Some of the world’s largest technology companies released their quarterly earnings this week. Their latest numbers were important for investors who were concerned whether the strong growth momentum that powered the tech giants through the pandemic was still there.
We’ve summarized the key takeaways from Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) quarterly numbers and what they mean for their future share performances.
iPhones Help Apple to Make Record Sales
After a very robust holiday quarter, investors were concerned that the maker of iPhones and other electronic gadgets would show some slowdown in its sales. But when the world’s most-valued company released its earnings, it crushed analysts’ expectations and with record sales showing strength in all product categories.
The California-based company reported a record $23.6-billion profit in the previous quarter as revenue rose 54% to $89.6 billion, helped by surging sales of the newer iPhone models. Overall, iPhone revenue for the March quarter rose 65% to $47.9 billion, against the analysts’ forecast of a 42% increase.
During the conference call, Chief Executive Tim Cook told analysts that there was still room for iPhone growth with the newly introduced 5G cellular version of the device. “The 5G cycle is important, and we’re in the early days.”
Apples’ powerful performance forced Goldman Sachs to upgrade its stock rating from sell to neutral, admitting that it underestimated demand for iPhones.
“Our original view that the iPhone cycle would disappoint in the midst of COVID was clearly wrong. Not only has Apple done better than we expected on iPhone during the cycle, but Mac and iPad have also materially outperformed our forecasts,” Goldman said in a note to clients.
Apple shares, which underperformed the overall market so far this year, traded down slightly Thursday, closing at $133.48.
JPMorgan analyst Samik Chatterjee, who has an overweight rating on the stock, said in a note to clients that the quarter showed how Apple is strengthening its position for long-term leadership.
“The 5G iPhone cycle is not only playing out in the form of strong consumer upgrades and switchers, but it is also positioning Apple for a higher share of the overall smartphone market on account of its leadership in 5G devices and, in turn, driving the services transformation through better leverage of a faster growing installed base.”
JPMorgan raised its price target to $165 per share from $150.
Facebook’s Ad Machine Churns More
The social media giant also produced a stellar quarterly report, increasing its quarterly sales by 48%, well ahead of analysts’ estimates. The report clearly showed that the digital ad market is rebounding fast as the US economy reopens after the pandemic-driven decline last year.
FB’s total sales in Q1 soared to $26.2 billion, easily surpassing the $23.7 billion average estimate of analysts. Facebook reported 2.85 billion monthly active users as the platform, which also owns Instagram and WhatsApp, benefits from a stay-at-home environment. Both big and small companies are spending more on social media sites to attract customers.
Facebook founder and CEO Mark Zuckerberg said in an earnings’ press release:
"We had a strong quarter as we helped people stay connected and businesses grow. We will continue to invest aggressively to deliver new and meaningful experiences for years to come, including in newer areas, like augmented and virtual reality, commerce and the creator economy."
Several analysts raised their target price for Facebook shares after the strong momentum and potential for further gains once the hardest hit sectors of the economy from the COVID pandemic, such as tourism and retail, begin to reopen.
“FB has been one of the most aggressive investors into new growth opportunities throughout this COVID period, which should set them up for several years of sustained premium revenue growth,” according to Evercore ISI, which has an “outperform” rating on FB.
After the earnings report, the research firm raised its price target on FB shares to $400 from $370. FB shares closed at $329.51 on Thursday, about 7% higher from their Wednesday close.
Credit Suisse analysts, who also raised their price target to $400 from $371, said in a note that the street models are too conservative about Facebook as they underestimate the long-term monetization potential of other billion-user properties like Messenger and WhatsApp.
Bottom Line
Both Apple and Facebook have shown strong growth momentum in their latest quarterly reports. These impressive performances have prompted many analysts to revise their share price targets as they believe 2021 could bring more upside as the global economy reopens and growth accelerates.