What have we learned from recent tech earnings?
Apple shocked Wall Street this week with its first fall in revenue in 13 years, driven by falling iPhone sales. This led to a $46bn loss in market cap as Apple stock tumbled as much as 8% on Wednesday before ending the day 6.2% lower.
Revenues for Q2 fell to $50.6bn from $58bn for Q2 2015, earnings were down to $10.5bn from $13.6bn a year earlier, and EPS fell to $1.90 from $2.33. Gross margin was also trimmed, from 40.8% to 39.4%.
In response many analysts cut their profit forecasts and stock price targets for Apple. So where does that leave the tech sector?
Microsoft and Alphabet spearhead poor data
The Nasdaq Composite index, comprised of approximately 42% tech stocks, was also hit hard by recent earnings reports from Microsoft and Alphabet.
Q3 earnings for Microsoft dropped 6% to $20.5bn with an EPS of $0.62 EPS, weaker than consensus forecasts of $22.1 bn and $0.64 respectively. Microsoft has been hard at work transitioning to cloud-based services from a licence-fee-oriented enterprise, and is facing strong headwinds in the form of declining PC sales, as evidenced by 12,000 job losses at Intel and poor performance by IBM.
Google’s parent company Alphabet also missed analysts’ expectations with earnings of $4.2bn for Q1 2016, up $0.7 billion from Q1 2015. While EPS rose from $6.47 a year ago to $7.50, this fell short of the consensus forecast of $7.96. Despite a dramatic 17% rise in revenue year on year, the negative earnings surprise disappointed investors.
Twitter birds fly the nest
Shares in Twitter plunged 12% in after-hours trading on Tuesday, after reporting Q1 revenue of $595m. While this represents a 35% rise year on year it still fell short of analysts’ estimates. Meanwhile Twitter’s guidance for Q2 revenue disappointed at $590m to $610m.
The social media firm was able to claim a 3% rise in active users in Q1 to 310m, and an EPS of $0.15, but investors are still concerned at the firm’s failure to turn its healthy user base into sizeable profits. There are some positives for Twitter, such as its deal to stream 10 NFL games during the 2016 season.
The Fed saves the day
Despite weaker earnings for tech, energy and financial stocks, the markets were given a brief reprieve on Wednesday when the Fed opted to leave US interest rates unchanged in the 0.25%-0.50% region. The FOMC decision gave a much-needed boost to global equities, and calmed anxiety on Wall Street following the string of disappointing tech results.
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