Weekly Roundup 2022-10-28

Weekly Roundup 2022-10-28

Lunar Capital Weekly Roundup

Index / Fund / Rate Start of Year Last week This Week % change YTD
JSE ALSI 73 723 65 539 66 386 -9.95%
NASDAQ Composite 15 833 10 860 11 102 -29.88%
S&P 500 4 797 3 753 3 901 -18.67%
Prime Lending Rate 7.25% 9.75% 9.75% 34.48%
Lunar BCI WW Flexible Fund 165.68 143.88 146.27 -11.72%
USD/ZAR 15.96 18.10 18.15 13.72%
EUR/ZAR 17.95 17.86 18.09 0.78%
Brent Crude 77.86 92.82 94.19 20.97%

Source: iress

Company and Market News

Last week, Alphabet, Microsoft, and Amazon released their results for the quarter ended 30 Sep 2022. These companies have a huge focus on cloud computing, and see it as a major driver of growth for their companies. Alphabet, Microsoft, and Amazon, along with the other services that they offer, offer customers the server infrastructure and platform to build and run their companies on. Overall revenue for the quarter was lower than the market expected. For the quarter, Alphabet’s total revenue was $69.1 billion compared to revenue of $65.1 billion for the same quarter a year ago, revenue for Microsoft was $50.1 billion compared to $45.3 billion for the same quarter last year;. And for Amazon, revenue for the quarter was $127.1 billion compared to $110.1 billion for the same quarter last year. However, net income for these companies for the quarter was lower compared to the same quarter last year. Amazon’s net income decreased by 9%, Microsoft’s net income decreased by 14%, and Alphabet’s net income decreased by 27%.

The companies all noted that they have seen noticeable decreases in consumer spending for all their segments. The one exception is that their cloud computing segments have still seen significant growth. Alphabet, Microsoft, and Amazon expect to see consumers further dial back their overall spending as the US economy likely goes into a recession. The negative outlook resulted in the share price for all these companies decreasing during the week. During the week, Alphabet’s share price decreased by 4.8%; Microsoft’s share price decreased by 2.6%; and Amazon’s share price decreased by 13.3%.

Below is a table showing certain metrics of the overall cloud-computing segment for each company. Alphabet, Microsoft, and Amazon’s revenues all increased by between 22% and 41% for the trailing twelve month (TTM) period. Despite Alphabet having the highest cloud revenue-growth, they still managed a negative cloud operating margin of -13.8% compared to Amazon and Microsoft, who had healthy operating margins above 30%. Alphabet are aggressively trying to expand their cloud computing business. The majority of the Alphabet’s capital expenditure for the quarter went towards their cloud computing operation. Setting up the infrastructure for cloud computing requires a lot of upfront capital, and is one of the reasons this segment for Alphabet is currently running at a loss. If Alphabet maintain their revenue trajectory for this operation, and are able to be disciplined with their cost structures, they could likely add another strong segment to their overall business.

Cloud Segment of TTM Cloud Revenue ended 30 Sep 2021 ($’m) TTM Cloud Revenue ended 30 Sep 2022 ($’m) TTM Cloud Revenue Growth TTM Cloud Operating Income ended 30 Sep 2022 ($’m) TTM Operating Margin ended 30 Sep 2022
Alphabet 17 496 24 506 40,1% -3 378 -13,8%
Microsoft 64 006 78 612 22,8% 34 137 43,4%
Amazon 57 164 76 498 33,8% 22 929 30,0%

Disclosure: Alphabet, Microsoft, and Amazon is held in the Lunar BCI Worldwide Flexible Fund.
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
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The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.
A&EO.

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