By Emily Bary
Walt Disney World Resort via Getty Images
Big Tech made corporate finances during the COVID-19 pandemic look a bit better, but we are still headed for the worst earnings season in more than a decade as the Walt Disney Co. prepares to discuss its financial performance.
Apple Inc. /zigman2/quotes/202934861/composite AAPL +1.03% , Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN +0.66% , Alphabet Inc. /zigman2/quotes/202490156/composite GOOGL +0.96% /zigman2/quotes/205453964/composite GOOG +0.92% and Facebook Inc. /zigman2/quotes/205064656/composite FB +0.20% all reported earnings Thursday afternoon and generated a combined $28.6 billion in profits in the calendar’s second quarter, squashing expectations of $19.1 billion for the quartet. Apple, Amazon and Facebook all shot to record highs yet again in response to their report.
For more: Pandemic? Antitrust? No worries for Big Tech, which racked up $200 billion in sales anyway
Earnings beats of that magnitude put the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.30% on track for a somewhat more respectable profit performance. Corporate profits are now expected to have fallen 35.8% in the second quarter, taking into account already-reported numbers and estimates for the rest. That would mark the worst earnings performance since the second quarter of 2009, but just a week ago, analysts were projecting a 42.4% drop in profits, which would’ve been the worst showing since the fourth quarter of 2008.
More than 70% of S&P 500 companies reported results through Thursday afternoon, and those companies delivered an earnings beat of 22.9% in aggregate, according to Credit Suisse Chief U.S. Equity Strategist Jonathan Golub. The beat rate was “only” 13.8% before the Thursday reports came in, showing the outsize impact of Big Tech on profits for the index.
Though aggregate earnings have come in better than expected, the stock-market reaction has been fairly restrained. Companies that topped both earnings and revenue expectations this season saw their stocks outperform the market by 1.5%, compared with an historical average of 1.6%, Golub wrote. Companies missing on both metrics have seen their stocks lag by 1.8% versus a typical underperformance of 3.1%.
See also: How Apple’s stock split will change the pecking order in the Dow
The week ahead brings another packed slate of earnings, with 130 members of the S&P 500 set to report and one member of the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.20% : Disney /zigman2/quotes/203410047/composite DIS -0.64% , which faces some of the toughest challenges of the pandemic. Other highlights include Beyond Meat Inc. /zigman2/quotes/211617595/composite BYND -1.77% , Uber Technologies Inc. /zigman2/quotes/211348248/composite UBER -0.60% and Roku Inc. /zigman2/quotes/205087179/composite ROKU -4.80% .
Living the stream
Netflix Inc. /zigman2/quotes/202353025/composite NFLX +0.52% proved that the pandemic has been a boon for online video, but for fellow streaming players Disney and Roku, the story is more complicated. Their reports this week will show whether a growing tilt toward streaming media as people stay at home can help outweigh some of the more negative economic impacts of the crisis.
The Disney+ service promises to be one of the rare bright spots in Disney’s Tuesday afternoon report, given challenges across the business due to park closures, film delays, sports cancellations and a weak advertising market. From a revenue perspective, Disney+ is still a small piece of the sprawling media empire, but the service launched the filmed version of “Hamilton,” one of the summer’s biggest hits, and will look to leverage that momentum even after the “Hamilton” boom is over, given a weak outlook for its more traditional media businesses.
For more: Disney+ may be the only plus for Disney during pandem ic
Roku, which sells streaming devices and other technologies that allow people to watch over-the-top content on their TV sets and offers its own free streaming service, will detail some of the best and worst trends in video Wednesday afternoon. On one hand, the company benefits when people sign up for new streaming services through its platform, but it also generates revenue from advertising, which has taken a hit during the pandemic.
Wedbush analyst Michael Pachter said that investors could “expect a dip” in the near term, followed by an acceleration once the economy improves and Roku can better leverage a growing audience.