Amazon and Apple disappoint the market, NatWest’s gloomy outlook, AstraZeneca sees waning vaccine sales, AO World delays results and Reckitt posts sales growth

Amazon / Apple

“The latest updates from tech giants Amazon and Apple contained enough negative material to spook investors, with shares in both stocks down in after-hours trading,” says AJ Bell Investment Director Russ Mould.

“They round off what’s been a testing week for investors in US stocks or global funds, given they are popular investments alongside Microsoft which also updated on its trading

“Amazon’s update was worrying as it not only put the company into its first quarterly loss since 2015, but it also painted a gloomy picture for the retail market in general.

“A drop in online retail sales no doubt reflects a more cost-conscious consumer. Whereas during the pandemic people were happy to browse and click with little care about the cost, now purchases will be more considered.

“It's far too early to say we’ve lost our love of online shopping. It’s merely that people are more hesitant when it comes to pressing the ‘buy’ button after filling up their virtual basket.

“While Amazon’s outlook is somewhat gloomy, it is important to remember other parts of its business are firing on all cylinders, namely the advertising and cloud computing bits.

“Amazon has put up the price of its Prime delivery and streaming service in the US to try and get additional income to offset rising costs across the group including staff and delivery. That’s likely to be replicated in other parts of the world.

“We’ve also seen Amazon increase fees for merchants using its platform. Yet Amazon has never been one to worry too much about short-term profit or loss. It has an eye on the longer-term prize and would always prioritise user experience and value for money over jacking up prices big time simply to give its earnings as big a boost as possible.

“Apple appears to be surviving the cost-of-living crisis better than most. Its latest update shows strong sales and, importantly, more people hooked into its network of services such as streaming and digital storage.

“In the earnings call with investors, chief executive Tim Cook said he was more focused on supply rather than demand. Covid-related disruption in China and industry-wide chip shortages present a risk that Apple cannot create enough products to meet demand.

“That might not be such an issue if demand weakens in line with many other parts of the retail sector, particularly as big-ticket items like tablets are tough purchase decisions to make if you’re under financial pressure.”

Markets

“The UK stock market continued its recovery from the big falls seen at the end of last week and beginning of this week amid some solid corporate updates and strong trading in Asia and on Wall Street.

“Like several of its rivals NatWest smashed forecasts but for investors the focus is much more on the outlook, which despite the boost to profit implied by rising interest rates, is heavily clouded by the risk of an increase in bad debts linked to the cost-of-living crisis.

“Households are under such severe financial pressure that it seems almost inevitable that some of the bank’s customers will get into difficulty.

“While Covid continues to affect millions, perhaps even billions of people around the world, AstraZeneca’s forecast for a big decline in demand for its vaccine suggests that while the pandemic is not over, we are moving into a new phase.

“Elsewhere the pharmaceutical giant, which was almost an accidental participant in the Covid vaccine battle, reported revenue a touch ahead of expectations and outlined plans to keep innovating with the opening of a new research and development site in the US slated for 2026.

“Online white goods seller AO World saw lots of demand during the pandemic but that has now begun to dry up, supply chain issues are dogging the company and the deterioration in consumers’ finances means order cancellations are going up.

“Worst of all for the company’s credibility, full year results are set to be delayed because of a strategic review of its German business. This is never taken as a good sign by the market.

“The most encouraging takeaway from building materials supplier Travis Perkins was its apparent ability to pass on an increase in raw material costs amid strong demand for housing. Crucially while prices are still high, the supply chain issues which affected the sector throughout 2021 are beginning to ease.”

Reckitt Benckiser

“There are different ways consumer-facing firms can react to inflation. They can look to put up prices to protect their margins as their own input costs rise or they can surrender a bit of profitability if they think it will protect the volume of sales.

“What’s really notable in today’s update from Reckitt Benckiser is it has increased prices significantly less than Unilever in the first quarter of the year – 5.3% against 8%. This is a long way behind the increase in input costs.

“Yet unlike its counterpart it has seen volumes up slightly rather than falling over the same period.

“The two companies sell branded goods in different areas – health, hygiene and nutrition for Reckitt and Unilever much more focused on branded food items. However, both are reliant on the strength of their brands as they look to contend with squeezed household budgets.

“The big risk facing both businesses is shoppers trade down to supermarket own-brand or other cheaper rival products and the next 12 months will be a real test of just how durable Reckitt’s brands are.

“It could also give chief executive Laxman Narasimhan some clues on which of its ranges warrant further investment and which could potentially be ditched as they don’t resonate strongly enough with the public.”

These articles are for information purposes only and are not a personal recommendation or advice.