Market Insights

Earnings season has mostly finished for major technology firms. Let’s take a look at the big winners and losers.

The first major theme was a rebound in beaten down social-media stocks Facebook (FB) and Snap (FB). Both showed signs of repairing different kinds of problems plaguing their businesses. FB’s big achievement was to keep drawing advertiser dollars — especially from its new Stories format and video service.

SNAP showed stabilization of its user base and beat estimates. That had investors looking for a turnaround in a name that’s fallen steadily for over a year.

Twitter (TWTR), on the other hand, said higher costs will squeeze future profitability. Jack Dorsey’s company also stopped providing a count of users, similar to Apple’s (AAPL) decision to step disclosing iPhone shipments. In the world where technology investors want to see growth, “no news” is seldom interpreted as “good news.”

Video Games Hammered

Video-game makers were another group that took a beating, although they swung wildly on a flurry of competing headlines. Simply put, a lack of new games and weak demand are hurting Activision Blizzard (ATVI) and Take-Two Interactive (TTWO). The other big worry is competition from the free game Fortnite, although Electronic Arts (EA) may be answering that challenge with Apex Legends.

Semiconductors also emerged as winners this earnings season as investors looked for a nearly year-long slump in orders to improve. Xilinx (XLNX), Lam Research (LRCX), Micron Technology (MU) and Advanced Micro (AMD) were among the big gainers.

Okay, those names are kind of obvious. What was the big surprise? Ever heard of Xerox (XRX)? The photocopier-maker-turned-document-management company had its best month in almost 18 years after investors finally bought into its turnaround story.

Xerox (XRX) chart showing sharp rally from late 2018.

Microsoft (MSFT) and Alphabet (GOOGL) weren’t so lucky. Both drifted aimlessly as their core businesses kept performing but did little to draw new money. GOOGL, like TWTR, raised some eyebrows with aggressive spending plans.

Cisco’s Path to Growth?

Speaking of spending, Cisco Systems (CSCO) expects customers to spend more on its new “Cat9K” switches. Analysts are gushing about the new product’s software opening the door to years of recurring subscription revenue. Technology investors tend to like that narrative. Will it lift CSCO shares into new record territory?

Arista Networks (ANET), which competes with CSCO in some areas, also surged after beating estimates. This company quadrupled in value between mid-2016 and last summer, when it was added to the S&P 500 index. It’s often viewed as an up-and-comer in the world of cloud computing.

Three of the biggest names were neither winners nor losers this earnings season. They simply drifted:

• Apple (AAPL): The iPhone maker faced huge negativity before its report, and then rallied after clearing a low hurdle. Is it a growth stock or a value stock? Investors uncertain of the answer are looking for excitement elsewhere.
• Netflix (NFLX): An increase to subscription fees lifted the streaming-video stock before its earnings, which were simply mixed. The narrative is shifting to better profit after that price hike. Don’t forget it’s also growing quickly in Brazil.
• Amazon.com (AMZN): Like GOOGL and TWTR, the e-commerce giant plans to increase spending. That, combined with light revenue guidance, kept the stock in a range. Then you also have plenty of drama involving its abandoned move to New York City and Jeff Bezos’ personal life.

Costs were also a problem for Verizon Communications (VZ), which expects to bleed money in higher taxes and interest. Additionally, the company is struggling with its purchases of AOL and Yahoo.

In conclusion, technology is a fast-moving industry where things are always changing. Hopefully this information helps you stay up to date.