When it comes to grading the overall third-quarter earnings seasons, the “class average” is anything but pretty. According to FactSet, the blended earnings are down more than 2% this year, while Bloomberg’s recent calculations put the drop (on a share-weighted basis) at more than 3%.
That marks the second straight quarter of earnings declines and the biggest quarterly drop since The Great Recession. Oh, and in case you forgot, Q2 earnings marked the first decline in six years. Put another way, these aren’t necessarily gold-star results worth hanging on the fridge.
The technology sector has been generally stronger than the broader market so far in 2015, though. The Nasdaq is up 8%, while the S&P 500 just jumped back into positive territory with a gain of 2%. And some of the biggest names in the tech space posted some big growth and big stock moves as they released Q3 numbers.
Let’s take a look at how Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Twitter (TWTR) and Facebook (FB) stacked up, in order of when they reported Q3 results. Teaser: While all five topped earnings expectations, not all beats are created equal.
Tech Stocks: Alphabet (GOOGL)
Earnings Date: Oct. 22
Earnings Beat: Yes
Earnings Highlight: Mobile
Alphabet’s (GOOG, GOOGL) third quarter results — which came before the official restructuring — were slightly better than Wall Street was expecting. The tech giant posted earnings of $7.35 — around 2% higher than the consensus — on the back of 13% sales growth.
But for Google, the numbers weren’t quite as important as the narrative — and the narrative revolved around mobile. Google touted the fact that more than half of its search queries now come from mobile. Remember, though: Mobile revenue isn’t explicitly broken out by Google. And to be frank, the slight earnings beat is hardly anything to write home about.
Investors were still pleased; Google stock rose 10% in after-hours trading and opened 13% higher the next morning. But shares have cooled off a bit since the initial jump — part of the reason the report gets a good grade, but not the top grade.
Overall Grade: B
Tech Stocks: Amazon (AMZN)
Earnings Date: Oct. 22
Earnings Beat: Yes
Earnings Highlight: Cloud
Next up, we have Amazon (AMZN) and its earnings report, which was exciting for one reason in particular: There were actually earnings! While Amazon has consistently met or beat earnings expectations for several straight quarters, many of those were expectations of a loss.
In fact, that was the case for Q2 and Q3 earnings … yet in both quarters Amazon shocked Wall Street and posted a substantial profit (relatively speaking). In the most recent quarter, earnings tallied 17 cents per share vs. the consensus for a loss of 14 cents per share. That came on the back of 23% sales growth … including an eye-popping 73% rise in cloud revenue.
Which brings us to the core story of Amazon’s absurd earnings beat: The cloud, which boasts thick margins compared to much of the company’s e-commerce business. As The Verge noted, Amazon Web Services now account for 8% of overall sales, yet make up almost half of the company’s profits.
No wonder investors and analysts were cheering. Amazon stock opened almost 10% higher after the report and has kept climbing for a total of 15% gains. That brings up an important lesson too: Whenever you’re being graded, you’re being compared to yourself as much as others. Posting lots of previous losses definitely made this profit feel like extra credit.
Overall Grade: A
Tech Stocks: Apple (AAPL)
Earnings Date: Oct. 27
Earnings Beat: Yes
Earnings Highlight: China
Apple (AAPL) has gotten kind of boring these days, but that’s not necessarily a bad thing. The tech giant boasts an impressive streak of earnings beats, and the most recent quarter was no exception. Apple posted earnings of $1.96 per share — almost 4% better than the analyst consensus — on the back of $51.5 billion in sales.
The reaction from the market was hardly as extreme as it was for other big-name tech stocks. Shares of Apple stock slid a bit heading into the report, then opened 2% higher the morning after. But a post-earnings explosion (one way or another) isn’t necessary for a good investment. Case in point: Shares have booked a steady 10% climb since the results came out.
One highlight of the report: The fact that international sales made up more than 62% of the quarter’s revenue, thanks in part to sales doubling in China over the past year and supporting CEO Tim Cook’s recent assurance that things in the world’s second-largest economy are just fine from Apple’s perspective.
Add it all up and, despite chatter that Apple’s best days are behind it, it remains near the top of the tech class.
Overall Grade: B
Tech Stocks: Twitter (TWTR)
Earnings Date: Oct. 27
Earnings Beat: Yes
Earnings Highlight: Users
Remember that time I said not all earnings beats are created equal? Twitter (TWTR) felt that acutely after third-quarter earnings. The company’s top and bottom lines were better than the analyst consensus, yet shares plummeted after the report came out.
What sent investors for the door? Disappointing user growth, plus the kicker of disappointing Q4 guidance. Monthly active users barely grew year-over-year and fell short of analyst expectations — leading to a 10% after-hours drop for Twitter stock and ongoing chatter about the social media site’s future, including a profile on “The Decay of Twitter” from The Atlantic earlier this week.
The disappointment surrounding Twitter reminds us that earnings results aren’t reported in a bubble. Things like uncertainty over the site’s leadership put the numbers in context. When you have a relatively established company (at least in tech years) that’s still posting net losses and no growth while sporting a frothy valuation, an earnings beat is good for little more than participation points.
Overall Grade: D
Tech Stocks: Facebook (FB)
Earnings Date: Nov. 4
Earnings Beat: Yes
Earnings Highlight: Mobile
The “mobile” emphasis of Google’s earnings report has been a focus for Facebook (FB) for some time — and the company’s earnings report yesterday was no exception. Shares of Facebook stock gained after-hours thanks to beats on the top and bottom lines, and the fact that mobile advertising is strong and growing, thanks to an emphasis on Instagram.
The cold, hard numbers? Facebook earnings tallied 57 cents per share vs. expectations of 52 cents, while sales tallied $4.5 billion vs. expectations $4.36 billion.
Facebook’s earnings report can’t help but feel similar to Apple’s: It was solid. The emphasis of the results (mobile) was expected (much like Apple’s focus on China), and the results were what investors would like to see.
Put another way, consistently posting ‘B’ grade earnings report is might actually be better than wow-ing with an ‘A+’ partially because investors are used to disappointment.
Overall Grade: B
Alyssa Oursler is based in San Francisco and writes about technology, investing, gender and entrepreneurship. Her work has appeared on Forbes, Business Insider, MSN Money and more. You can follow her on Twitter here or check out her personal site here. As of this writing, she was long AAPL and FB.
