Confidence behind big tech is waning after the latest earnings season saw better-than-expected results overshadowed by warnings that the tremendous rate of growth they have delivered may have reached its peak and is set to slow.
The latest quarterly results from the likes of Amazon and Alphabet, both of which showed signs of slower growth than the market had expected, has spooked investors and seen the likes of the New York Stock Exchange (NYSE) and Facebook, Apple, Netflix and Google owner Alphabet (FANG) plus index (tracking the ten most liquid and innovative tech stocks including Alibaba, Baidu, NVIDIA, Tesla and Twitter) fall over 15% since hitting an all-time high in the middle of this year.
Amazon beat earnings expectations but said overall revenue growth in the final quarter – the busiest of the year amid the holiday season – could be just half the rate it is currently delivering, while Google’s advertising revenue growth was 2% slower than anticipated. The heightened issues around data privacy and fake news hurt revenues at Facebook and saw user growth and engagement both decline. And Spotify’s uninspiring results came with a warning that the loss-making company will see gross profitability take a hit in the last three months of this year.
Some did fare better than others. Twitter shares rallied after third quarter (Q3) revenue beat expectations and nerves about falling user numbers were calmed by the company putting it down to its crackdown on removing fake accounts. Microsoft delivered a more resilient performance after all its core divisions including LinkedIn, Office 365 and its cloud computing service Azure experienced strong double-digit growth, briefly allowing it to overtake both Alphabet and Amazon to become the second-most valuable company in the world behind Apple.
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Apple share price falls after Q4 results
Despite the whiff of caution coming from some of the sector, expectations for Apple were still high before the world’s most valuable publicly listed company released its own results. But uncertain guidance for the holiday season, reports it has scaled back its ambitions for the latest iPhone, and the announcement it will be less transparent over how many phones it sells in the future has left many feeling nervous about Apple’s ability to stay atop the tech tree this Christmas.
Apple iPad and Mac launches raises expectations before holiday season
Shortly before releasing its Q4 results to the end of September 2018, Apple had upped excitement about the prospects for the upcoming holiday season with its latest product launch that included a long overdue revamp of its Macs and the biggest overhaul to the iPad ever undertaken: not only is it slimmer and lighter than ever but equipped with new features such as a USB port, the wireless-charging Apple Pencil and a new keyboard to help it compete against ‘convertibles’ like the Microsoft Surface.
Following the release of its new iPhones and Apple Watches only months before, there is good reason to believe Apple is entering the busiest quarter of the year with what looks like its strongest line up for years. Reports soon started to surface that Apple’s sales in the final three months of 2018 (the first of its new financial year) would top $100 billion for the first time ever.
Apple Q4 results beat expectations but met with whiff of caution
Apple’s revenue in the three months to the end of September (rounding off the financial year) rose 20% year-on-year (YoY) to $62.9 billion – the fastest growth on record for three years and ahead of the $61.57 billion expected by analysts.
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While that gives good reason to cheer the guidance for the first and most important quarter of its new financial year, it also suggests Apple could be the latest tech giant to see a slowdown in growth. Quarterly revenue is set to be between $89 billion and $93 billion and the company would have to hit the very top of that range (which for Apple would not be unheard of) just to meet market expectations. That guidance was also a disappointment to those buoyed by its new products that were bandying about the $100 billion figure before the results were released.