As technology stocks have hit the skids in recent months, the big dogs haven’t been able to escape the carnage.
Meta Platforms (FB) has fared the worst, plunging 47% year to date. The company is particularly suffering from Apple’s new policy of “app tracking transparency.” Under the new rules iPhone apps need to get permission from users to track them. Not surprisingly, most users opt out.
Meta needs to track users to make its ad-targeting work. The company has said Apple’s change will cut its revenue by about $10 billion this year, or 9% of the 2021 total.
Alphabet (GOOGL) stock has fallen 21% this year. Its revenue growth tailed off to 23% in the first quarter from a year ago, compared to an increase of 32% in the fourth quarter from a year ago.
The drop reflected weakness in advertising, which accounted for more than 80% of the company’s revenue last year. Ad spending has been curbed by soaring inflation, supply chain turmoil and the war in Ukraine.
Alphabet Pluses and Minuses
“We expect more mixed trends in 2022 as search growth slows and hiring/operating expenditures increase,” Bank of America analyst Justin Post wrote in a commentary.
“However, versus peers, Alphabet has a more stable business, artificial intelligence advantages …, significant expense flexibility, a management team doing more for shareholders … (i.e. buybacks) and potential valuation support.”
Amazon (AMZN) shares have slid 15% so far this year. It and other tech stocks have been hurt by the sharp increases in bond yields and anticipation of big interest-rate hikes from the Federal Reserve.
Rate increases hurt tech stocks, because much of their earnings growth is expected in the far future. That makes them less valuable compared to bonds, which now provide more income than before.
The 10-year Treasury yield has soared 126 basis points this year to 2.77%. The Fed raised rates by 25 basis points in March, and many investors expect moves of at least 50 basis points in both May and June.
Strong Earnings for Microsoft
Microsoft (MSFT) has lost 16% this year in sympathy with other tech stocks. The company reported strong earnings April 26, which has helped the stock rebound. Earnings benefited from strong demand for Microsoft’s cloud services and office applications.
Revenue climbed 18% in the quarter to $49.4 billion from a year earlier. Net income gained to $16.7 billion, or $2.22 a share. The Bloomberg analyst average called for sales of $49 billion and profit of $2.19 a share in the latest quarter.
“The third-quarter results and outlook should set aside concerns for a conflict-induced slowdown in Europe and tough comparisons for Office 365,” Bank of America analyst Brad Sills wrote in a commentary.
Apple’s (AAPL) stock decline has been a bit more mild than the others, totaling 11% so far this year.
iPhone and Mac revenue hit records for the December quarter. “We remain positive on Apple's ability to extract sales from its installed base via new products and services,” Morningstar analyst Abhinav Davuluri wrote in January. Apple’s next earnings release is due April 28.
The author of this story owns shares of Alphabet, Amazon, Apple, Meta Platforms and Microsoft.
