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Tech Earnings Scorecard: So Far, So Good

24 July 2014 in Trading Ideas

Leading into this week, the question surrounding many of the top tech companies was whether second-quarter earnings would deliver enough to investors to have faith that an 11% run-up in stocks this year could be supported by earnings reports.

Based on this past week, the message from tech investors appears to be: “No problem, we’re fine.”

As one prime example, Facebook shares late Wednesday were poised to touch all-time highs after the company posted second-quarter sales growth of 61% to $2.91 billion, besting Wall Street’s consensus analyst estimate of $2.81 billion.1

 

Mobile promotions accounted for 62% of ad sales, up from 59% in the prior period. Meanwhile, net income more than doubled to $791 million.

Another tech stalwart, Netflix, presented more of a mixed bag for investors. The company posted better-than-expected second-quarter results, while announcing that it had just surpassed 50 million subscribers.2

That all sounds good – until you get to the part where Netflix CEO Reed Hastings told investors the company is expanding aggressively into France, Germany and a few smaller European countries starting in September, sooner than expected, and the move is going to cost some money.

Hastings said expansion to this point has proven to be a solid strategy, but he noted that upcoming European expansion expenses would contribute a $42 million loss to the international segment in the third quarter.

Investors seemingly took a wait-and-see attitude toward Microsoft, which had presaged its quarterly report a week earlier by saying it was jettisoning 18,000 jobs, a lion’s share of those representing employees taken on in Microsoft’s $7 billion acquisition of Nokia’s handset operations.3

 

While the Nokia operations drained nearly $700 million in operating profit in the quarter, the Wall Street Journal noted that the Nokia purchase could look smart in the long run if Microsoft is able to sell more of its smartphones and use them to lure its customers to it software.

And, last but certainly not least: Apple, which by some accounts, delivered a sleeper of an earnings report. The company delivered a slight downside on quarterly revenue, while profit came in ahead of expectations.

If anything entered into the remotely interesting field, it was that US iPad sales were well below expectations – the company sold 13.8 million iPads, which was down 9% on a year-over-year basis and below the 13.8 million expected by analysts.4

With a majority of companies yet to report, earnings season is yet another reminder that investors may want to consider the Disappointing the Street motif.

The Disappointing the Street motif is up 0.2% in the past month. For the year to date, the motif is up 8%, while the S&P 500 has gained 9.7%.

1Sarah Frier, “Facebook Poised to Hit Record High After Quarterly Gains,” Bloomberg.com, July 23, 2014, http://www.bloomberg.com/news/2014-07-24/facebook-poised-to-hit-record-high-after-quarterly-gains.html?cmpid=yhoo.

2Aaron Pressman, “Everyone loves Netflix, so why is the stock down?” yahoo.com, July 22, 2014, http://finance.yahoo.com/news/everyone-loves-netflix-so-why-is-the-stock-down-143521775.html.

3Shira Ovide, “Microsoft’s Profit Takes a Hit on Nokia,” wsj.com, July 22, 2014.

4Jay Yarow, “Apple Delivers a Snooze of an Earnings Report,” businessinsider.com, July 23, 2014, http://www.businessinsider.com/apple-q3-earnings-2014-7.

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