of 0.2%. While the current quarter is expected to decline, the current year is expected to increase 9.1% from 2020 to $3.24.

AMZN Earnings Expectations

Options Market Expectations

This week’s expected move for AMZN is +/- $195.51. With a closing price on Tuesday of $3286.33, that gives a one standard deviation range of $3481.84 to $3090.82.

Price History

Here are the price statistics over the past three years and 12 earnings reports.

• Gaps Up: 7  
• Average Gap Up: 6.27%
• Max Gap Up: 9.66%
• Ave 6-Day Post Earnings Report Moves: 5.43%
• Gaps Down: 5
• Average Gap Down: 4.78%
• Max Gap Down: 7.44%
• Ave 6-Day Post Earnings Report Moves: 5.84%

The currently expected move of 5.95% is in line with the average gap higher but greater than the average gap lower.

Analyst Estimates

Amazon has beaten analyst estimates in two of the last four earnings reports. In the most recent report, the company blew away expectations with an earnings beat by 605%. The company saw sharp increases in analyst estimates following the report.

The current quarter estimates were raised from $4.37 to $7.25 per share in the past 90 days. The current year projection was raised from $18.92 per share to $31.75 over the past 90 days. Following the initial positive revisions following the report, the earnings trends have been flat. The current revenue estimate for the current quarter is $92.48 billion for a 32.2% increase from the same quarter a year ago.

FB Earnings Expectations

Options Market Expectations

This week’s expected move for FB is +/- $17.74. With a closing price on Tuesday of $283.29, that gives a one standard deviation range of $301.03 to $265.55.

Price History

Here are the price statistics over the past three years and 12 earnings reports.

• Gaps Up: 9  
• Average Gap Up: 6.03%
• Max Gap Up: 10.09%
• Ave 6-Day Post Earnings Report Moves: 7.58%
• Gaps Down: 3
• Average Gap Down: 9.39%
• Max Gap Down: 19.59%
• Ave 6-Day Post Earnings Report Moves: 8.06%

The currently expected move of 6.26% is in line with the average gap higher but lower than the average gap lower. While the stock has a history of positive earnings moves, the stock moves considerably more when the earnings misses.

Analyst Estimates

Facebook has beaten analyst estimates in three of the last four quarters. The company beat analyst estimates by 29.5% in the last earnings report. Following the last report, the company saw significant positive revisions to the current quarter, next quarter, current year, and next year. For example, current quarter estimates were positively revised by over 10% following the report to $1.89.

Analysts are currently projecting revenue growth of 11.7% for the current quarter to $19.73 billion.

GOOG Earnings Expectations

Options Market Expectations

This week’s expected move for GOOG is +/- $74.94. With a closing price on Tuesday of $1604.26, that gives a one standard deviation range of $1679.20 to $1529.32.

Price History

Here are the price statistics over the past three years and 12 earnings reports.

• Gaps Up: 4  
• Average Gap Up: 6.34%
• Max Gap Up: 8.74%
• Ave 6-Day Post Earnings Report Moves: 3.92%
• Gaps Down: 8
• Average Gap Down: 3.01%
• Max Gap Down: 7.97%
• Ave 6-Day Post Earnings Report Moves: 4.94%

The currently expected move of 4.67% is below the average gap higher but higher than the average gap lower. The price has a history of gapping lower on earnings but does so with relatively smaller moves than on earnings beats.  

Analyst Estimates

Google has beaten analyst estimates in two of the last four announcements. The company mot recently beat analyst estimates by 21.5%, which resulted in significant positive revisions to current quarter and current year EPS.

Analyst estimates for current quarter EPS is $11.09, which is 9.6% higher than the same quarter last year. Revenue is expected to come in at $42.73 billion. That is 5.5% higher year-over-year.

Conclusion

The fate of these companies this week could create significant movement in the major market indices. If Microsoft is a preview of what is to come, it could be a bumpy ride for the market. As you look to set up potential trades over the earnings, this data should be a useful resource.