Four of the world's best-known technology companies report quarterly results in an earnings bonanza this Thursday, October 26. Tech has been the best performing sector in the S&P 500 this year. The top technology shares are richly-priced so surprises during earnings season can cause large price swings.
Twitter (NYSE:TWTR)
Entering a new position in Twitter shares is buying into a ‘turnaround story’. But expectations that one can happen are low. Bottom pickers have sent the shares +9.6% year-to-date and +2.9% since the last earning release. But it’s a long way to go to recoup the -60% 5-year return. There is a potential bottom around $14 but management need to offer real reasons for optimism. The result of its trial of more characters in a tweet could be one source of optimism, but anecdotally it went down badly with its core user base. Perhaps more encouraging is video livestreaming. Twitter is best at breaking news, which live video can complement very well. Video is good for advertising and can entice a younger audience.
For now, there is still a shortage of evidence that Twitter can rekindle falling user growth and monetise existing users.
Q3 EPS expectation: 0.064 (Adjusted), -0.105 (GAAP)
Q3 Revenue expectation: 587.483 million
Alphabet (NASDAQ:GOOGL)
Dominance in internet search supported by the widespread adoption of the Android operating system has pushed shares of Google-parent Alphabet to above $1000 this year. Shares are up over 26% this year, handily outstripping the S&P 500 but have stagnated a little of late, gaining +2.6% in the last quarter.
The purchase of HTC’s mobile business for $1.1bn and the release of its critically claimed Pixel 2 suggest Google can take some market share from Smartphone market leaders, including Apple (NASDAQ:AAPL).
Fines from European competition regulators and increased regulation of the internet look like headwinds Google can weather over the long haul. Signs of a clampdown on tax avoidance in Europe would be likely offset by Donald Trump’s plans to allow a tax holiday for US company foreign earnings. Longer term, Google is well positioned in key growth areas including cloud-computing, self-driving vehicles, virtual & augmented reality and online video.
EPS expectation for Q3: 9.9 (Adjusted), 8.3 (GAAP)
Revenue expectation for Q3: 22.13B
Amazon (NASDAQ:AMZN)
Amazon is leaving a wake of destruction behind it in the retail industry thanks to its dominance in e-commerce. Founder Jeff Bezos was briefly richest man in the world this year thanks to his stake in Amazon. The shares look frothy after 31% returns year-to-date, though the gains are in keeping with 5-year returns of +325%.
Amazon’s expanding grocery shopping ambitions with the purchase of Whole Foods is a true test of shareholders favouring market dominance over profits. Investors would probably have preferred a focus on more profitable areas of the business like its cloud division Amazon Web Services and/or popular devices like Amazon Echo and Fire TV. Shares have edged lower by -3% and have consolidated above critical support at $930 since the last earnings update when the company warned short term profits might be sacrificed for more investment spending.
EPS expectation for Q3: 1.883 (Adjusted), 0.040 (GAAP)
Revenue expectation for Q3: 41.443B
Microsoft (NASDAQ:MSFT)
Thanks to its participation in fast-growing areas of tech like the cloud, shares of Microsoft have been behaving more like a growth stock; up 27% this year and 184% over 5 years. Microsoft looks like it has thrown in the towel on plans for Windows Mobile to compete against iOS and Android as a Smartphone operating system. Admitting failure as a mobile operating system developer allows Microsoft to focus on its growing cloud computing businesses including Office 365, LinkedIn (NYSE:LNKD), Skype and Azure. Windows 10 has helped secure Microsoft’s dominance of the large but slowing PC market. PC sales have fallen for twelve straight quarters. Its hybrid laptop/tablet ‘Surface’ sales can help cushion the blow. Shares soaring in the last year make the questionable assumption Microsoft can still thrive in a post-Windows PC World.
EPS expectation for Q3: 0.715 (Adjusted), 0.710 (GAAP)
Revenue expectation for Q3: 23.52B