iPhone Sales, Zuckerberg’s Metaverse Bet, Spotify Pricing: Earnings to Watch

Around 25% of S&P 500 companies have reported so far this earnings season, with almost half beating sales estimates and over 70% exceeding earnings consensus.

Apple (AAPL US) will release results after the close. While the iPhone maker has so far steered clear of announcing layoffs like its big tech peers, its fiscal first-quarter revenue will be marred by supply-chain issues in China due to now-lifted Covid restrictions. (Bloomberg)

The US economy grew faster than expected in the last quarter of 2022, but the mixed GDP report also showed consumer spending that was slower than forecast, suggesting that the burden of rising prices and higher borrowing costs will continue to pressure demand as this year progresses. Following the ongoing trend, investors will look to companies reporting earnings next week to provide further insight into their expectations surrounding the impact of worsening economic conditions on their target customers.

Around 25% of S&P 500 companies have reported so far this earnings season, with almost half beating sales estimates and over 70% exceeding earnings consensus. Next week, Big Tech — including Apple, Alphabet and Meta Platforms — will be expected to offer details on their growth outlook, particularly in light of the recently announced layoffs that slashed more than 52,000 jobs and ongoing supply chain hiccups. Intel's shares slumped in extended trading Friday on one of its most dire forecasts, fueling worries over chipmakers' earnings prospect ahead of NXP Semiconductors' report due next week.

Highlights to look for next week:

Monday: NXP Semiconductors (NXPI US) reports after the close. Overshadowed by weakening vehicle demand, the supplier of chips to the automotive industry is expected to post the slowest quarterly sales growth in at least two years, according to Bloomberg consensus. That said, the chipmaker has beaten revenue estimates for the past ten quarters, and some analysts are more bullish on the outlook. Wells Fargo sees a recovery in light vehicle production in the near term and believes new vehicle designs will boost the use of the component over the long run.

Tuesday: Spotify (SPOT US) will report before the opening bell, following an announcement earlier this week trimming the size of its workforce by 6%. Even though fourth-quarter monthly active users could grow at a similar pace to the last few quarters, Wall Street analysts have been projecting a triple-digit year-on-year decline for adjusted EPS — the biggest fall since it went public in 2018. Consensus estimates for the profit metric in the current period were also revised down by about 5% in the past four weeks, a signal that the pain could stretch into 2023. The music streaming giant could consider following Apple Music to raise prices on its US plans to improve its margin, Bloomberg Intelligence wrote. Caterpillar (CAT US) is due before market open. The heavy machinery maker is likely to report improved profitability and margins in the fourth quarter due to strong pricing and positive volume growth across all businesses, according to Bloomberg Intelligence. Signs of demand slowing, pricing and its China outlook will be a focus as the company is often seen as a global economic bellwether. Consensus estimates for the full year show Caterpillar sustaining double-digit, albeit slower, EPS growth, with BI citing an extended backlog, favorable end-market exposure and increased infrastructure and public sector investments. Wednesday: Meta Platforms (META US) is due after-market. Shares of the Facebook parent saw its worst yearly decline last year and toward the end of the year gave its disappointing fourth-quarter revenue forecast and capex plans, which some analysts say are “too aggressive” in a downturn. Even with its cost-cutting measures from reducing jobs to cutting back New York office space and lobbying spending, free-cash-flow view for the year remains limited by top-line pressure, Bloomberg Intelligence analysts said, who also cited losses in its Reality Labs division which could amount to ~$4 billion in the quarter. Gross margin could miss consensus as the lower-priced Reels ad inventory may “cannibalize” the higher-priced ad formats on its feeds and stories.

Thursday: Apple (AAPL US) will release results after the close. While the iPhone maker has so far steered clear of announcing layoffs like its big tech peers, its fiscal first-quarter revenue will be marred by supply-chain issues in China due to now-lifted Covid restrictions as well as a strong dollar, BI said. Such challenges will fade going into the year and the company is still expected to post mid-single-digit revenue growth in the medium term with the help of product-refresh cycles and sales of additional services. Alphabet (GOOGL US) is also due after the close. The Google parent's ad pricing likely held up better than Internet rivals, BI said, but as evidenced with its 6% slash to global workforce, it is operating in a tough environment that's likely to translate to deceleration in earnings growth, and consensus estimates expect EPS to contract year-over-year for a third quarter. That said, YouTube sales may improve with new exclusive rights to live sports, including a recent addition of the NFL Sunday Ticket package; the uptick in YouTube premium and TV subscribers could also exceed expectations in its Google Other segment. Friday: Regeneron (REGN US), due to give fourth-quarter results before market open, is poised for a third consecutive year-over-year shrinkage in both sales and adjusted earnings per share. Focus will likely remain over the company's main revenue drivers, Eylea and Dupixent, with the former raising concerns over underperforming US sales that undercut consensus by 8% based on a preliminary announcement. Investors will look for assurances from management that the miss was due to a transient disruption of copay assistance, which led customers to switch to off-label medication, and not from a more permanent shift in demand, said Bloomberg Intelligence.