Companies Reporting: Alphabet, Vodafone, Royal Dutch Shell, Vodafone

Here’s our regular look at the FTSE 350 and a selection of other companies reporting from 31 January to 4 February.

• Meta will reveal how much damage Apple’s new privacy settings damaged the top line
• Will increasing work commutes lead to higher demand for Spotify
• Has Omicron disrupted lucrative roaming fees for Vodafone
• Amazon will hope to make a better impression on the market
• Compass Group will look to keep margins moving in the right direction
• Royal Dutch Shell needs to demonstrate that it’s committed to a low carbon future

Alphabet, Q4 Results, Tuesday 1 February

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Sophie Lund-Yates, Equity Analyst “The pandemic has permanently increased demand for digital advertising, as marketing teams had to rethink their strategies when towns and cities shut down, hammering footfall that passed traditional billboards. This shift in behaviour helped Alphabet’s NASDAQ:GOOGL revenue rise 41% to $65.1bn last quarter, meaning expectations will be high next week.

Away from the core advertising business, Google’s cloud computing division has been growing very quickly. This is a potentially very lucrative and long-term source of income for Alphabet. If fellow cloud-provider, Microsoft’s, results are anything to go by, I’m expecting to see some strong growth on that front. Finally, eyes will be on the regulatory landscape. Recent anti-trust lawsuits in the US focussed on anti-competitive practices in Search, and particularly Alphabet’s deal to put its search engine on Apple devices, were described as deeply flawed.”

Meta, Q4 Results, Wednesday 2 February

Laura Hoy, Equity Analyst “User growth tends to be the highlight anytime Facebook parent Meta [NASDAQ:FB] releases results, but this time around investors will have their eyes on revenue growth. The group warned that Apple’s iOS privacy features could hurt the top line, and investors will be keen to see just how much. Meta’s expecting revenue to be between $31.5bn and $34bn, which would reflect a 12-21% year-on-year increase. That might not sound like a negative, but when investors are used to revenue growth of 30%+, it’s a disappointment. Investors will be looking for revenue at the top end of that guidance as well as management’s plans for a workaround that will protect the group’s revenue stream.

That’s not to say user growth won’t be important. Investors will also have an eye on monthly average users, which were up 6% in the latest quarter.  User growth is an important part of Meta’s strategy, so keeping new signups ticking over is key. We’re also keen to hear any updates on Meta’s plans for its messaging services, which it has yet to meaningfully monetize. This could be a source of untapped potential for Meta, so any indication the group’s getting ready to turn on that tap would be welcome news.”

Spotify, Q4 Results, Wednesday 2 February

Sophie Lund-Yates, Equity Analyst “Spotify’s NYSE:SPOT model depends on people signing up to its service, whether that’s through a free trial, or the free-to-use ad supported service. A decent proportion of these users then ultimately become premium, or paying users, boosting revenue and margins in the process. So last quarter’s monthly active user growth was especially pleasing. We’d like to see another round of strong growth in usership. So next week’s results should answer the question of whether increasing work commutes or stay at home orders lead to higher demand for Spotify. Like a lot of peers, Spotify relies on advertising revenue to some degree too. As marketing budgets are building once more, I’m hoping for some of that extra spending to trickle into Spotify’s income statement.”

Vodafone Group, Q3 Trading Statement, Wednesday 2 February

Susannah Streeter, Senior Investment and Markets Analyst “Business conditions for Vodafone LON:VOD had been returning to near normal, but Omicron threatened to disrupt the route back to recovery. We’ll be watching closely to find out if lucrative roaming fees were upset as travellers delayed their plans once more, but handset sales had been gaining ground, as consumers updated their phones ready to venture into the world and there may have been a festive boost to sales.

