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Sunday July 22, 2018



Alphabet's Profits Take a Hit

Alphabet Inc. (GOOG) announced quarterly earnings on Monday, July 24. The parent company of Google took an earnings hit in the second quarter after a massive fine was levied against Google by European anti-trust regulators.

The company reported quarterly revenue of $26.01 billion. This was an increase from last year's second quarter revenue of $21.50 billion.

"With revenues of $26 billion, up 21% versus the second quarter of 2016 and 23% on a constant currency basis, we're delivering strong growth with great underlying momentum," said Ruth Porat, CFO of Alphabet Inc. Porat went on to note that the company is "continuing to make focused investments in new revenue streams."

Alphabet announced net earnings of $3.52 billion, or $5.01 per share. This was down from $4.88 billion, or $7.00 per share that the company reported in the same quarter one year ago.

The drop in earnings in the second quarter was due to a $2.74 billion fine from European antitrust regulators, who determined that Google's dominant position online hurt rivals by directing shoppers to its online comparison shopping service to the detriment of other online retailers. Excluding the fine, Alphabet would have reported earnings of $8.90 per share. The company's shares were down 3% in after-hours trading on Monday following the report's release.

Alphabet Inc. (GOOG) shares ended the week at $941.53, down 3.3% for the week.

Amazon Disappoints on Earnings, Inc. (AMZN) released its latest quarterly earnings report on Thursday, July 28. The online retail giant's earnings missed Wall Street's expectations by the largest margin since 2001, causing shares to fall 4% after the report's release.

The company's reported net revenue for the quarter reached $37.96 billion. This is up from revenue of $30.40 billion reported during the same quarter last year.

"Our teams remain heads-down and focused on customers," said Amazon CEO Jeff Bezos. "In the last few months, we launched Echo Show (our newest Echo device with a video screen), introduced calling and messaging via Alexa on all Echo devices ... and held our third annual Prime Day—signing up more Prime members than ever before."

Net income for the quarter was $197 million, down sharply from $857 million during the prior year's quarter. The company posted earnings per share of $0.40, compared to $1.78 per share in the same quarter last year and below the $1.42 per share expected by analysts.

The drop in earnings is tied to increased investments in new areas like video and international expansion. In the second quarter, subscriptions sales increased 51% to $2.2 billion and estimates by Cowen & Co anticipate that more that 50% of U.S. households will have Prime memberships by the end of 2017. Earlier in the day on Thursday, Amazon shares reached a record high of $1,083.31, causing Amazon CEO Jeff Bezos to briefly surpass Bill Gates and become the world's richest person with an estimated wealth of $92 billion. However, following Amazon's disappointing earnings release, by Friday morning Bezos' net worth had fallen by $6 billion, returning Gates to the top spot in the rankings., Inc. (AMZN) shares ended the week at $1,020.04, down 0.1% for the week.

Facebook Surges on Ad Revenue

Facebook, Inc. (FB) reported quarterly earnings on Wednesday, July 26. The company benefited from a surge in ad sales, which gave earnings and revenue a better-than-expected boost for the quarter.

Facebook announced revenue for the second quarter was $9.32 billion—topping the $9.20 billion in revenue that analysts predicted. Last year, revenue in the second quarter was $6.44 billion.

"We had a good second quarter and first half of the year," said Facebook CEO Mark Zuckerberg. "Our community is now two billion people and we're focusing on bringing the world closer together."

Facebook reported net income of $3.89 billion, up from last year's second quarter earnings of $2.83 billion. Earnings per share for the second quarter were $1.32 up from $0.78 per share a year ago.

The company's ad revenue for the second quarter jumped 53% to $8.0 billion—surpassing the $7.68 billion expected by analysts. Facebook has been implementing more video and display ads and is planning to roll out new video features before the year is up. The social network's user base grew 16% year-over-year to two billion users worldwide. The company reported that in the second quarter more than 66% of its users visited Facebook on a daily basis.

Facebook, Inc. (FB) shares ended the week at $172.45, up 4.5% for the week.

The Dow started the week of 7/24 at 21,578 and closed at 21,830 on 7/28. The S&P 500 started the week at 2,472 and closed at 2,472. The NASDAQ started the week at 6,388 and closed at 6,375.

Treasury Yields Up After Busy Week in Washington

After falling last week, U.S. Treasury yields gained some traction following the Federal Open Market Committee's (FOMC) meeting. The decisions made by the FOMC this week will have a much broader effect on the economy's future as a whole.

The statement released by the FOMC continues to hint that a rate hike may be coming before the end of the year, as the Federal Reserve decided not to raise rates at their July meeting. The Federal Reserve is making a general move toward pre-Great Recession economic policies and away from its quantitative easing policy. The Fed plans to allow $10 billion of the bond portfolio to run off each month, with the goal of reaching a $50 billion cap.

"The committee expects to begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated," said the FOMC in a post-meeting statement released Wednesday, July 26. Analysts are hopeful that the FOMC "relatively soon" language suggests that this will take place in September, rather than at the end of the year.

Inflation, however, continues to sit below the 2% target and has declined in recent months. Continued monitoring of inflation may affect the timing of cutting the balance sheet and changing interest rates.

Treasury yields in July have improved on a year-over-year basis. The 10-year Treasury yield opened the week of July 24 at 2.23%, while last year it opened at 1.57%. The 30-year yield opened the week at 2.80%, last year at this time it opened at 2.29%.

On Friday, the Commerce Department released its preliminary estimate of the second quarter gross domestic product (GDP). The report signaled growth of 2.6%, only slightly lower than the 2.7% forecast.

The 10-year Treasury note yield finished the week of 7/24 at 2.29%, while the 30-year Treasury note yield was 2.89%.

Mortgage Rates Fall

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, July 27. The report revealed that mortgage rates fell for the second consecutive week.

The 30-year fixed rate mortgage averaged 3.92% this week. This represents a decrease from last week when it averaged 3.96%. Last year at this time, the 30-year fixed rate mortgage averaged 3.48%.

This week, the 15-year fixed rate mortgage averaged 3.20%. This was lower than last week's average of 3.23%. The 15-year fixed rate mortgage averaged 2.78% one year ago.

"The 10-year Treasury yield rose 5 basis points this week while the 30-year mortgage rate dropped 4 basis points to 3.92%," said Sean Becketti, Chief Economist at Freddie Mac. "Mortgage rates in next week's survey would depend on how the market reacts to the Fed's balance sheet unwinding announcement."

Based on published national averages, the money market account finished the week of 7/24 at 0.62%. The 1-year CD finished at 1.42%.

Published July 28, 2017
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