America’s Big Tech stocks have emerged from a veritably mixed reporting season – an important reminder for investors that these are unique businesses, with unique challenges. However, two themes interlinked the results: increased investment and conservatism – or, perhaps, cautiousness – about the outlook for the months ahead. There was also an overarching sense that, for various of these companies, the growth engines of the past are revving more slowly – with the onus shifting increasingly towards their other, often subscription-based, bets.
Apple (US:AAPL) sent a seismic jolt through global stock markets with a rare revenue warning in January. Chief executive Tim Cook cited lower-than-expected iPhone sales and “economic deceleration” in China, while also pointing to fewer-than-anticipated iPhone upgrades.
The company is employing new initiatives to support iPhone sales. In January, it absorbed “part or all” of the currency movements against the strong US dollar in some locations and products. Meanwhile, Apple’s services (such as music) are garnering more attention, enjoying a record first quarter, up 19 per cent year on year against iPhones’ 15 per cent decline.
Yet, for now, services constitutes a small proportion of the top line and Apple’s second-quarter guidance implies a continuing slowdown – with revenues of $55bn-$59bn (£42bn-£45bn) set against $61bn a year earlier.
Streaming giant Netflix (US:NFLX) garnered 8.8m new paid memberships over its fourth quarter – exceeding its own expectations, but expansion didn’t come cheap. Marketing spend soared by a whopping 65 per cent over the full 12 months to $2.4bn, against revenue growth of just 35 per cent to $15.8bn. The group has also raised prices for consumers, which could contribute to slower subscriber growth in the second quarter. Management expects a small increase to 8.9m.
At $16.9bn, Facebook’s (US:FB) revenues surpassed broker JPMorgan’s above-consensus forecast of $16.5bn for the fourth quarter: impressive, after a year fraught with issues around privacy and international security. However, in keeping with the peer group trend of waning growth, Facebook has predicted a “deceleration” in revenue momentum throughout 2019. While advertising levels on both Facebook’s and Instagram’s ‘feeds’ are “healthy”, the company will depend increasingly on its stories application, constituting a “lower price point”.
The social networking group also expects to phase out Facebook-only user metrics. Chief financial officer David Wehner said “family metrics” – including Instagram, Messenger and WhatsApp – “better reflect the size of our community”. However, this does evoke Apple’s revelation last autumn that it would stop splitting out quarterly iPhone unit sales. Both moves could be seen to signal that neither iPhones nor the original Facebook platform comprise their companies’ primary growth drivers anymore. For Walter Price – manager of the Allianz Technology Fund – Facebook is “kind of a tale of two businesses”, with growth being led by Instagram.
At Alphabet (US:GOOGL), capital expenditure has already taken a flying leap – rising from $4.3bn to $7.1bn over its fourth quarter, and bringing the full-year total to $25.1bn. The company does expect this spending to moderate in 2019. Yet, by comparison, IC buy tip Microsoft’s (US:MSFT) capital expenditure for its latest quarter, including finance leases, was actually lower than originally planned.
For the software giant, all eyes were on its cloud business Azure. Sales growth here came in at 76 per cent – flat quarter on quarter, but down from the 98 per cent rate seen a year earlier. Many will have hoped for a shoot-the-lights-out performance here, against stiff competition from the likes of Amazon Web Services.
