Weekly Brief: There Have Been Some Dramatic Scenes For Tech Investors This Week

Weekly Brief: There Have Been Some Dramatic Scenes For Tech Investors This Week

about 2 years ago4 mins

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The curtain’s come down on the tech giants’ quarterly earnings, and there have been all sorts of dramatic scenes that have had investors on their feet.

🕰 Recap

  • Google-parent Alphabet posted blowout earnings earlier in the week that led its stock price to hit a record high
  • The next day, Meta (formerly Facebook) reported disappointing results and saw its stock price tumble 26%
  • A day later, Amazon announced mixed results and said it’s upping the price of its Prime membership, which was enough to send its stock soaring.

✍️ Connecting The Dots

This was the second week of Big Tech earnings, and what a week it was. There were concerns coming into Alphabet’s update that retailers – negatively impacted last quarter by Omicron and supply chain disruptions – would’ve heavily cut back on their ad spending. But Alphabet put those worries to rest, with ad revenue increasing by a better-than-expected 33% last quarter compared to the same time in 2020. That helped push its stock price to a record high of $3,031, at the same time as the company announced a 20-for-1 stock split.

Interestingly, Alphabet said that YouTube greatly benefited from its newer Shorts feature, which now has 15 billion daily views. Shorts is Alphabet’s answer to TikTok in a social media landscape rapidly shifting toward short-form video. Meta has certainly noticed: it admitted this week that it’s facing serious competition for users’ time and attention from TikTok, which partly led to Facebook’s first-ever quarterly decline in daily active users last quarter. That stoked investors’ fears that the social media platform has finally plateaued, and they ultimately sent Meta’s shares plunging by 26% – wiping $230 billion off its market capitalization.

That same day, Amazon used its own update to announce that it’s upping the price of its Prime membership in the US. And since that rollout doesn’t cost Amazon a penny, it’s an extra pile of cash that’ll go straight to its bottom line, which was enough to send its shares soaring 18% after the announcement. It goes to show that not all tech companies are created equal, with Amazon demonstrating it has inflation-proof “pricing power”. In other words, its services are so important to its customers that it can hike prices without losing many of them.

🥡 Takeaways

1. Stocks are making outsized moves.

Alphabet, Meta, and Amazon all saw wild stock swings after their updates. In fact, double-digit percentage moves after companies report results have almost become the norm this earnings season. According to Goldman Sachs, that’s partly down to a drop-off in single-stock liquidity. The investment bank’s analysis shows that when a stock’s liquidity is low relative to its recent history in the days before an earnings update, its share price tends to move after that earnings update by 23% more than its recent history. You can turn this into an investment opportunity during the rest of earnings season by implementing an options strategy – known as a straddle – on illiquid stocks yet to report.

2. Alphabet’s stock split could be a wise move.

Apple, Tesla, and Nvidia have brought stock splits – when a company divides one share into several with the same total value – back to investor attention in the last couple of years, not least because all three have seen their share prices perform well since. In fact, there’s lots of research suggesting that companies outperform the market as soon as they announce their stock split, and even more over the next 12 months. That could be because a split makes the stock more accessible to smaller investors, who – as we saw last year with the meme stock saga – are also having an increasing influence on stock prices. Alphabet’s stock split, then, could be a timely move. The only question left is whether Amazon – with a stock price north of $3,000 – will follow suit…

🎯 Also On Our Radar

The amount raised by initial public offerings (IPOs) fell 60% last month compared to a record-breaking January 2021, according to Bloomberg. It’s hardly a surprise: several companies canceled listing plans on the back of increasing market volatility, falling stock prices, and rising geopolitical tensions. It probably doesn’t help matters that nine out of last year’s top 10 biggest IPOs are now underwater, either…

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