💥 Azure Crashes Microsoft’s Stock

MARKET UPDATE

Good Morning Investor! On Tuesday, shares of British alcoholic beverage producer Diageo ($DGE) fell 5% after reporting a sales drop due to weakness in the Latin American region. Meanwhile, shares of chip maker AMD surged 4% in after hours trading after the company reported that its data center sales had doubled in the past year, growing 115% year-over-year to $2.8 billion. Lastly, everyones favourite frappucino maker Starbucks ($SBUX) reported a revenue miss, and in China, Starbucks’ second-largest market, same-store sales tumbled 14% as both average ticket and transactions shrank. Despite this bad news, the stock was up close to 2% in after hours trading.

TODAY’S BIG HEADLINES

Azure Crashes Microsoft’s Stock

PayPal Finally “Shocks The World”

S&P Global is Boring but Brilliant

MAGNIFICENT 7 EARNINGS

Azure Crashes Microsoft’s Stock💥

Microsoft's Cloudy Day: Despite being considered by many as one of the "perfect" businesses that almost always delivers (like a pizza place that never gets your order wrong), it appears that one of the leaders in the AI space, Microsoft ($MSFT), has delivered a rather underwhelming earnings report on Tuesday night in after-hours trading, sending its stock down 7%. This comes after the company suffered another massive outage on the same day, just a week after the Crowdstrike ($CRWD) software update disaster.

When Azure Skies Turn Gray: Despite the tech giant reporting a beat on both the top and bottom line, investors chimed in their focus on the Azure cloud division, which uncharacteristically underperformed expectations. It's as if Microsoft's golden goose laid an egg... and it wasn't made of gold. Here's the rundown of the report:

• Revenue of $64.7 billion beat expectations of $64.39 billion, growing 15% year-over-year. Not too shabby for a multi-trillion dollar company!

• Earnings per share (EPS) came in at $2.95 versus the analyst consensus estimates of $2.93, with net income of $22.04 billion, up from the prior year’s $20.08 billion.

• Unlike its big tech peer Google ($GOOG), Microsoft’s cloud division Azure, underperformed its growth expectations, growing 29% year-over-year versus the 30.2% estimate.

Slices of the Pie: Productivity and business processes managed to report a slight beat in sales of $20.32 billion versus $20.21 billion expected. Meanwhile, Intelligent cloud underwhelmed with a slight miss, reporting $28.52 billion in sales versus the $28.72 billion expected. It seems even in the cloud, there can be a bit of rain.

BANKING & FINTECH

PayPal Finally “Shocks The World”😲

PayPal Finally Cashes In: Despite failing to "shock the world" in the period immediately after the CEO's bold statement, fintech titan PayPal ($PYPL) has finally managed to impress Wall Street. The stock surged almost 8% after reporting earnings in pre-market hours on Tuesday morning, proving that sometimes, good things come to those who wait... and wait... and wait. If the global consumer is showing signs of cutting spending, PayPal didn't get that memo. This has vindicated our decision to highlight the company as one of Tickergeek's free stock picks back in June, with the position now being up almost 4% while the S&P 500 has remained flatter than a pancake.

Back to Growth?: PayPal managed to report not just a beat on its top and bottom line, but it also exceeded across every metric, including growing its total number of active accounts by the largest number in 7 quarters. Here's the rundown of the report:

• PayPal’s overall net revenues rose by 8% to $7.89 billion, surpassing estimates of $7.82 billion. Venmo processed over $73 billion in total payment volume, up 8% from the previous year, with monthly active users growing by 5% to nearly 62 million.

• Adjusted earnings per share (EPS) also beat projections, coming in at $1.19 compared to analyst estimates of $1.00, and growing 36.78% year-over-year.

• PayPal reported a total transaction volume of $403.9 billion in Q2 2024, marking an 11% year-over-year increase.

• Operating margins expanded 231 basis points on an adjusted basis, to 18.5% in the quarter, thanks to cost cuts and restructuring efforts.

Gazing into the Crystal Ball: Management feels so confident in the performance of the business, they have both raised their full-year guidance for a second time this year and announced an increased share repurchase program. It's like they're playing financial Jenga, and somehow, the tower keeps getting taller. The company now expects adjusted profit growth in a "low to mid-teens percentage" in 2024, compared with its April forecast of a "mid-to-high single-digit" increase.

• The real source of outperformance during the quarter has been branded checkout, Braintree, and Venmo, which contributed to the highest transaction margin dollars growth rate since 2021. Margin dollars are a key measure of the profitability of its core business.

PayPal's Need for Speed: PayPal also took the time to highlight the progress of Fastlane, now available to merchants in the U.S., which promises to enhance checkout experiences and drive higher conversion rates. Payment processor Braintree also showed increased integration with Fastlane, contributing to the company's positive outlook. At this rate, your money will be moving faster than gossip in a small town!

DATA ANALYTICS & INDEXING

S&P Global is Boring but Brilliant😴

Anything but Standard: Although it's not a particularly "sexy" name in the world of investing (more like the accountant at the party), S&P Global ($SPGI), the company behind the S&P 500 index, has long outperformed the market with its highly profitable, asset-light business. Its recent earnings report highlighted that even with the backdrop of higher interest rates, this business is as resilient as a cockroach in a nuclear apocalypse.

• S&P Global's ratings segment surged to $1.14 billion in revenue from $851 million a year earlier, contributing to a total revenue boost of 14% to $3.55 billion, beating the analyst consensus estimate of $3.42 billion.

• The firm's Q2 earnings saw a 30% spike, translating to an adjusted quarterly profit of $1.27 billion or $4.04 per share—up from $996 million and $3.12 per share last year.

• Adjusted operating profit margin increased 450 basis points to 50.7%, primarily due to revenue growth in its Ratings and Indices divisions. Additionally, the firm generated $1.5 billion in free cash flow for the quarter. At this rate, they might need to build a bigger vault.

• Management further please shareholders by announcing an accelerated share repurchase program totaling $1.5 billion planned in the coming weeks.

When Crystal Balls Turn into Dollar Signs: Nothing makes a stock rally quite like optimistic forward-looking guidance (well, except maybe free beer), and S&P Global provided investors with exactly that after the company raised its full-year profit forecast, driven by robust demand for its products. The firm has raised its adjusted profit forecast to a range of $14.35 to $14.60 per share, outperforming its previous expectation of $13.85 to $14.10. This comes just a week after competitor Moody's ($MCO) similarly raised its profit outlook above Wall Street estimates.

MORE NEWS

Additional market-moving events🌎

India’s Largest IPO: Ola Electric wants to raise $734 million in India’s biggest IPO of the year. (Reuters)

Succession: Loews CEO ​​James Tisch is stepping down after nearly 25 years, and named his son as replacement. (Reuters)

Marvelous: Disney and Marvel’s “Deadpool & Wolverine” smashed box-office expectations in its opening weekend, hauling in $444M worldwide to become the highest R-rated debut ever. (Forbes)

Coffee Outperforms: Coffee bean prices have surged to their highest levels since the 1970s. The spike in prices can be attributed to both supply and demand issues. Droughts in Vietnam, dry conditions in Brazil and Increasing demand in markets like China. (Bloomberg)

OUR PICKS

Our selections performance👾

On Monday the 11th of March, we released our “superperformers” stock pick which we believe will provide significant outperformance compared to the S&P 500. Then on the 14th of June we released our next stock selection.

Here’s how the stocks have performed since:

• Hims & Hers Health: $21.41 (📈+47.96%)

• PayPal: $63.50 (📈+3.23%)

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