Monday 4th of November 2024
We’re now a couple of weeks into earnings season for the third quarter of 2024 and we have enough information to start thinking about what these latest data tell us about the state of the economy and market outlook.
First, the bad news, although it’s not really new news. The Chinese consumer remains in poor shape. Any consumer focussed company we follow, from high end luxury down to consumer basics, who has major exposure to the Chinese market is reporting business performance there which is below expectations. China macro weakness is not a new story, but many had been hoping for the worst to be behind us and a possible inflection to come soon. It looks like investors will have to be more patient, the Chinese economy and consumer remain weak based on the data we’ve seen from corporate results so far.
The good news for investors is that China consumer weakness is the only negative story we’ve seen so far this earnings season, in terms of read across for the economy. At time of writing, two of the big three cloud hyperscalers (Microsoft and Alphabet) have reported results and both reported numbers ahead of expectations with strong rates of growth in cloud computing.
The wave of cloud computing and migration of existing IT stacks to the cloud continues to be a source of sustained growth, a major theme in the global economy with a long road of growth ahead. What’s more, generative artificial intelligence (AI) is a major contributor to the ongoing success of these cloud businesses, driving further growth in revenues and profits. AI is not a ‘maybe’ story, it’s a real technology cycle driving real-world businesses today.
In online advertising we’ve seen good results from Meta (owner of WhatsApp, Instagram and Facebook) and Alphabet (owner of Google and YouTube). The primary driver of these businesses is online advertising spending, and both companies reported results above expectations for the third quarter of 2024. In both cases, the application of AI is further supporting business success, as AI is improving the return on investment for businesses using these platforms to advertise their products. These two companies look set to dominate the future of online advertising.
En Europa, hay evidencias de que el consumidor está en una mejor situación de lo que muchos temían. Los sólidos resultados de Garmin y Booking fueron impulsados por la fortaleza en Europa. Los productos vestibles de Garmin son populares entre los entusiastas de los deportes al aire libre y aquellos que practican hobbies relacionados con actividades al aire libre, y esta división reportó resultados muy por encima de las expectativas, impulsados por el gasto de los consumidores en Europa. El negocio de Booking, centrado en viajes, tiene una fuerte presencia en Europa, y también reportaron cifras sólidas para el trimestre.
The important take away so far is that in the major global themes in which we invest, we continue to see strength driven by new technology adoption, exceptional corporate performance, and continued cultural trends towards greater spending on travel and experiential services. These trends are not going away and continue to power growth in revenues and profits of the companies we invest in.
There are still many companies globally who are yet to report their results, so we will wait until we have more information before making an updated call on the state of the economy and outlook in the short-term, but at this stage, it’s a case of so far so good!
We would like to thank Dominion Capital Strategies for writing this content and sharing it with us.
Sources: Bloomberg, Yahoo Finance, Marketwatch, MSCI.
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