Erste Asset Management

Turbulent Week for Tech Giant Shares

Turbulent Week for Tech Giant Shares

The past week on the stock exchange was dominated by the US tech giants. The reported quarterly figures of the so-called „Big Five“ were a mixed bag, putting US technology exchange Nasdaq through a roller coaster ride – however, with a reasonably satisfactory outcome. Solid figures from Apple, Google parent company Alphabet and Microsoft initially provided relief and boosted the tech stocks. After surprisingly weak figures from Facebook and a significant price drop, the week finally ended on a conciliatory note with good results from Amazon.

The earnings reports of the interest-sensitive technology groups had been eagerly awaited: while the industry giants can hope for strong growth, they would also suffer particularly badly from the expected key interest rate increases, as future profits are therefore worth less in the present.

Facebook Shocks Stock Markets with Weak User Numbers

Facebook group Meta’s figures, reported on Wednesday after the stock exchange close, were received with great disappointment on the markets. Meta’s share price plummeted by a good quarter on the following trading day, with the group losing around USD 250 bn in market value in a single day. The shock impacted the entire industry on the stock market, with the technology-heavy Nasdaq-100 stock index abruptly ending its recovery rally with a loss of 4.2 per cent on Thursday – in percentage terms, the largest daily loss since September 2020.

Facebook’s user numbers in particular caused disappointment among investors: For the first time, the world’s largest online network hardly gained any new users in the past quarter. The number of daily active members even fell by around one million. In the Group as a whole, which in addition to Facebook also includes Whatsapp and Instagram, user growth was unusually low at 10 million. In the previous quarter, the group saw 50 million new users.

Founder and chief executive Mark Zuckerberg explained the decline with the competition from the video app TikTok. „People have lots of choices about how they want to spend their time – and apps like TikTok are growing very fast,“ he said in a conference call. As a result, Facebook also plans to focus more on short videos in the future, Zuckerberg said.

The group’s outlook was also poorly received. After strong growth rates during the pandemic, the group expects revenue of USD 27 bn to USD 29 bn in the current quarter – which would be only a meagre increase of 3 per cent compared to the previous quarter.

Meta also pointed to Apple’s measures for more privacy on the iPhone, which have been hampering Facebook’s business for months. This is expected to reduce the group‘s revenue by USD 10 bn this year, Chief Financial Officer Dave Wehner said. App providers like Facebook have had to ask iPhone users since last year if they can track their behaviour across different services and websites for advertising purposes. A great many iPhone customers refuse.

After the Facebook shock, however, the week in the stock market ended on an upbeat note: Amazon reported solid figures and Facebook competitor Snapchat also delivered a positive surprise. In the wake of Meta’s price slump, Snapchat shares also dropped by nearly a quarter on Thursday. However, after Snapchat surprised with the first quarterly profit in its history when it reported its own figures, the photo app’s shares rose by almost 59 per cent on Friday.

The number of daily active Snapchat users recently increased from 306 million to 319 million. In the past quarter, the company increased its revenue by 42 per cent YoY to USD 1.3 bn and is also forecasting a revenue of just over one billion for the current quarter. Snapchat is also suffering from TikTok competition and Apple’s privacy measures, and is responding by driving video offerings and alternative measurement tools for advertisers so they can gauge the effectiveness of their campaigns even after stricter privacy policies on the iPhone.

Amazon Exceeds Profit Expectations

Amazon’s figures, reported after market close on Thursday, were also well received on the stock market. The world’s largest online retailer had good earnings in the Christmas quarter. The US group coped better than had been feared with the announced cost increase due to the enormous need for personnel and the high investments in delivery logistics – not least thanks to its highly profitable cloud business.

The Group thus far exceeded analysts’ profit expectations in the final quarter, with a net income of USD 14.3 bn – almost twice the previous year’s figure. However, the main reason for the sharp rise was Amazon’s stake in electric car maker Rivian, which enabled the group to book high special proceeds on its balance sheet when it went public in November. However, operating income, which is more representative of business performance, fell by almost half to USD 3.5 bn.

Now trouble for Amazon looms in form of the possible formation of a union. Until 25 March, employees at a logistics warehouse in Bessemer in the US State Alabama can once again vote on whether a US union should be formed in the company for the first time. The initiative already failed once last year.

Apple Posts Record Quarter Despite Chip Shortage

Previously, Apple, Alphabet and Microsoft already reported good figures. Apple wrote record figures again this past Christmas season despite the global chip shortage, with a quarterly profit of USD 34.6 bn, a good 20 per cent more than the previous year. Sales rose by 11 per cent to USD 123.9 bn, also a record figure. Yet the group could have sold even more without the computer chip bottlenecks: Apple estimates that they are responsible for over six billion dollars less of sales. Once again, the iPhone was the growth driver: The Apple smartphone‘s sales increased to USD 71.6 bn YoY, up 9 per cent.

Alphabet and Microsoft Continue to Benefit From Cloud Services Boom

Google parent company Alphabet continued to benefit from the trend toward home offices and online shopping, nearly doubling its net profit to USD 76 bn in 2021. In Q4 alone, the US company made a profit of USD 20.6 bn with a revenue of USD 75.3 bn, significantly exceeding analysts’ expectations. Once again, cloud services were a strong growth driver. However, with its growing market power, the company is increasingly coming under the scrutiny of regulators worldwide.

Microsoft has also recently benefited from the boom in cloud services. In the last quarter, the software giant increased its revenue by a fifth year-over-year to USD 51.7 bn, slightly exceeding analysts’ expectations. On the bottom line, Microsoft earned just under USD 18.8 bn in the second fiscal quarter, which ended on 31 December – an increase of 21 per cent.

Investing in the US Tech Giants

Technology stocks have always been subject to high fluctuations on the stock markets. This became apparent again at the beginning of the year, when investors took advantage of the sharp rise in prices to take profits. For those who continue to have high expectations of the innovative power and growth strength of the companies outlined above, the ERSTE STOCK TECHNO fund offers a broadly diversified opportunity to invest in the most important US technology companies. Price setbacks in the double-digit range offer the opportunity to enter on a reduced price basis.

CONCLUSION: US technology stocks have recently experienced a rollercoaster ride on the stock market. Depending on how sales and earnings develop, one must continue to expect high fluctuations in one share or another. Based on the developments outlined, the chances are good that the technology sector will continue to be the engine of growth in the coming years.

The fund employs an active investment policy and is not oriented towards a benchmark. The assets are selected on a discretionary basis and the scope of discretion of the management company is not limited.

For further information on the sustainable focus of ERSTE STOCK TECHNO as well as on the disclosures in accordance with the Disclosure Regulation (Regulation (EU) 2019/2088) and the Taxonomy Regulation (Regulation (EU) 2020/852), please refer to the current Prospectus. In deciding to invest in ERSTE STOCK TECHNO, consideration should be given to any characteristics or objectives of the ERSTE STOCK TECHNO as described in the Fund Documents.

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Prognoses are no reliable indicator for future performance.


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