It has been a turbulent month for investors in the big US tech stocks, with the likes of Meta and Amazon suffering steep losses.
Much of this has been due to expected interest rate rises from the Federal Reserve, which is set to move more aggressively than in the recent past as inflation has increased at a record rate.
Yet the tech stocks’ earnings reports, of which many have been released over the past week, were broadly more positive than the share price falls suggest.
This creates a quandary for global fund managers who are often heavily invested in the US giants may be questioning how they will fare moving forward.
Below, Trustnet rounds up the earnings reports of some of the largest US tech names, and asks whether this is in-line with their share price performance in January.
Amazon
Amazon reported a net profit of $137.4bn (£101.5bn) in the fourth quarter of 2021 thanks, in part, to a 17% increase to the price of its Prime membership.
Adam Vettese, analyst at social investment network eToro, said the increased membership charge “shows it has pricing power and feels that its customers rely on its services enough that they won’t baulk at the rise and go somewhere else”.
However, Amazon Web Services had the most successful quarter, with net sales up 40% to $17.8bn. Profits for the cloud service company were also up 46%, bringing the total to $5.3bn.
Despite this, Amazon’s share price dropped 10.3% throughout January, and is down 5.1% over the past year, although shares rose following the results.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “The market is having a positive reaction to what is, on some level, a disappointing set of results. For major tech stocks to avoid being pummelled at the moment, they need to knock it out the park which arguably Amazon hasn’t done.”
In regards to Amazon Web Services, Lund-Yates added: “No one should lose sight of the fact Amazon is supposed to be a retail giant, and it’s not the greatest look for the support act to be seen keeping profits afloat.”
The company said that it anticipates net sales to reach between $112.0bn and $117.0bn in the next quarter.
Meta
Shares of Meta, the firm formerly known as Facebook, dropped 26.4% between 2 and 3 February, the largest overnight loss made by a US firm.
The $85.24 reduction in the share price came after Facebook announced that the number of daily users had fallen for the first time in the company’s 18-year history.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said: “When Facebook loses a chunk of value bigger than the size of any company listed on the FTSE 100 it demonstrates just how sensitive tech investors are right now to a whiff of weakness, but also the astronomical gains the tech giants made during the pandemic.”
Disappointing fourth-quarter results also contributed to the fall, which has left Meta’s share price down over one year.
Share price of Meta over the past year
Source: Google Finance
Revenue for Meta was up 20% in the fourth quarter, bringing in $33.7bn but a 38% increase in spending on research and development meant profits were down 1% to £12.6bn.
Meta is expected to increase total spending by at least 26% through upgrading servers and networks, which will cut into net profits.
Streeter said: “Meta’s massive size and impressive reach coupled with a solid balance sheet means there’s potential, but the investors who don’t have long-term horizons look likely to be tempted to get off what’s set to be a bumpy ride.
“Investors are losing patience with tech firms who are promising potential but who won’t be able to deliver it until some distant point in the future.”
Snap
While Meta stocks were sinking, the share price of social media company Snap was up 60% on 4 February. The increase came as the company announced 13 million daily active users had joined the app in recent months.
By introducing its TikTok inspired Spotlight section, Snap has appealed to additional young users while Meta’s Reels equivalent has not had as much engagement.
Overall, Snap is down 50% over the past year but Streeter said that last week’s increase “reflects the optimism, that this won’t be a flash in the pan result, but the start of sustained progress in user growth and profits”.
She added: “Just like any social arena, young people, don’t often want to be seen hanging out with their parents, which is why the lure of Snap and TikTok over Facebook or Instagram is so strong.”
Alphabet
Google Cloud and increased advertising drove Alphabet’s revenue up 32% to $75.3bn in its second quarter results, while revenue for the company’s main products – Google Search and YouTube – rose to $69.4bn from $52.9bn.
Most revenue came from advertising, which was up 32.6% to $61.2bn and Google Services, where profits increased by $7bn. Alphabet’s Cloud business also made improvements, increasing revenue by 44.6% to $5.5bn and reducing losses from $1.2bn to $890m.
Lund-Yates said: “From a profit perspective, Google Cloud has a little way to go before it can pad out the bottom line, although losses are narrowing. And once the costs of the new mammoth infrastructure are covered, operating leverage dynamics means earnings will jump, pretty much instantly.”
Share price of Alphabet over the past six months
Source: Google Finance
While Alphabet managed to avoid the worst of the tech sell-off over the past six months, going up 3.6% in that time, it is not exempt from the tricky road ahead for the sector, according to Lund-Yates.
Microsoft
Microsoft’s revenue rose 20% to $51.7bn in its second quarter, while its share price has rebounded from its 2% loss in January’s tech sell-off.
Share Price of Microsoft over the past six months
Source: Google Finance
Expenditure on research and development was up 17.5%, but unlike Meta it was still able to secure profits of $22.2bn, an increase of 24%.
Revenue from the company’s productivity and business processes division, which includes services such as Office 365 and LinkedIn, was up 19% to $15.9bn.
Like Alphabet, advertising was a significant booster, accounting for the 32% rise in revenue for the ‘more personal computing’ branch.
Microsoft’s pending acquisition of game development company Activision Blizzard, responsible for franchises such as World of Warcraft and Call of Duty, may also give the business an edge in the expanding industry.
Gerrit Smit, fund manager of the Stonehage Fleming Global Best Ideas Equity fund said that this purchase of an estimated $68.7bn could give Microsoft “a good chance of becoming a leader in this new field”.