Back to top

Analyst Blog

Last week saw a big sell-off following earnings reports, but results were not really that bad, as illustrated below-

Earnings Highlights

Apple (AAPL - Analyst Report) was the only company managing to impress investors, as iPhone sales remained strong. A lot of the growth is coming from emerging BRIC countries, with revenue from Brazil up 61%, Russia up 97%, India 55% and China 28%.

Older generation iPhones did better than the brightly-colored plastic, as expected. App downloads remained at record levels and the Macintosh line continued to grow. Tablets disappointed, however, plagued by inventory issues and rising competition. But Apple softened the blow, declaring a dividend increase of 8%, additional share buyback of $30 billion and a 7 for 1 stock split.

Facebook’s (FB - Analyst Report) strong quarterly results were mostly on account of a very strong mobile business, which benefited from higher-priced newsfeed ads. This enabled it to generate revenue growth and margin expansion despite the fact that ad volumes declined. The company is expected to continue investing to grow volumes, both through new products and customer addition.  

Microsoft (MSFT - Analyst Report) remains a turnaround story, with the new CEO Satya Nadella touting a cloud-first, mobile-first approach while promising greater transparency and accountability to stakeholders. The company reported above expectations. Devices & Consumer was the stronger of its two segments, helped by the withdrawal of support to XP, new console platform and strength in tablets. On the commercial side, Microsoft saw huge success in the cloud. The company clearly remains in investment mode, as seen from the R&D line and this is something that is likely to continue in the foreseeable future.

VMware (VMW - Snapshot Report) and its parent company EMC both sold off post their earnings announcements, although neither company missed expectations. It’s true that VMW guided to a margin decline in the upcoming quarter, while maintaining guidance for the year. This hardly seems to justify the price action though (shares opened nearly 10% lower the following day)

. EMC met expectations for the quarter, but guided to revenue and earnings that were much better than expectations. Shares were punished regardless as the momentum sell-off continued.

The logic makers Xilinx (XLNX - Analyst Report) and Altera (ALTR - Analyst Report) were also part of the sell-off, although Xilinx plunged nearly 9%, while Altera was down under 4%. Still, some decline in Xilinx may be justified, since the company guided well below expectations and remains behind Altera in the race for 20nm process. But considering the fact that it has around 70% of 28nm, investors may not have reacted so sharply but for the Credit Suisse downgrade.

Netflix reported a strong quarter, beating our estimates and the guidance was also better than expected. Although it announced a rate increase, shares appreciated in response. However, Amazon’s exclusive agreement with HBO hurt the shares.

Amazon (AMZN - Analyst Report), on the other hand, continues with its significant investments, aggressive pricing and growing hardware focus, which continues to shrink its margins. Therefore, although its scale of operations enabled it to grow margins in the last quarter, the shares were punished the following day. 

 Company

Last Week

Last  6 Months

AAPL

+8.72%

+7.94%

FB

-3.11%

+14.49%

YHOO

-5.53%

+6.58%

GOOG

-3.52%

 

GOOGL

-3.45%

+2.97%

MSFT

-0.37%

+12.20%

INTC

-2.32%

+7.80%

CSCO

-1.54%

+2.00%

GOOG = Class C shares (new, non-voting)

GOOGL = Class A shares (old, 1 vote per share)

Other stories you may have missed-

Who Will Win the Mobile Ad War: Google has devised a way to link regular search and display ads with advertisers’ mobile apps in order to boost customer engagement with them. This is a big deal for Google because mobile usage revolves around apps that usually operate as walled gardens. So it’s generally hard to direct customers from the search page to the app. Moreover, micro-blogging site Twitter recently announced similar special ads that competitor Facebook has already had for some time.

Google Enters Samsung-Apple Patent Fight: Samsung and Apple have spent many hours in court suing and counter-suing each other. The latest bout has Apple asking for $2 billion and Samsung declaring Apple’s claims to be related to the Android OS rather than Samsung hardware. Email messages produced in court now show that Google is in fact indemnifying Samsung for a couple of the patents in question (something that both Apple and Samsung have avoided mentioning thus far).

FCC Changes Stance on Net Neutrality: The new FCC proposal will allow special deals by video streamers and Internet service providers for increased speeds in the last mile. This is a highly controversial decision and one being hotly contested by streamers, particularly Netflix. The need to strike a balance is apparent, as ISPs face increasing costs that can only be offset by higher rates, since the user base cant be increased incessantly.

On the other hand, a lack of transparency in the way these special deals are formulated will lead to unfair competition in the market, profitability issues for streamers and higher costs for consumers. The FCC has assured that individual deals will be reviewed for their reasonableness, but this is not likely to go down well with streamers that are already dealing with significant content acquisition costs.

Tech Companies Settle Class Action Lawsuit: Apple, Google, Intel (INTC - Analyst Report) and Adobe have agreed to settle a class action lawsuit for salary-fixing and no-poaching arrangements. Others like Disney (DIS - Analyst Report) and Intuit (INTU - Snapshot Report) have already settled. Trial on behalf of 64,000 employees was scheduled to start at the end of May, but Apple and party have settled the matter for $324 million. Pretty good considering that the plaintiffs were planning to ask for $3 billion according to court records, which could have even resulted in triple damages under anti-trust law.

Google+ Leader Departs: This could be the end of the road for Google+, as its chief Vic Gundotra parts ways. Gundotra has spent 8 years at Google, the last few on creating the social platform. But it now appears that the Hangouts team is moving to Android with the photos team likely to follow suit. Google’s mobile efforts should therefore see a boost while G+ takes back seat (for now anyway).

Amazon Gets Exclusive Rights to HBO Content: Amazon has acquired exclusive rights to stream HBO content that is at least 3 years old. The companies specified neither the shows covered by the agreement, nor the agreement period. But it appears that HBO is getting its foot into the streaming market with an able partner, while Amazon is getting quality content for its Prime video service and building a relationship with an important content provider. HBO Go (with all the current content from HBO) will be available to HBO subscribers on Amazon’s all-new Fire TV.  

Companies Reporting This Week: Last week was disappointing, with most stocks plunging post-earnings. This is another big week for the sector, so let’s see how things go. Some of the companies reporting this week include Corning (GLW), Western Digital (WDC), Automatic Data Processing (ADP - Analyst Report), Dun & Bradstreet (DNB), Harman (HAR), Yelp (YELP), Twitter (TWTR), OpenTable (OPEN), Expedia (EXPE), TripAdvisor (TRIP) and eBay (EBAY).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%