Almost 90% of S&P 500 companies topped second quarter earnings estimates, the best performance in five years.
What is behind this outperformance? A number of factors, including cautious advice from CEOs, a pre-variant recovery from the coronavirus pandemic, and going beyond last year’s lockdown, among other reasons. In an episode of The five, registered on 23 august, Fool contributors Jeremy Bowman, Brian Withers and Toby Bordelon break down these pilots and others.
Brian Withers: Almost 90% of S&P 500 companies have beaten consensus earnings per share estimates. This is the highest for the last 20 quarters. Question to the group. Why do you think companies are beating profits at record rates, and which company are you following that beat profits this quarter and why? Toby, what do you got for us?
Toby Bordelon: I think part of that is because consumer demand may be higher than people expected. I think a lot of analysts, even a lot of companies with their forecasts, were maybe a little cautious at the start of this year, because we didn’t really know what that was going to look like. We weren’t sure what the coronavirus was going to do, we weren’t sure what the reopening would look like. We didn’t know what that would mean for spending habits and how people would spend their money. It turns out that people actually have a lot of money on their hands. It looks like they’re willing to spend it. They are making up for lost time. I think the labor shortage puts pressure on the wages to use, which could help spend, put more money in people’s pockets. You mentioned a particular company, buzz (NASDAQ: BMBL) which makes online dating apps similar to Match group and stuff they did. But a little different, newly public. In their public first quarter, which I think they announced their results a few weeks ago, we talked about maybe two weeks ago, they have exceeded expectations. People might be having fun, been locked up for a year, and want to date more. The pace wasn’t huge so I think it might just be the problem of analysts being a little more cautious, especially with a new business, not sure what to expect. But yes, good job for them.
Jérémy Bowman: Yes. I agree with what Toby said. I think it’s a combination of uncertainty, just about the recovery from the pandemic, and investors and analysts are in the dark here, if you typically compare year-over-year performance, the second quarter of last year was a disaster with the lockdowns and everything. I think there is this factor. I think consumers have the money, as Toby said, the stimulus in March, spending has gone up. The second trimester was really the first time that people went out or went out for the shot and stuff. We saw strong performance in discretionary categories like restaurants, clothing and travel, certainly relative to pandemic levels. A company that has exceeded the worthy estimates is Facebook (NASDAQ: FB), which I think is a barometer for the global consumer. Consumers and small businesses make up the bulk of their customers. Small and medium-sized businesses spend on advertising. On the platform, they saw revenue up 56% to $ 29.1 billion, beating estimates at $ 27.8 billion. Earnings per share doubled, also beating estimates. To me, that’s a sign that they’re relying on businesses to really start spending on advertising again and trying to get those customers back to the door.
Brian Withers: Yes, it’s definitely a big forward-looking trend that companies are coming back to. I know the Trade Desk has rebounded in the last quarter as well, as companies loosen their purse strings. As the retail business opens up and people exit. I think part of the reason companies are hitting profits above consensus estimates is that management must have been careful at the start of this quarter in predicting how their business is going to go. The factoid I shared with you is all about income. Not only was it revenue, but businesses were potentially holding back their spending, then consumers got out faster than expected, and as they were holding back spending, most of those benefits fell into the bottom line. Certainly a positive thing and you talked about pent-up demand and people leaving. I think it’s a bit of a one-time thing and may not continue. We talked a little bit in the show about the disruption of the supply chain and its ability to potentially even extend into the holiday season. Maybe it could turn the other way in a few months. Just my crazy prediction. But a company that beat profits entering the quarter was Atlassian (NASDAQ: TEAM), stock symbol TEAM. This is one of my favorites that I have mentioned. This is a cloud-based software company focused on team-based collaborative platforms, and they have their colleagues work in a lot of different software modules to make it happen, and that shows me that their landing and landing strategy. expansion works and their sticky ecosystem is still sticky. One of the big things Atlassian is going through right now is moving customers who are on-premise, bought their product in the past and installed it on-premise, and they’re moving to the cloud. Atlassian management has gathered the forecast, expecting it to lose some of its customers in this transition. They may not be losing customers at the expected rate. It’s certainly very positive and Atlassian got a big mark, I think it was 20% more the day after the results were announced. I still think these guys have a long way to go and I continue to be excited about them as a company.
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