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Who Knew? Apple and Facebook Breathe Life Back into Tech

26 July 2013 in Trading Ideas

Remember when everybody gave up on Apple and Facebook?

For Apple, It began less than a year ago, after the company’s shares had topped $700 after one of the greatest runs in American corporate — and shareholder — history. Seeing the shares hit the $1,000 mark seemed like a matter of when, not if.

But, as they say, live by the consumer electronics hits, die by the consumer electronic hits. Investor sentiment began to wane as the company’s cycle of new products receded into the rear-view mirror – and investors wondered if the company had anything new and exciting up its sleeve in the new post-Steve Jobs era.

It seems hardly a coincidence that just weeks after the company launched its latest-generation iPhone 5 device, the company’s shares proceeded to dive-bomb nearly 40% over the next six months.

Ironically, it’s those now-lowered expectations of Apple that served the company well this week, following its quarterly earnings report. Sure, profit was below the year-ago quarter, and sales rose less than 1%, but that beat Wall Street’s forecast – and there even some other kernels of good news, such as iPhone sales beating expectations, giving hope to some investors that the company may not be completely ceding the global low-cost smartphone market to other providers (iPhone sales jumped 66% last quarter in Japan, for example, helped by a falling yen).1

mobile internat tsunami motif While Apple’s shares jumped 5% the day after its earnings report, the stock’s bounce-back hasn’t been a one-day affair, rising nearly 10% in the past month. This has helped other investments leveraged to Apple’s success, such as the Mobile Internet Tsunami and Tablet Takeover motifs, which each hold a significant weight in Apple shares.

The Mobile Internet Tsunami motif is up 5.8% in the past month, and is down 0.7% so far in 2013. The Tablet Takeover motif is up 5.3% in the past month, and up 5.7% in 2013. During those same timeframes, the S&P 500 has gained 6.3% and 16.6%, respectively.

For Facebook, of course, the turn in investor sentiment was much more sudden – as in, right-after-the-IPO sudden. The company’s shares began tanking immediately out of the gate, as the IPO was routinely lampooned by investors and pundits. The company’s stock dropped to half its IPO price in about four months.

So, who’s laughing now, after Facebook’s quarterly report on Wednesday that saw the company blow away Wall Street’s revenue and profit forecasts and included the juicy nugget that the company’s “holy grail” of mobile advertising revenue jumped to about $656 million from $375 million just three months ago.2

onward online ads Facebook’s stock jumped 29.6% the following day, which helped provide a boost to the Online Onward Ads motif, where Facebook shares constitute a 14.1% weighting. The motif is now up 19.9% during the past month and 33.3% so far in 2013.

Naturally, further price appreciation is no guarantee, but this week large-cap tech investors couldn’t be blamed for thinking the glory days may not be over.

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1Peter Burrows, “Apple Plots Return to Growth After Coping With Aging Lineup,” Bloomberg.com, July 24, 2013, http://www.bloomberg.com/news/2013-07-24/apple-ceo-plots-return-to-growth-after-coping-with-aging-lineup.html.

2Jim Edwards, “Facebook’s Q2 Earnings – Huge EPS Beat, Stock Up 15% After Massive Increase in Mobile Ads,” Business Insider, July 24, 2013, http://www.businessinsider.com/facebook-earnings-for-q2-2013-2013-7.

Tags: aapl, Apple, Facebook, fb