S&p 500 Earnings Update & Economic Data Review - Sunday, March 7

The Institute of Supply Management (ISM) Services PMI for February came in at 55.3, which was below expectations and down from 58.7 in January. Grow moderated, but still well in expansion territory (anything above 50 is expansionary) for the 9th straight month.

“Respondents are mostly optimistic about business recovery and the economy. Production-capacity constraints, material shortages and challenges in logistics and human resources are impacting the supply chain.”

Input costs continue to rise for both the Manufacturing & Services sectors. More signs of inflation and probably a reason for rates rising.

My weighted ISM (based on the percentage that services and manufacturing comprise in todays economy) fell from 58.7 to 56.7. Still well in expansionary territory, and on a weighted basis a reading of 56.7 equates to an annualized real GDP growth rate of 2.9%.

379K net jobs were created in February. December was revised lower from -227K to -306K and January was revised higher from +49K to +166K. A net 38K jobs were gained between December and January revisions. Solid gains in the leisure and hospitality sector helped fuel February results. Positive signs that should hopefully get much better throughout the year.

We’ve now recovered 57.6% of the net jobs lost due to COVID, but still down about 9.474 million jobs since the February 2020 peak. It’s a sobering reminder there is still much work to be done. I’m optimistic this jobs recovery will be swifter than the 2008 jobs recovery which took 49 months.

Notable earnings reports

Zoom (ZM) reported Q4 adjusted EPS of $1.22 (street expectations were $0.79), a 713% y/y growth. And revenue growth of +369% for the quarter, +326% for the full year.

Forecast for Q1 and the next fiscal year also beat expectations. The company expects revenue growth around 176% for Q1 (based on the middle of the forecasted range) and growth of 42% for the entire fiscal year.

Gross margins improved sequentially to 69.7%, while operating margins came in at 29%. A continued improvement both sequentially and year over year.

Operating income exceeded $250 million in Q4. Management has done a great job meeting demand while managing costs. Research & development fell from 11% of total revenue to 5.9% in Q4, while sales & marketing expenses fell from 53.6% of total revenue to 24.3%.

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