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Amazon and Apple Both Report Record Profits

Apple

Amazon, the online retail and media tech giant, and Apple, the largest publically listed company in the world, synonymous with the iphone, ipad and Mac laptops and computers, both released reports showing record profits yesterday. Apple published Q1 results for its fiscal 2018 year, while Amazon’s results were for its 2017 full year and Q4.

Apple’s first quarter profit of $20.1 billion beat its previous record quarter, the $18.4 billion generated over the fourth quarter of 2015. It was also a significant improvement on last year’s $17.9 billion over the same period this time last year and the results for both profit and revenue were ahead of forecast. Revenue was also up to $88.3 billion from $78.4 billion for the same quarter year-on-year.

These was, however, disappointment at overall iphone sales, particularly for the new iphone X handset, released in November and the company’s most expensive model to date, retailing at £999, or $999 in the US. A few days earlier news came out that Apple had cut the production targets for the X by 50% for the first three months of the year.

And last week analysts reduced forecasts for overall iphone sales over the last three calendar months of 2017 due to muted demand for the new model. Iphone sales account for around two thirds of the company’s total revenues.

Other Apple divisions performed better with services, which includes iTunes and Apple Pay seeing revenue increase to $8.5 billion from $7.2 billion. Other products, among which the main revenue drivers are Beat headphones, the Apple Watch and Apple TVs, saw a $1.5 billion increase to $5.5 from $4 billion.

Despite overall iphone sales numbers proving a slight disappointment, and lingering concerns around the fall-out over Apple’s admission that it had released software updates slowing down handsets when batteries were old, cold or low on battery power, the record revenue and profit figures were largely positive. Apple’s share price rose 3.1% in afterhours trading following the release.

Amazon’s results were greeted as more straightforwardly positive, with one analyst commenting that it had been “another blow-out quarter”. Record fourth quarter profits of $1.9 billion were driven most by a surge in subscriptions for the company’s Prime service and a $789 million tax break resulting from recent corporate tax reforms in the US.

While best known for its ecommerce site, media, cloud computing services and hardware products such as the Fire TV stick and Echo Dot speaker are becoming key drivers of revenue growth. Amazon has also moved into the groceries sector and last year acquired Whole Foods Market, the upmarket groceries chain for $13.7 billion.

Full year profits came in at $3 billion, up from $2.4 billion last year and net sales rose 31% to $177.9 billion. Amazon’s share price has risen by a remarkable 50% since the beginning of the fourth quarter. They had dropped by 4% over the course of yesterday but recovered in afterhours trading following the announcement of the results.

But with both companies already having seen strong share price growth over recent times, is there still potential upside for those investing online and considering shares in the companies? The consensus 12-month price target for Apple, among analysts polled for Nasdaq, is $193, with Apple shares trading at $165 today. That suggests room for further gains over the course of the year. However, the consensus 12-month price target for Amazon isn’t quite so rosy, with the huge gains over the past few months seemingly already having priced in yesterday’s strong results.

It is at $1372.5 – below the $1497 the company is currently trading at. However, more optimistic analysts put $1800 as the top of the range and this year’s share price surge blew away forecasts so further gains are still a possibility this year.

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Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.

There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

Paul

The author Paul