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Tech Titans Win Cheers With Earnings Reports

4 February 2015 in Trading Ideas

Despite the market’s overall slump since late December, nothing seems to reawaken investors’ hopes like strong quarterly reports by some of the biggest names in technology.

And last week, investors more or less got what they were looking for.

Apple shares shot 5% higher after the company released its December quarter results. iPhone sales came in even better than expected, reaching 75 million units a quarter – the highest-ever sales and the highest-ever average price — driven by larger sizes and China.1

As venture capital analyst Benedict Evans noted, this was far more than Microsoft’s phone unit (the former Nokia), which sold 50 million phones, of which only 10 million were Lumia smartphones — and quite possibly more smartphones than Samsung (which no longer discloses unit sales).

Interestingly, Evans wrote in his weekly newsletter, Apple’s sales in China are “exploding” even as the market sees a surge of new local manufacturers with good design and much lower prices.

“It seems clear that Apple has a lock on the high-end of the phone market that faces no immediate challenge,” he wrote.

By contrast, iPad sales are trending down, but as Evans suggested, this is less a competitive issue (it still dominates tablet usage) than a combination of low replacement rates and “the generally weak market for anything that isn’t a smartphone as mobile takes more and more use.”

Also, of note: the company stopped reporting iPod sales (after 400 million served) and said its Watch would go on sale in April.

Oh, and by the way, the company posted a quarterly profit of $18 billion, which Evans thought was probably a record for any company, ever.

For Facebook, the quarter was about getting more from doing less. As Advertising Age put it, Facebook continues to do what few digital publishers can pull off: Over each of the last five quarters, the social network has been able to boost revenue even as it sells fewer ads.2

This ability to raise prices pushed Facebook’s overall revenue to $3.85 billion in the most recent quarter. In the final three months of 2014, Facebook served 65% fewer ads than a year earlier, but the average cost of those ads to advertisers was 335% higher.

Facebook’s overall revenue rose 49% year over year, beating analysts’ estimates. The company earned $701 million during the quarter.

Facebook continues to solidify itself as a mobile company, Advertising Age said. In the fourth quarter, 84% of the company’s daily audience visited on a smartphone or tablet, while 69% of the company’s advertising revenue came from ads shown on such devices.

Then there was Amazon. As the New York Times pointed out, the company’s profit fell in the fourth quarter, while revenue failed to meet expectations.

In addition, the company said it might lose money in the current quarter.3

But investors were thrilled, pushing the stock 13% higher the day after the report.

The Times said investors were tickled that Amazon’s delivery service, Prime, is surging. Amazon said its worldwide paid membership in Prime rose 53% in 2014. A price increase for Prime to $99 apparently discouraged few customers.

Prime is the key to Amazon’s attempt to build an ecosystem where people use Amazon devices to watch Amazon-produced content that is surrounded by ads for Amazon products that are delivered by Amazon’s fleet of drones, the Times noted.

Should any or all of these tech giants continue to succeed, it could provide a further boost to their stocks, as well as other investing alternatives.

The Mobile Internet Tsunami motif, where Apple shares have a 15.3% weighting, has increased 21.8% in the past 12 months. In that same time, the S&P 500 has risen 18.4%.

The Onward Online Ads motif, which has a 25.2% weighting in Facebook shares, is up 0.8% in the last 12 months.

The Couch Commerce motif, where Amazon shares comprise 24.9% of the weight, has gained 4.8% in the past 12 months.

1Benedict’s Newsletter, No. 98, Feb. 1, 2015.

2Tim Peterson, “Facebook’s Mobile Revenue Climbs to $2.5 Billion as Ad Prices Soar,” adage.com, Jan. 28, 2015, http://adage.com/article/digital/facebook-s-mobile-revenue-hits-2-5-billion-prices-soar/296869/, (accessed Feb. 2, 2015).

3David Streitfield, “Amazon Reports a Profit, Citing Prime As the Key,” nytimes.com, Jan. 29, 2015, http://www.nytimes.com/2015/01/30/technology/amazon-earnings-profit-prime.html, (accessed Feb. 2, 2015).