Tech Tactics

Tech Tactics

over 4 years ago3 mins

Mentioned in story

Most of the big tech firms have now reported second-quarter results. Investors generally described them as “fine” – to which Facebook, Amazon, and Alphabet exclaimed, “Where?!”

🕰️ Recap

  • On Tuesday, Snap Inc. reported much stronger second-quarter results than expected

  • Facebook followed suit on Wednesday, with a higher-than-forecast quarterly revenue and profit

  • Google parent Alphabet’s second-quarter update also blew past investors’ forecasts on Thursday

  • But Amazon was the outlier: its profit and forecast fell short of what investors had hoped for

🔗 Connecting the dots

Social media companies Snap Inc. and Facebook are 2019’s comeback kids. This time last year, #UninstallFacebook was in full swing on the back of the Cambridge Analytica scandal (which just led to a record fine), as well as hohum user numbers and earnings. But Facebook swapped sob stories for Instagram Stories this year, growing users and earnings beyond predictions along the way. Snap’s share price, meanwhile, has recovered from its drop after its initial public offering. Two years on, it’s finally exceeded its starting value – partly thanks to a snappily-redesigned Android app and original content that’s helped it overcome the Kylie Jenn-Exodus.

Over 90% of all web searches happen on Google, but Facebook and Amazon are attracting more and more ad dollars at the search engine’s expense. So investors were relieved to see its ad revenue grow faster than expected last quarter. Amazon now has its own problems – namely its cloud computing business which, though highly profitable, fell short of expectations last quarter. And it’s not the only tech company struggling to keep its cloud business afloat: the UK’s biggest, Sage, is going through a stormy patch too.

If it’s a silver lining tech companies are looking for, maybe they could take a cue from the tech investors who remain as chipper as ever – even as the industry goes through the wringer. It’s hard to find a major tech company not currently under scrutiny by governments or competition authorities. Perhaps tech stocks are becoming the new banks, paying whatever fines come their way, safe in the knowledge investors will shrug them off. Unlike banks, however, tech companies still haven’t made major changes to the way they do business – yet.

🥡 Takeaways

Tech company shares comprise roughly a fifth of the entire US stock market. That’s more than banks, and means they’re pivotal to the direction of the overall stock market. Luckily, their second-quarter results have by and large been met with investor positivity, which may help sustain the longest consistent rise in US stocks on record. The anticipated interest rate cut by the US’s central bank this month will play a key part too, making it cheaper for companies to borrow money and likely encouraging more spending to boost future profits.

After Netflix reported worse-than-expected user growth, investors who sold it off may have been partly “discounting” the effect of fewer users – that is, less future revenue and profit – back to the value of Netflix’s stock today. Investors did the same with Amazon this week, likely as a result of lower profit from increased in logistics spending. The European regulators’ investigation into the company’s retail business could limit its money-making potential too – but right now, that’s much harder for investors to quantify.

🎯 Also on our radar

Japanese conglomerate SoftBank announced the launch of its second “Vision Fund” – a more than $100 billion pot for major tech investments. Rather than relying on a perhaps controversial investment from Saudi Arabia, it expects firms like Apple, Microsoft, and Foxconn to make big contributions to the fund. It’ll then be used to back businesses who stand to benefit most from the cash injection – from companies in its portfolio looking to fend off competition, to new firms looking to make a mark on the business landscape.

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