Apple and Amazon combined account for around 10% of the S&P 500, and their earnings have the potential to set the tone for global equity trade.
The two US tech heavyweights reported two very different outcomes for their shares after the bell overnight. Amazon’s AWS business continues to be a beacon of light for Amazon and the entire tech sector. Apple, on the other hand, is suffering from slower iPhone sales.
Amazon smashed analyst earnings estimates. Net sales were $134.38bn versus estimates of $131.63bn, with AWS revenue rising and beating estimates.
Amazon’s operating blow the consensus out of the water, coming in at $7.68bn against estimates of $4.72bn. Amazon shares surged 8% in the premarket and were helping lift market sentiment universally.
Although Apple beat tepid estimates, there were concerns about iPhone and Mac sales and earnings were propped up by growing service revenue. Apple sales for the quarter fell 1.4% to $81.8bn but the selling of their shares was contained by the reoccurring service revenue growth and hopes the new iPhone launch would ignite sales.
Apple shares were 1.8% weaker in the premarket.
“Some of the most successful businesses in the world are the ones who create an ecosphere. Customers initially sign up for one service and then slowly add more, to the point where they become so reliant on them that switching elsewhere is unfathomable. Apple is the master of this game,” said Dan Coatsworth, stock market analyst at AJ Bell.
“It has developed a reputation for selling premium-priced hardware that has different functionality to rivals. Once someone has bought a laptop, a phone or something else, Apple then upsells a range of services – and it’s this part of the business which has become a key profit driver as the margins are spectacular.
“The number of paying subscribers for its digital services has exceeded one billion worldwide. Without this success, the market would have been a lot more worried about its earnings given that iPhone and iPad sales were lacklustre.
“The services arm provides a welcome cushion to the group, but Apple still needs to revive hardware sales growth otherwise the market is going to worry about the next generation of customers to join its ecosphere.
“It is time for Apple to launch something new and innovative, not just another variation of its core products.”
