Earnings Scoreboard: A Turbulent Week In Tech Sector by Jeff Desjardins, Visual Capitalist
Amazon and Facebook soar, while Apple, Netflix, and Google whiff
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
For many blue chip companies, earnings season can end up being relatively dry.
For example, yesterday MasterCard reported an earnings “beat” of $0.86 earnings per share (EPS) compared to the $0.85 consensus. The stock inched up 0.7% in afternoon trading and now it’s back down today. In other words, it’s business as usual again.
However, for the world’s technology giants, earnings season can make or break a stock. The reason for this is simple: investors buy technology companies such as Amazon or Netflix for their future growth prospects, rather than their current profitability. In theory, these companies should have an incredible ability to scale, and the market prices this in to make these stocks more expensive.
If a company shows signs that it is growing slower than expected, investors punish the stock with the expectation of a ripple effect on future cash flows.
The Tech Sector Scoreboard
The last week has been particularly eventful on the tech sector earnings front, and Jim Cramer’s “FANG” stocks were the center of the action. After buoying the market for much of 2015, the stocks went their separate directions.
Netflix kicked it off with a huge whiff. While revenues and EPS were on track for the quarter, its guidance on subscriber growth was the ringing of a big alarm bell. Wall Street was looking for the company to add 3.5 million international subscribers in Q2, but Netflix said it would only be adding two million. The stock has tanked spectacularly ever since, losing -18.3% in value.
Alphabet and Apple, the two most valuable public companies in the world by market capitalization, also showed signs of a struggle. Both stocks are now down close to -10% from pre-earnings, shedding a combined $100 billion in value. Apple posted its first year-over-year decline in quarterly revenue since 2003, while Google’s parent company fell short on both top and bottom lines. Co-founders Sergey Brin and Larry Page have lost a combined $3.8 billion in wealth since the report.
While this is all very dire for the tech sector, Jeff Bezos and Mark Zuckerberg came to the rescue.
Yesterday, Amazon killed it for the quarter, bringing in an extra $1.1 billion of revenue above Street estimates. The company reported its largest quarterly profit, and analysts are now ecstatic about the company’s blowout quarter. The stock is up close to 10% today.
Facebook also helped save face for Silicon Valley, and shares have now hit an all-time high as the company beat projected revenues and earnings.