Stock Market: High Tech Stocks Still Weighing Down Market
The biggest tech stocks continue to be a drag on the market. Photo: svetikd/Getty Images
High tech has been a drag on the U.S. market for the past year, so it came as something of a shock when the shares of Meta Platforms Inc. (META-Q), better known as Facebook, jumped 23 per cent on Thursday on better-than-expected results. The move helped to boost Nasdaq by 3.25 per cent and prompted speculation that perhaps the long tech drought was over.
That enthusiasm lasted less than 24 hours. Investors took a closer look at Meta’s numbers and realized that while they may have beaten analysts’ projections, they were still grim. Revenue for fiscal 2022 was down by 1 per cent — not a lot, but these are supposed to be growth companies. Net income was even worse. You’d have thought from the rise in the share price the company had produced a big gain. Nope. Profit was off 41 per cent on a year-over-year basis.
Then came the other shoes. Apple, Amazon, and Alphabet all released their financial results on Thursday, and all fell short of expectations. Investors turned squeamish again and Nasdaq closed Friday with a loss of 1.59 per cent on the day.
So, what happened with the three As of what were once known as FAANG stocks? Here’s a quick look
Apple Inc. (NDQ: AAPL)
Background: Apple’s iPhones and iPads dominate the market, making it one of the most valuable companies in the world, with a market cap of $2.45 trillion.
Performance: The shares have seen some huge swings in the past year, trading as low as $124.25 about a month ago. They rallied in January but are well below the 52-week high of $179.61.
Recent developments: Apple’s first quarter 2023 results showed a decline of 5 per cent in revenue, to $117.5 billion. Net income was $35.6 billion ($1.88 per diluted share), down from $41.2 billion ($2.10 per share) in the same period the year before.
CEO Tim Cook called it “a challenging environment”. He tried to be upbeat by noting that Apple now has “more than two billion active devices as part of our growing installed base”.
Dividend: The stock pays a quarterly dividend of $0.23 per share ($0.92 a year), to yield 0.6 per cent.
Outlook: Challenging times indeed – and they will continue to be so for a while. But investors can be encouraged by the fact the stock is gradually moving higher. The p/e ratio is 25.29.
Amazon.com (NDQ: AMZN)
Background: Amazon is the largest on-line retailer in the world, but the company is also involved in many other businesses including cloud storage, video streaming, film production, voice-activated software (Alexa), and more.
Performance: The shares hit a 52-week low in late December. They’ve regained some ground but we’re a long way from the split-adjusted highs of around $166 reached in December 2021.
Recent developments: Amazon stock fell $9.52 on Friday after the company reported disappointing fourth quarter and year-end results. Revenue for the quarter came in at $149.2 billion, up 12 per cent on a constant currency basis, which beat analysts’ estimates. But earnings were a different story. Fourth quarter profit was only $300 million ($0.03 per diluted share), compared with $14.3 billion ($1.39 per share), in the fourth quarter of 2021.
For the full 2022 fiscal year, Amazon lost $2.7 billion ($0.27 per diluted share), compared with net income of $33.4 billion ($3.24 per share), in 2021. The loss includes a pre-tax valuation loss of $12.7 billion from the common stock investment in Rivian Automotive, Inc., compared to a pre-tax valuation gain of $11.8 billion from the investment in 2021.
Dividend: The stock does not pay a dividend.
Outlook: The company provided first quarter guidance. It expects revenue of $121-$126 billion (analysts estimate $125 billion) and operating income of zero to $4 billion, which compares to the consensus of just over $4 billion.
Alphabet Inc. (NDQ: GOOGL)
Background: Alphabet is the umbrella company that owns Google (which includes Android, Chrome, and YouTube), Nest (home automation), Calico (anti-aging research), Fiber (high-speed Internet), Google Ventures (new company investments), Sidewalk Labs (city infrastructure), and Waymo (driverless cars). Other services include Google Maps, Google Play, and cloud computing.
Share splits: The stock split 2 for 1 shortly after we recommended it in my Internet Wealth Builder newsletter. The company implemented another split on July 15, 2022. Investors received a special dividend of 19 shares for every share owned as of the July 1 record date. The market price adjusted accordingly.
Performance: The stock has rallied recently and is trading at its highest level since early September, although it was down almost $3 on Friday.
Recent developments: The company missed estimates on both revenue and earnings in the fourth quarter. Revenue was $76 billion, up only 1 per cent from the year before (7 per cent in constant currency). For the full year, revenue was $282.8 billion, a 10 per cent increase (14 per cent in constant currency) from 2021.
Net income for the full year just under $60 billion ($4.56 per diluted share), down from $76 billion ($5.61 per share) in 2021.
The company said it expects severance charges of $1.9- $2.3 billion due to the lay-off of 12,000 employees. Most of these costs will be incurred in the first quarter of this year.
Dividend: The stock does not pay a dividend.
Outlook: Lay-offs, slow revenue growth, and a declining profit don’t augur well for the coming year.
To sum up, the tech sector still looks vulnerable. However, the recent increases in the prices of some of the major players is encouraging. I would not be a buyer at this point but if you currently have positions, I suggest you hold.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.
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