Big Tech Earnings Fall As Interest Rate Rises
Highlights
Johnson & Johnson's attempt to halt talc lawsuits by using subsidiary LTL Management to file bankruptcy was ruled improper by a U.S. appeals court.
The Federal Reserve hiked the benchmark interest rate by 0.25%.
Apple, Amazon, Google, Meta, and more reported earnings this week.
J&J bankruptcy strategy fails
Johnson & Johnson faces over 38,000 lawsuits alleging the company’s talc-based powder caused cancer.
Monday a U.S. appeals court told healthcare conglomerate Johnson and Johnson JNJ 0.00%↑ it improperly used a subsidiary, holding thousands of these talc lawsuits, to file bankruptcy. J&J’s subsidiary, LTL Management, was created for the sole purpose of filing bankruptcy, the three-judge panel ruled.
"Good intentions - such as to protect the J&J brand or comprehensively resolve litigation - do not suffice alone. LTL, at the time of its filing, was highly solvent with access to cash to meet comfortably its liabilities," stated the judges in their 56-page opinion.
The strategy attempted by J&J is known as the Texas two-step bankruptcy. From a high level, the move allows solvent parent companies to spin-off liabilities into a separate subsidiary then declare that subsidiary bankrupt. This protects the parent company and halts all litigation against the spin-off.
The ruling sent Johnson and Johnson’s stock down over 3% on Monday, its largest single-day decline in two years.
J&J stated they would challenge the ruling and continues to uphold the claim that its talc-based products are safe.
Fed rate hike & market action
The Federal Reserve announced Wednesday that it increased its benchmark interest rate by 0.25%. This takes the target range to 4.5-4.75%.
Below is the federal funds rate over the last three and a half years:
The rate hike comes as inflation persists far above the Fed’s 2% goal and unemployment data looks strong. The most recent CPI report pegs inflation at 6.5% over the past year. Weekly jobless claims continue to sink with the most recent report falling by 3,000 from 186,000 to 183,000.
Upon release of the written statement from the Fed markets fell. Yet, quickly recovered after Jerome Powell publicly stated, “We can now say I think for the first time that the disinflationary process has started.” He did ensure to mention it was “very premature to declare victory or to think we really got this.”
As for ongoing rate increases, officials stated they would continue to determine the “extent” of future hikes by monitoring effects from previous rate hikes, lags in policy impact, and developments in financial conditions and the economy. CNBC coverage of the Fed move’s noted that these factors were previously used to monitor the “pace” of the hikes, potentially signaling an end is in sight.
Earnings
The source of the earnings can be found by clicking the emoji next to the company’s ticker.
EPS: $1.88 vs. $1.94 estimated, down 10.9% year-over-year
Revenue: $117.15 billion vs. $121.10 billion estimated, down 5.49% year-over-year
iPhone revenue: $65.78 billion vs. $68.29 billion estimated, down 8.17% year-over-year
Mac revenue: $7.74 billion vs. $9.63 billion estimated, down 28.66% year-over-year
iPad revenue: $9.40 billion vs. $7.76 billion estimated, up 29.66% year-over-year
Other Products revenue: $13.48 billion vs. $15.23 billion estimated, down 8.3% year-over-year
Services revenue: $20.77 billion vs. $20.67 billion estimated, up 6.4% year-over-year
EPS: $0.03
Revenue: $149.2 billion vs. $145.42 billion expected, according to Refinitiv estimates
Amazon Web Services: $21.4 billion vs. $21.87 billion expected, according to StreetAccount
Advertising: $11.56 billion vs. $11.38 billion expected, according to StreetAccount
EPS: $1.05 vs $1.18 expected, according to Refinitiv
Revenue: $76.05 billion vs. $76.53 billion expected, according to Refinitiv
YouTube advertising revenue: $7.96 billion vs. $8.25 billion expected, according to StreetAccount estimates.
Google Cloud revenue: $7.32 billion vs. $7.43 billion expected, according to StreetAccount estimates
Traffic acquisition costs (TAC): $12.93 billion vs. $13.32 billion expected, according to StreetAccount estimates
EPS: $1.76 per share
Revenue: $32.17 billion vs. $31.53 billion expected, according to Refinitiv
Daily Active Users (DAUs): 2 billion vs. 1.99 billion expected, according to StreetAccount
Monthly Active Users (MAUs): 2.96 billion vs. 2.98 billion expected, according to StreetAccount
Average Revenue per User (ARPU): $10.86 vs. $10.63 expected, according to StreetAccount
EPS: -$0.98 vs -$0.64 expected
Revenue: $792.7 million vs. $710 million expected
8th straight quarter of net loss but the narrowest since 2021 fiscal Q4.
EPS: $0.14 adj. vs. $0.11 expected
Revenue: $1.30 billion vs. $1.31 billion expected
Will not give Q1 guidance but expects revenue to be down 2-10% in the first quarter.
EPS: $2.59 vs. $2.45 expected
Revenue: $5.93 billion vs. $5.68 billion expected (CNBC)
Globally same-store sales were up 12.6%. In the US same-store sales rose 10.3%.
EPS: $0.75 adj. vs. $0.77 expected
Revenue: $8.71 billion vs. $8.78 billion expected
Net sales rose 8%, driven by a 7% increase in average transaction spend.
EPS: -$0.05 vs. -$0.09 expected
Revenue: $456.7 million vs. $423 million expected
SoFi expects to achieve GAAP profitability in Q4 2023.
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