The tech giants may be as unpopular at the moment as they have been for the best part of a decade and for good reason after a mixed set of results this week.
Supply chain concerns dominated the headlines, with some of the US’s largest names, such as Amazon and Apple, bemoaning the global shipping crisis.
Despite these issues, some reports made for positive reading. Below Trustnet looks at the five largest tech companies to report this week – Amazon, Apple, Facebook, Microsoft and Alphabet – with analysts explaining what the figures mean for investors.
Alphabet
We start with Alphabet, the parent company of Google, which reported on Tuesday. First quarter revenues of $65.1bn (£47.2bn) were modestly ahead of market expectations and up 41% year-on-year, driven by strong growth in advertising revenues.
Google Services, which includes Search as well as YouTube, Android and Google Play, accounted for the majority of both revenues ($59.9bn) and profits ($24bn).
Alphabet shares have risen 5% since the report. Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Another quarter of stellar growth and even stronger margins mean Alphabet is now generating free cash of $18.7bn every three months.
Share price of Alphabet in 2021
Source: Google Analytics
“That means that even after all its current investments, which range from driverless cars to biotech, the group would need to spend an extra $6bn a month just to break even.”
Its balance sheet also remained the envy of many, with net cash of $127.7bn versus $122.8bn at the start of the year despite repurchasing $12.6bn of shares during the quarter.
However, the analyst said there were not enough profitable projects to invest in at present, which begs the question: what will it do with the cash?
Microsoft
Another to beat estimates was Microsoft, the Bill Gates-founded software company. First quarter revenue rose 20% to $45.3bn, while there was double-digit growth in every division.
Adam Vettese, analyst at multi-asset investment platform eToro, said: “Big tech continues to steam ahead like a runaway freight train with Microsoft and Google parent Alphabet smashing estimates once again in the third quarter.
“There have been plenty of people who have tried calling the end of the tech bubble as, in theory, higher rates should make growth stocks less appealing because it reduces expectations for growth. However, with an almost revolutionary shift to remote working in the past 18 months, the conditions for tech companies such as Microsoft and Google are nearly perfect.”
Share price of Microsoft in 2021
Source: Google Analytics
Apple
The world’s second-largest phone maker had a mixed set of results on Thursday. Total net sales rose 28.8% to $83.4bn – a fourth quarter record. Every geography grew in the quarter, with sales in China particularly impressive, up 83% on the previous year to $14.6bn.
However, Apple shares fell 3.5% in after-market trading. Mark Crouch, an analyst at eToro, said the firm had painted a tough picture for the coming months as it had been disrupted by the global supply chain issues caused by the pandemic.
“Apple missed some of its key markers with lower-than-expected revenues in key lines such as iPhones and MacBooks. Chief executive Tim Cook placed the blame squarely on supply chain issues,” he said.
“Despite better access to computer chips than car manufacturers the tech giant was not immune from the chaos that has been unleashed by disruptions in Asian manufacturing. All this said and done, the firm was out $6bn in the last quarter, which investors won’t be best pleased with,” he said.
Amazon
Amazon revenues topped $110bn this quarter, a rise of 15%, but this was below market expectations, the firm revealed on Thursday. Operating profits of $4.9bn were 21% down compared to the same period last year.
Christopher Rossbach, chief investment officer at J. Stern & Co, said the company has continued to invest heavily in logistics and employees, with 150,000 set to be hired for Christmas in the US alone, but that this would “crimp profits” in the near term.
“The firm has also been hit by the supply chain crisis, with increased shipping and freight costs, as well as labour market tightness and increased wages,” he said, although Rossbach noted that Amazon was “best placed to weather these disruptions as it invests for the long term and emerges stronger afterwards.”
Amazon shares fell 4.3% in early trading as investors worried more than Rossbach about the supply chain disruption.
Facebook – the social media giant who recently rebranded to the name Meta – was another to temper expectations this week.
Although revenues rose 35% to $29bn in the third quarter thanks to a 33% increase in advertising income, the picture was far from perfect.
The firm highlighted issues around the latest Apple privacy changes, which took place during the most-recent iOS update, while macroeconomic and Covid-related factors are expected to slow growth to between 9% and 17% in the fourth quarter, the firm said.
Share price of Facebook in 2021
Source: Google Analytics
Hargreaves Lansdown equity analyst Sophie Lund-Yates said: “Facebook's growth, and outlook for the end of the year, have been disappointing. Not only is advertising revenue meant to slow down, the group's ramping up investment at the same time, which combine to make margins sink.”
However, over the long term, the investment case remained intact, despite concerns over dwindling new users among teenagers, which have been turning to newer platforms such as TikTok and Snapchat, she said.
“We think the core business remains attractive because of Facebook's unrivalled reach into our lives. Those strengths aren't necessarily reflected in the current share price valuation in our view,” said Lund-Yates.