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Last week was a seesaw of sorts, with Facebook (FB - Analyst Report) shooting up on one side and Microsoft (MSFT - Analyst Report)/Cisco (CSCO - Analyst Report) combined weighing down the other.

Facebook’s Meteoric Rise to the S&P 500

From Dec 20, Facebook will replace Teradyne (TER - Analyst Report) in the S&P 500. The company took 19 months to join the index, roughly the same amount of time as Google .

S&P has some criteria for adding a company to the index: it generally considers the company’s profitability over the preceding four quarters, so Facebook’s results over the past year were a primary consideration. However, it also considers market capitalization and sector weighting, so as to correctly represent the sector within the universe. So Facebook’s soaring prices and the growing importance of social media as a sector also played a part in its inclusion.

The advantage for Facebook is obvious: there are around 1,300 mutual funds and 13 exchange traded funds following the S&P 500. All of these will need to increase their holdings of Facebook shares, which was the reason the company saw a surge in share prices. The enhanced liquidity that generally accompanies an inclusion in the index also supports higher prices and volumes.

Sony Nosing Ahead of Microsoft

Microsoft shares lost further ground last week as the Xbox manufacturer admitted that its gaming device took 18-20 days to touch 2 million units sold, slightly behind Sony’s (SNE - Snapshot Report) PS4 which reached 2.1 million units in 15-16 days.  

Microsoft needed to make a splash early on because its devices and services strategy is not going that well and there appear to be multiple challenges ahead for many of its businesses. So investors reacted strongly to the news that Microsoft had fallen behind. Microsoft of course pointed out that there were no unsold items at any of its retail outlets and any shortage was on account of its inability to meet demand.

There might be some truth to this because both Microsoft and Sony appear to have moved cautiously in terms of production (Sony was out of stock earlier). This may be because Nintendo’s Wii U didn’t do very well last year, with sales dropping off sharply post launch and ultimately missing the company’s expectations.

Also, investors appear to have been unduly harsh because one can hardly rule out the fact that Microsoft’s device is $100 more expensive and the device faced plenty of criticism. Initial shipments are in fact more about sentiment than ultimate market position because it’s only in latter that platform switches become apparent. In that respect, Microsoft’s Xbox One appears to be offering more.

Cisco Thrashed on Lowered Expectations

Investors have been downbeat about Cisco in the last few months and its Analyst Day only confirmed their fears. The company pared its long-term (3-5-year) revenue growth target to 3-6% (previous 5-7%) and said that operating margins would remain relatively strong (28-29%). The EPS is, however, expected to grow just 5-7% (previous 7-9%).

Near-term headwinds stem from persistent weakness in emerging markets, cautious IT spending in developed markets, long-drawn-out product transitions in both the routing and switching portfolios, and uncertain demand at service providers. The lowered expectations for the long term likely reflect this near-term weakness, since management did not identify any long-term issues. This implies a strong comeback later on, possibly in the second half of 2014.

Management indicated that Cisco’s longer-term growth plans, centered on cloud, mobility, security and services, remained on track. A certain amount of caution, however, appears justified given that competitive pressures continue to increase and market share losses cannot be ruled out.

 

 Company

Last Week

Last  6 Months

AAPL

-1.77%

+28.34%

FB

+10.81%

+121.98%

YHOO

+1.52%

+49.70%

GOOG

-0.99%

+19.69%

MSFT

-4.45%

+4.83%

INTC

-1.98%

-3.23%

CSCO

-5.02%

-18.06%

 

 

Other stories you may have missed:

Apple’s China Market Share Shoots Up: According to a report from Counterpoint Research, Apple’s (AAPL - Analyst Report) market share in China went up from 3% in Sep to 12% in October as a result of the iPhone 5s. Apple now trails only Samsung and Lenovo, which are the first and second largest players. There should be further market share gains once the China Mobile sales start to kick in.

Yahoo Needs Microsoft More than It Wants Us to Know: As a result of an SEC inquiry and subsequent requirement, Yahoo (YHOO - Analyst Report) disclosed that it derives a significant portion of its revenues from its search agreement with Microsoft. According to the disclosure, around 25% of its 2012 revenue was generated from the agreement, which went up to 31% in the last-reported quarter. Investors were unperturbed, indicating continued confidence in CEO Marissa Mayer’s turnaround efforts.

YouTube Could Generate Over $5 Billion This Year: eMarketer expects Google’s YouTube to generate $5.6 billion in 2013, continuing to grow as a percentage of its overall revenue. Users all over the world increasingly connect through broadband and on mobile. The increasing availability and reducing cost of high-speed connectivity is leading to increased video consumption over the Internet. This phenomenon is also likely to divert TV ad dollars to video platforms like YouTube. Therefore, growth should continue in the foreseeable future.

Google Could be Looking to Design Its Own Chips: An unknown person with apparent knowledge of the matter has rumored that Google may be interested in manufacturing its own chips based on ARM architecture. Bloomberg data as quoted by mercury news suggests that Google is Intel’s (INTC - Analyst Report) fifth largest customer, accounting for 4.3% of its revenues.  Any departure from Intel technology could be particularly harmful for Intel as it would validate and demonstrate rival ARM’s technology for cloud infrastructures, a place that Intel dominates.

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