So while the underlying trend seems to be one of gathering momentum, it’s likely that Vodafone is casting its net for new ventures. Its share price has been pushed up amid speculation that a merger could be on the cards with Three UK and there are also talks continuing with rival Iliad to merge business in Italy. This update will be watched closely for any clues as to progress. The deals would potentially create a telecoms powerhouse and give Vodafone much more clout across mobile and broadband operations and it would also layer up Vodafone with armour to fend off private equity bidders thought to be circling. But with Vodafone’s net debt pile standing at a hefty €44.3bn at the last reading, after the acquisition of Liberty Global assets in Europe, loading up the balance sheet much more could be a risky strategy, so the costs of mergers under consideration will be closely watched.’’

Amazon, Q4 Results, Thursday 3 February

Sophie Lund-Yates, Equity Analyst “Amazon disappointed last quarter, with sales and profits coming in behind expectations. The huge increase in demand over the pandemic means Amazon [NASDAQ: AMZN] is investing heavily in new infrastructure, which is partly what knocked profits. This spending won’t unwind overnight. Instead, what’s important is whether profits hit the mark analysts are expecting. Current forecasts are for operating profits of $2.6bn, with Amazon itself predicting anywhere from $0 – $3.0bn.

Covid created near-perfect conditions for Amazon’s online retail operation and cloud-based office products. As life has tentatively started to get back to normal, we wonder if Amazon has any updates to guidance now that a lot of physical shops are open and people are returning to the office.”

Compass Group, Q1 Trading Statement, Thursday 3 February

Matt Britzman, Equity Analyst “An impressive focus on cost savings means margins – while dented – didn’t completely collapse during lockdowns for contract caterer Compass Group LON:CPG. At 4.5% last we heard, there’s a lot of work left to do before the group returns to its target of over 7%. The group’s looking to pass 6% this year, though it has already warned trading will be weighted toward the second half. Nevertheless, we’d like to see some signs of progression.

Revenues at the half year mark are expected to come in some 30% up on the same period last year. We’re interested to hear whether restrictions and an increase in Omicron fear over the past few months has impacted sales. And, if so, whether that’s likely to continue into the second quarter. Markets are expecting good things from Compass, trading on a price/earnings multiple some way above its long term average. The group needs to keep the earnings recovery going or the valuation will come under pressure.”

Snap, Q4 Results, Thursday 3 February

Sophie Lund-Yates, Equity Analyst “Last quarter Snap NYSE:SNAP reported an 8% increase in operating losses, despite an impressive increase in revenues. That’s because it’s investing heavily, plus it had to start stumping up for travel and event costs which disappeared during the pandemic.

Guidance given for the final quarter suggested a serious decline in margins, so we’ll be looking to make sure that this hasn’t been any worse than expected. As ever, the number of daily active users will be key, as is making sure average revenue per user is heading in the right direction. Away from the core metrics, we’d like to see that commentary for the next quarter is brighter.”

Royal Dutch Shell, Q4 Results, Thursday 3 February

Susannah Streeter, Senior Investment and Markets Analyst “With oil hitting $90 dollars a barrel, a seven year high, it’s proving to be a buoyant time for oil majors like Royal Dutch Shell [LON:RDSA]. Tight supply and geopolitical tensions in the Middle East and increasingly in Ukraine are pushing up prices. How Shell will use this cash windfall should become clearer in these numbers. The company has already been able to slice billions off net debt as the global recovery has got underway and oil prices have risen. But the company also is having to fund an increase in capital expenditure as it invests in new gas fields as well as alternative fuels like hydrogen. With wholesale gas prices set to surge further, particularly if the situation exacerbates in Ukraine this strategy is set to pay off. However, the amount Shell needs to invest to demonstrate it really is committed to a low carbon future will have to accelerate to keep up with ESG demands. If it doesn’t come up with the goods, and keep demonstrating progress in its results, it risks falling further out of favour among investors who have environmental concerns increasingly at the heart of their portfolios.”

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FTSE 100, FTSE 250 and selected other companies scheduled to report

This article is brought to you in association with Hargreaves Lansdown. All opinions expressed in this article are from the analysts and do not necessarily represent the opinions of The Armchair Trader.

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