Amazon primes the profit pump
Big tech finished earnings season with a bang on Thursday as Amazon absolutely crushed earnings expectations, while Apple, PayPal, and Airbnb offered more modest good news. All figures in this section are in U.S. dollars.
Tech earning highlights this week
Amazon (AMZN/NASDAQ): Earnings per share of $0.65 (versus $0.35 predicted) and revenues of $134.4 billion (versus $131.5 billion predicted). Share prices shot up more than 10% in extended trading after the earnings announcement. While Amazon’s 48-hour Prime Day may get most of the headlines, it’s important to note that Amazon Web Service (AWS) accounted for 70% of Amazon’s operating profit for the quarter.
Apple (AAPL/NYSE): Earnings per share of $1.26 (versus $1.19 predicted) and revenue of $81.80 billion (versus $81.69 billion predicted), were largely taken in stride in after-hours trading on Thursday evening, with shares down 2% following the earnings announcement. While services revenue was up 8% year-over-year, iPad revenue was down 20%, Mac revenue fell 20%, and even the mighty iPhone saw revenue dip 2% compared to last year’s 2nd quarter. Our favourite random Apple stat from the report was that the company has $166.54 billion cash on hand. For context, that’s more than the entire provincial tax revenue of Quebec and Nova Scotia put together.
PayPal (PYPL/NASDAQ): Earnings per share of $1.18 (versus $1.16 predicted), and revenues of $7.29 billion (versus $7.27 billion predicted). Stock price was down 8% in after-hours trading on Wednesday.
Airbnb (ABNB/NASDAQ): Earnings per share of $0.98 (versus $0.78 predicted), and revenues of $2.48 billion (versus $2.42 billion predicted). Sky-high expectations for the vacation rental online marketplace meant that despite growing nights booked by almost 11%, and adding 18% revenue in year-over-year comparisons, shares were down 6% in extended trading.
Canadian REITs weather interest rate storm
Two of Canada’s most prominent real estate investment trusts (REITs) released their quarterly reports this week.
REIT highlights this week
RioCan (REI-UN/TSX) announced on Wednesday that committed occupancy had increased to 97.4% and second-quarter net income had risen from $78.5 million a year ago, to $112 million. The stock was down 1.12% in trading on Thursday, largely indicating no major surprises.
Canadian Apartment REIT (CAR-UN/TSX) also reported quarterly results on Thursday, with CEO and President Mark Kenney commenting: “Our operational performance remained robust in the second quarter of 2023, with near 99% occupancy on the Canadian residential portfolio maintained alongside strong and stable margins […] We also continue to act on our asset management program, and so far this year have sold $293 million worth of non-strategic buildings, while reinvesting $208 million of net proceeds into newly-built rental properties located in thriving regions throughout Canada. These high-quality, modern buildings now represent 10% of our Canadian portfolio value, and we will continue to increase that allocation. Above all else, this serves a greater purpose in supporting the supply of new construction rental housing in Canada’s highest-density and fastest-growing cities.”
As one of Toronto’s largest landlords, RioCan is closely watching its small business segment for signs of interest rate fatigue. CEO Jonathan Gitlin stated that while he expects some small businesses to “suffer and close,” the REIT’s portfolio of grocers, pharmacies, dollar stores, and liquor stores was in very stable condition. For more information, check out my article on Canadian REITs for 2023 at MillionDollarJourney.ca.
Shopify bets on AI
It was a mixed bag of news for Canada’s fourth-largest company based on market cap when it released earnings on Wednesday. Bottom-line numbers were solid, as Shopify (SHOP/TSX/NYSE) reported earnings per share of USD$0.14 (versus USD$0.05 predicted) and revenues of USD$1.69 billion (versus USD$1.63 billion predicted).
Despite showing significant improvement in year-over-year metrics, Shopify’s share price was down more than 5% on Thursday.
Shopify continued to execute its game plan to streamline operations by completing the sale of Deliverr Inc., as well as cutting about 30% of its workforce over the last two years.
CFO Jeff Hoffmeister stated that severance pay and a loss on the Deliverr sale had led to an overall operating loss of US$1.6 billion on the quarter, despite a 17% year-over-year increase in gross merchandise volume and a 21% increase in subscriptions-related revenue.
Much like every company these days, Shopify was quick to promote a lot of artificial intelligence-related opportunities without being specific about how exactly those would translate into profits. While we can see how Shopify is ideally positioned to benefit from increased data on customer sales—and could theoretically use AI to optimize based on that data advantage—it remains to be seen just what effect all this could have on the bottom line. Using AI to auto-write email subject lines and to create a chatbot called “Sidekick” sound like fun ideas, but the path to increased profits!?