Here's How Top U.S. Companies Stack Up on Risk Factors, Post-Earnings

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Top U.S. companies, including Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), and Facebook (FB), reported their quarterly earnings last week. While most of these top American corporations handily surpassed the Street’s estimates, Amazon’s top-line fell short of expectations (Read more: Amazon Delivers Mixed Q2 Results; Shares Fall 7% After-Hours).

However, before trading and investing in these stocks post-earnings, it’s crucial to assess the risks these companies face. While each of these companies has unique risk factors that affect its financial and operating performance, and in turn, the share prices, a few risks are common to all of these large corporations. 

TipRanks’ New Risk Factors Tool 

Using TipRanks’ new Risk Factors tool and looking at the risk distribution profile of these companies, Legal & Regulatory and Macro & Political are the two broader risk categories that all of these companies have in common. Owing to their large scale and global operations, these companies are often under scrutiny. Meanwhile, economic cycles, geopolitical events, patents, and complex international laws directly hurt their operations and lead to monetary damages. 

With that in the background, this article focuses on common risk factors faced by these companies to help traders and investors make informed trading and investment decisions, post earnings releases. Let’s dig deeper into each of these companies to assess these risk factors.

Apple 

Apple’s risk distribution profile indicates that Macro & Political and Legal & Regulatory risks account for 34% of its total risks. It is worth noting that both risks are above the sector benchmark. That is not surprising, given that in its SEC filing, Apple said that its operations are subject to various patent claims, legal proceedings, and government investigations. 

Furthermore, Apple noted that the unfavorable outcome of these claims and litigations could “significantly increase the Company’s cost of sales and operating expenses” and adversely impact the “Company’s financial condition and operating results.” 

The company also highlighted that Macro & Political disruptions, including COVID-19, have adversely affected its operations and could continue to materially hurt its business in the future. 

Facebook

Facebook, which faces formal and informal inquiries from governments and regulators, has Legal & Regulatory risks above the sector average. Meanwhile, Macro & Political risks account for 6% of its total risks.

Since June 2021, Facebook has changed two risk factors. Under its Legal & Regulatory category, Facebook noted that its business is susceptible to complex and evolving domestic and international laws and regulations. In general, these laws relate to data use, competition, and privacy, which could lead to changes in its products and offerings, and result in monetary damages and increased operating costs. 

Furthermore, under its Macro & Political category, Facebook acknowledged that its near-term growth rate could remain volatile owing to the COVID-19 pandemic. Also, the company expects its growth rate to decelerate over time. 

Alphabet 

Google’s parent, Alphabet, generates more than 50% of its consolidated revenues from international markets and is subject to regulatory scrutiny and various laws that could negatively impact its business. Notably, Legal & Regulatory risks, which account for 23% of its total risks, are significantly above the sector benchmark of 13.5%. The company said that it had been accused of violating antitrust laws relating to its “Search and Search advertising.” 

Furthermore, it has faced and could continue to face “increased regulatory scrutiny, enforcement action, and other proceedings” that could hurt its operations, business, and reputation.

Since June 2021, Alphabet has changed two risk factors. Under its Finance & Corporate category, the company highlights that the concentration of its stock ownership could restrict its shareholders’ ability to influence corporate matters. Further, the company added that its share buyback program has no expiration date, and could be suspended or terminated at any time. 

Microsoft

Per TipRanks’ Risk Factors tool, Microsoft’s legal and regulatory risks account for 22% of its total risk. The computer company has various claims and lawsuits against it, and any adverse outcome could lead to significant monetary damages, as well as disrupt its ability to conduct business. Meanwhile, Macro & Political risks represent 15% of its total risks. 

Since June 2021, Microsoft has changed one risk factor. In an SEC filing, Microsoft said that its global business exposes it to operational and economic risks. Meanwhile, its operations are subject to “anti-corruption, trade, and other laws and regulations.” 

The company has policies and internal controls to reduce the risks related to anti-corruption, trade, and other laws. However, any violation could result in significant fines and penalties, limit its business, and damage its reputation. 

Amazon 

Legal & Regulatory risks amount to 25% of the total risks for Amazon. Amazon, in its SEC filing, states that “we are regularly subject to actual and threatened claims, litigation, reviews, investigations, and other proceedings, including proceedings by governments and regulatory authorities, involving a wide range of issues.”

The company’s international activities expose it to a number of risks, including economic and political conditions, foreign exchange rate risk, and restrictive governmental actions. This could materially impact its profitability and limit its operations.

The Takeaway 

Factoring in the risks before making any investment reduces the probability of future disappointments. It provides a perspective on the factors that could disrupt a company’s performance and hurt its financials, thus enhancing investors’ long-term returns.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.