over 2 years ago • 3 mins
This earnings season has shown that even Big Tech isn’t safe from supply chain issues and labor shortages, and investors are finally taking a break from last year’s must-haves.
✍️ Connecting The Dots
Investors have been looking for a place to hide in a market contending with slow earnings growth, and they’ve found it in the form of tech stocks. Trouble is, those companies’ sky-high valuations make it much more likely that their stocks will underperform even if they report better-than-expected earnings. Case in point: 85% of tech companies that have beaten analysts’ profit forecasts this earnings season have seen their stocks drop by an average of 2.4% the day after their updates, according to Bloomberg.
What’s more, tech companies were once thought to be relatively immune to supply chain issues and labor shortages, but this earnings season has shown that’s no longer the case. Chip shortages cost Apple $6 billion in lost sales last quarter, and the firm said it stands to lose even more this quarter (which includes the vital holiday season). Those same chip shortages caused Microsoft’s revenue from Surface computers to plummet by almost 20% last quarter compared to the same time a year ago. Amazon, meanwhile, said its entire profit could literally be wiped out this quarter, as it incurs several billion dollars of extra costs from managing labor shortages.
Even social media companies are starting to feel the effects of supply chain issues: Snapchat warned last week that advertisers are spending less since they can’t get their hands on products to sell in the first place, which might also be why Facebook reported weaker-than-expected revenue growth last quarter. To add insult to injury, both companies are also contending with Apple’s recent privacy changes, which make it harder for advertisers to target the right customers on their platforms.
1. Tech stocks are becoming debate stocks.
There was once a time when owning tech stocks was a near-consensus trade, but they’re now becoming debate stocks. According to Morgan Stanley, a dozen or so tech firms appear on a list of hedge funds’ most concentrated holdings. But those same tech firms also appear on a list of hedge funds’ most concentrated short bets – that is, bets that their stock prices will fall. That extreme overlap shows the growing divergence in opinion on where the market’s one-time darlings will go from here. And believe us, where they go from here matters: Microsoft, Apple, Alphabet, Amazon, and Facebook collectively make up almost a quarter of the total value of the S&P 500.
2. Apple’s privacy changes are causing a shakeup in the app advertising market.
Apple touted its privacy changes as being in the best interests of its users, sure. But a more skeptical reader might point to the fact that Apple’s own advertising business – which offers sponsored slots in the App Store that appear above search results – has more than tripled its market share in the app advertising market since the changes were introduced. That’s important: app advertising spending hit $58 billion in 2019, and it’s expected to double to $118 billion by 2022, according to AppsFlyer.
🎯 Also On Our Radar
Lockdowns saw many first-time investors enter the stock market as a way to kill time and make a buck. And the resulting share trading frenzy has landed a tidy tax windfall for the British government, which takes 0.5% of a transaction’s value every time an investor buys a UK-based stock. That might not sound like much, but it’s all added up to a whopping £1.5 billion ($2.1 billion) of extra tax revenue for the British government. Not too shabby…
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