Markets want to see strong profits, but what about drivers of future growth?
Profitability is everything in a risk-off environment. Equity investors continue to seek shelter in names that can generate consistent (and preferably growing) earnings. Hence, Apple ($AAPL) of late is doing much better than Amazon ($AMZN) and Alphabet ($GOOG), both of which reported lower operating profits in Q3 due to a combination volatile revenues and ballooning overheads from aggressive growth initiatives.

With cost of capital rising in the near-term, investors are demanding profits today - not in the coming quarters, and definitely not years. Disney ($DIS) took a beating after reporting Q4 2022 results, partly because of larger-than-expected DTC losses and underwhelming profitability guide. The original narrative around the future of Disney 2.0, even with the unprecedented speed at which Disney+ subscribers had grown, is no longer given credit by the markets.

Up-and-coming software companies have therefore fared far worse than Disney. The likes of Crowdstrike ($CRWD), Zscaler ($ZS), Snowflake ($SNOW) and Datadog ($DDOG) are all trading at a fraction of their 2021 valuations. None of these companies have ever reported GAAP net profits before.

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Dave Ahern's avatar
Great article! Thanks for sharing 🙏. Subscribed 😁