Market Insights

Smaller and newer technology stocks have rallied on strong earnings in the last week, even as older companies stagger.

Uber Technologies (UBER), Shopify (SHOP) and Pinterest (PINS) jumped after announcing their quarterly numbers. Each company beat earnings and revenue estimates as their core businesses improved.

UBER was the biggest story because ride-sharing giant struggled since going public last May. In recent months, however, CEO Dara Khosrowshahi has focused on margin gains over sprawling growth.

He did that by dropping unprofitable rides and limiting expansion to the Uber Eats food-delivery service. The result is a company that will make money sooner than expected: first in the rides business and second with Eats.

SHOP hit new highs as its key products flourished during the holiday-shopping season. Known for helping small businesses easily build an online presence, SHOP also grew rapidly in payment processing and lending services.

With more than 1 million customers now under its umbrella, the company’s next goal is providing warehouses and fulfillment services. That would bring it into direct competition with Amazon.com (AMZN) and eBay (EBAY).

PINS gapped higher after revenue beat estimates on both an overall and per-user basis. The social-media network, which recently surpassed Snap (SNAP) to become No. 3 in the U.S., also raised its guidance as management boosts monetization of its platform.

Cisco’s Uninspiring Results

Cisco Systems (CSCO), on the other hand, failed to impress. Its backward-looking numbers might have beaten estimates. But on a deeper level, the lumbering technology giant faces weak demand for its traditional networking products.

CEO Chuck Robbins added that China’s coronavirus could hurt CSCO’s business by slowing travel and manufacturing.

Under Armour (UAA) also cited coronavirus, although it had much bigger problems. The athletic-apparel company missed sales targets as customers defect to products from Nike (NKE) and Lululemon (LULU). It was further punished by weakness at brick-and-mortar partners like Kohl’s (KSS). UAA crashed 19 percent as a result.

Bed Bath & Beyond (BBBY) did even worse, plunging 21 percent after warning that same-store sales in December and January shrank by 5.4 percent. While it wasn’t an official earnings report, the news cast further doubt on the specialty retailer’s future in the new digital age.

Changing “the trajectory of our current results will take time, as we remaster the fundamentals of merchandising, pricing and promotion,” CEO Mark Tritton warned in the statement. That’s a stark contrast with SHOP’s “tremendous fourth quarter.”

NetApp (NTAP) also had its biggest drop since August after earnings and revenue missed estimates. Like CSCO, the data-storage company is struggling with slower demand from large enterprises. Guidance was tepid as well.

Videogames Good and Bad

Last week also saw a divergence between two of the bigger videogame makers.

Activision Blizzard (ATVI) rallied after “Call of Duty: Modern Warfare” drove strong revenue growth and drew more than 150 million mobile downloads. That spurred optimism about bigger surprises down the road.

Take-Two Interactive (TTWO) had its biggest drop in a year after bookings missed estimates by a mile. That suggests future business is getting weaker rather than stronger. Management’s guidance for the current quarter was also below consensus. Does TTWO need a new hit game to get moving again?

Applied Materials (AMAT), on the other hand, shot past estimates for at least the 10th straight quarter. The ongoing surge in chips continues to drive AMAT’s business.

Two drug makers also rallied on strong results. Both are trying to comeback from recent declines.

AbbVie (ABBV) beat estimates on the top and bottom lines as newer products like Skyrizi and Rinvoq grow. They’re important replacements for its flagship arthritis treatment Humira, which is starting to face competition.

Perhaps more important, management was positive about its purchase of Botox-maker Allergan (AGN). Not only is AGN’s business doing better than projected. The deal is also expected to close before the end of March.

Teva Pharmaceuticals (TEVA), a debt-laden maker of generics, continued to claw back from long-term lows. Earnings and revenue both surpassed consensus, triggering a wave of positive analyst reactions.

In conclusion, the last week of earnings continued the trend of strength in newer technology companies like UBER and PINS. Larger and mature companies like CSCO and NTAP struggled, while chip-related names like AMAT are still flourishing.