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Apple Leads Tech Giant Earnings Parade

6 May 2015 in Trading Ideas

The latest quarterly numbers from many of the tech sector’s largest companies help make it clear why the Nasdaq is sitting near its all-time high and has blown away the performance put up by the S&P 500 over the last 12 months.

Beginning with Apple, the company wowed Wall Street again by posting quarterly revenue of $58 billion and profit of $13.6 billion. iPhone sales remained very strong, and Apple indicated that unit sales in China were larger than in the US. As venture capitalist and blogger Benedict Evans pointed out, Apple’s revenue in China last quarter (29% of the total) was larger than its total revenue in the quarter the iPad first went on sale, all the way back in 2010.1

Apple is now up to 21 stores in China and aims for 40 by the middle of 2016; around a quarter of Apple’s payments to iOS developers in the year went to Chinese developers.

On the other hand, Evans said the larger size of the iPhone 6 and especially the 6 Plus are clearly a big factor in declining iPad (and all tablet) sales. “For Apple, this means that the high-price, high-margin iPhone is cannibalising the cheaper, lower-margin iPad (helped in some but not all markets by operator ‘subsidies’),” Evans wrote.

For added wow factor, Apple said now has $193 billion in cash, and will extend its shareholder return program via buybacks and dividends.

Contrast Apple’s multi-billion-dollar quarterly profit with Amazon’s $57 million loss – and yet investors were keeping the faith.2

A lot of that was due to the company finally breaking out the financials of its Amazon Web services business, which posted sales of $1.57 billion in the latest quarter, up 49% from a year earlier. The division now represents 7% of Amazon’s overall revenue.

The Wall Street Journal noted that part of investors’ patience stems from Amazon successfully developed a mystique around its free-spending ways, telling investors it is necessary to roll out new products and services that keep it a step ahead of competitors. It has maintained a consistent rollout of new releases this year, including new cities with one-hour delivery by bike messenger, as well as a referral service to connect buyers to plumbers, roofers and other handymen.

On the other side of the coin, some tech titans saw a hiccup in their latest quarter due to higher expenses, a strong dollar, or flat-out slowing growth.

Google, for example, was a victim of the last two – the company reported a larger-than-expected drop in ad prices, as cost per click – what advertisers pay when people click on Google ads – fell 7% from a year earlier.3

The company’s revenue rose 12%, but the company said it would have grown 17% if not for the stronger dollar. However, according to the Wall Street Journal, the company’s ability to better control expenses boosted profit margins, which gave Google’s stock a lift.

For Facebook, a 42% jump in revenue was offset by heavy spending on people, data centers and long-term strategy, resulting in lower profit than the same quarter a year earlier.4

The Wall Street Journal reported that total costs and expenses rose 83% from a year ago: research and development spending more than doubled to $1.06 billion, while the number of employees jumped 48% to 10,082.

Facebook also cited the rising dollar as hampering revenue. The company generates more than half its revenue overseas.

If you’re interested in motifs that feature the companies mentioned here as significant holdings, check out Couch Commerce, Mobile Internet Tsunami, Wearable Tech, Social Networking and Onward Online Ads, among others.

1Benedict Evans newsletter, No. 110, May 4, 2015.

2Greg Bensinger, “Amazon Swings to Loss Despite Jump in Sales,” wsj.com, April 23, 2015.

3Rolfe Winkler and Alistair Barr, “Google Caps Costs as Growth Slows,” wsj.com, April 24, 2015.

4Alistair Barr and Deepa Seetharaman, “Facebook’s Spending Weighs on Profits,” wsj.com, April 22, 2015.

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