Are the Tech Giants Performing as Promised?
At the turn of the century (1998-2001), stocks of tech companies were considered the classic ‘pump and dump’. They were just too volatile and too risky that conservative investors sought refuge instead in the so called ‘blue-chip’ companies. But as the recent quarterly financial results of current tech giants reveal, this is clearly not the case anymore. The tech industry has matured, and the companies are not only the modern age blue chips, they are also considered future proof!
Financial Results and Stock Performance
Tech companies have become some kind of ‘sure bets’, as recent financial results and performances have shown. Their stock performances are no longer driven by hype and buzz, but by solid fundamentals.
Last week, Amazon reported Q1 2017 earnings of $1.48 per share, on revenues of $35.71 billion, edging over analysts’ expectations of $1.12 earnings per share, on revenues of $35.3 billion. As was expected, the results were driven by growth in the company’s ecommerce and cloud computing business.
Facebook also reported blockbuster numbers for its Q1 2017 report, with earnings coming in at $1.06 per share (up 76% year on year), on revenues of $8.03 billion (up 49% year on year). These figures smashed expectations of $0.87 earnings per share, on revenues of $7.83 billion.
On its part, Apple also reported its Q2 2017 results, with earnings coming in at $2.10 per share, on revenues of $52.9 billion. Analysts had modeled for earnings of $2.02 per share, on revenues of $53.02 billion. Apple results were slightly lukewarm, with the company also giving fiscal revenue guidance for Q3 2017 at between $43.5 billion and $45.5 billion versus the $45.6 billion expected. Still, there was improvement compared to a year earlier when earnings printed $1.90 per share, on revenues of $50.56 billion.
Only Tesla failed to meet or surpass expectations, as the company reported a loss of $1.33 per share, on revenues of $2.7 billion. Analysts had expected a loss of $0.81 per share, on revenues of $2.62 billion. All the same, Tesla recorded a significant improvement in its cycle to profitability compared to the same period last year when it printed a loss of $1.45 per share, on revenues of $1.15 billion.
Tech Companies as the Modern Age Blue Chips
The tech giants have entered maturity and have earned the right to be considered solid modern age blue chips. There is no doubt that they are well established and run financially sound business models; they also produce high quality and widely accepted products, and have proved to be resilient enough to weather economic uncertainties. A recent glaring example would be the ‘Trump trade’ induced by Trump’s economic and social policies. Late last year, there was investor flight from tech stocks to the so-called Trump stocks (infrastructure stocks mainly) but the tech stocks weathered the storm admirably and have gone on to post the biggest gains in 2017.
Tesla stock has led the way by currently trading 38.27% higher year to date, with Facebook stock following at 30.59% higher year to date. Apple and Amazon are also up 28.61% and 26.56% year to date respectively.
As stated earlier, these tech giants are now supported by solid fundamentals that more or less guarantee their success (not merely survival), at least for the medium term.
Facebook now has 1.94 billion active monthly users, which represents a quarter of the world’s population. Additionally, nearly half of the adult American population gets their daily dose of news from Facebook, or a Facebook-owned mobile app. The recent quarterly earnings showed a 14% increase in average advertising prices – a metric that can only get better. Amazon seems future proof too with its Amazon Web Services arm. The cloud computing division is estimated to run 1% of the internet and despite Amazon’s decision to slash prices, AWS saw revenues increase 42% to $3.66 billion in the latest quarterly financial results.
Meanwhile, Apple had a relatively soft quarter, but CEO Tim Cook reported that in Q1 2017, the company witnessed the most upgraders and switchers ever. Cook also attributed the soft results to a delay in buyer behavior as a result of rumors that the company is set to release new products this fall. With that in mind, investors can only lick their lips on the prospect of more than 300 million iPhone owners whose devices qualify for an upgrade. Aside from new products, Apple has also made significant investments in Augmented Reality, a sector that has been pinpointed as one of the major growth drivers of the future.
Tesla is yet to turn in a profit, but by all indications, that moment will come sooner rather than later. The company’s revenues keep on growing as Tesla now recognizes SolarCity’s contribution to its top line. Tesla is well on course to achieving its 2017 target of producing 5,000 cars per week and the company also reported that it will soon (this year), open their first exclusive body shops to improve repair and maintenance of its cars. Tesla stands tall as the future of the automotive industry, and its place looks all the more secure as a major supplier of car parts to other major players, such as Toyota.
After a period of uncertainty, the tech giants are now finally delivering on their promise of value to investors and the public alike. The tech industry has matured admirably, with companies now operating sound business and financial models, just like traditional successful companies. As the latest quarterly results show, the tech giants are now posting financial performances that match their high valuations. They also consistently meet their financial targets, which allows them the leeway to take even more risks that will likely pay out big in the future.