Markets Today: MAGnificent Microsoft, Apple and Google show how to deal with a pandemic

Microsoft 

The depth and complexity of Microsoft’s (US: MSFT) business model make quarterly numbers relatively tricky to follow. But it is that depth which makes the company such a consistently reliable investment. Revenues continued to surge in all three of the group’s main divisions (productivity and business processes, intelligent cloud and more personal computing) in the three months to June 2021. 

These numbers also speak to the terrific longevity of Microsoft’s products and services. The Office suite of software is 30 years-old and the Windows Operating System fast approaching its 40th birthday - both delivered double digit growth. 

But it is the Azure cloud business which is the star. The product is the second largest player in the fast growing cloud computing industry, behind Amazon Web Services (AWS). Revenues rose 45 per cent in constant currencies in these numbers and look set to continue to sparkle. 

Apple

Such is the quest for service revenue growth, that Apple (US: AAPL) investors seem to have forgotten how to celebrate the ongoing success of the iPhone. In the third quarter to 26 June 2021, revenues from the popular smartphone rose 50 per cent to $39.6bn. Products (which also include Macs, iPads and wearable devices) continue to dominate the top line, contributing 79 per cent of revenues in these numbers. And with gross margins at 36 per cent, the product division’s contribution to profits is also strong. 

Still, the market wants more from the services division where margins are higher and revenues arguably more reliable. Management doesn’t break the services revenue down, but a large proportion is expected to come from the app store where the company takes a cut of in-app purchases - a contentious business model which is currently facing the wrath of regulators. Investors are also concerned about the growth opportunities beyond the highly saturated US market (44 per cent of revenues in these numbers). 

But it would be foolish to write off the ongoing success of the iPhone. Apple has an intensely loyal customer base - if any company can claim recurring revenues from a product, Apple can. No doubt the fans will be queuing up for the next release, just as they have done for the last 14 years. 

Alphabet

Was a pandemic induced squeeze in global marketing spend worth it for the bounce back? A 62 per cent increase in quarterly revenues to $61.8bn has certainly eased the memories of 2020 for Google-owner Alphabet (US: GOOGL). But advertising expenditure has not just returned to pre-pandemic levels, it has gone beyond, while a change in consumer habits (even more online focus) means Google is collecting a bigger slice of a growing pie. The outlook is just as strong as these quarterly numbers.

It is true that Google remains heavily reliant on advertising meaning investors should keep a wary eye on the vultures of international regulation departments who are looking to pick apart the pieces of global tech giants. But Google service revenues come from a number of destinations - Android, Chrome, Maps, Play, Search and YouTube. Threats of splitting up the business carry less weight than they once did. 

And Alphabet still has its other bets division and Google Cloud. Neither are profitable, but the smart redeployment of the considerable cash flow from the services business means these newer divisions are growing at the pace of a start-up. There’s a lot to like at Alphabet. 

Key numbers: Quarter ended June 2021

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City watchdog removes suspension rule for SPACs

The UK’s City watchdog has changed its rules about special purpose acquisition companies (SPACs) – one of the most widely used acronyms on financial markets in recent months – in a move which could be seen as a bid to make London a more attractive listing venue.

As things stand, the Financial Conduct Authority’s (FCA) rules say that it may suspend the listing of any securities if the smooth operation of the market could be temporarily jeopardised, or to protect investors. “For a shell company, including a SPAC, there is a general presumption that we will suspend listing when it announces a potential acquisition target, or if details of the proposed acquisition have leaked”.

The FCA’s changes remove the presumption of suspension for SPACs if they meet certain criteria meant to improve investor protections. 

FCA seeks to boost boardroom diversity

Meanwhile, in a bid to boost boardroom diversity, the watchdog is consulting on changes to its listing rules to require public companies to release an annual ‘comply or explain’ statement about whether they have achieved certain targets on their board for gender and ethnic minority representation.

The Financial Conduct Authority (FCA) said that as part of the same yearly disclosure requirement, companies may need to publish data on the make-up of their board and senior executive management team in relation to both gender and ethnicity.

“There is a current lack of standardised and mandatory transparency about diversity on listed company boards, particularly outside the FTSE 350” said the FCA’s director of market oversight Clare Cole. “But interest from investors is growing and companies are increasingly focusing on this topic due to ESG investing, as well as wider social and public policy concerns”.