By Jeff Reeves
Sure, there’s a $90 billion stock buyback announced this year to provide a nice tailwind. But on top of chip shortages, Apple faces headwinds about whether the bit late-year upgrade push for the iPhone will deliver in 2021.
Even the share performance is mixed: While it’s among the best large-cap performers in July, it has lagged the typical U.S. blue-chip stock year to date.
None of this is to say Apple is on the way out, as the $2.4 trillion tech titan clearly has the scale to weather short-term headwinds. But recent share price performance is proof that Wall Street has its doubts about the next few months, and it may not give Apple a long leash after earnings.
Therese Poletti: Apple’s blowout earnings didn’t help its stock, and here’s why
No. 3: Facebook
July performance: Flat through Thursday’s close
YTD performance: 31%
Facebook remains one of the most dominant companies on the plant, with recent earnings showing that its daily active user base remains firm at 1.91 billion and monthly users are 2.90 billion
What makes Facebook such a compelling investment, however, is the fact that in addition to its tremendous scale it also boasts the incredible ability to steadily increase the amount of cash each user pulls in. It just reported that average revenue per user was $10.12 — topping expectations and up from just $7.05 in the second quarter of 2020.
Admittedly, the initial reaction to the earnings report has been negative after executives admitted revenue growth would slow in the quarters ahead thanks to “increased ad targeting headwinds.”
But both short-term and long-term momentum for the stock are decidedly higher because investors see continued upside in the stock for a host of reasons. These include the core social media ads game, yes, but also things like its Oculus hardware. In fact, non-advertising revenue — which includes direct e-commerce transactions as well as its various augmented and virtual reality businesses — jumped 36% to $497 million in the most recent quarter. For a company smaller than Facebook, that would be a very meaningful business.
I’ll admit, it’s hard not to cringe when boy wonder CEO Mark Zuckerberg talks about “ the metaverse .” And in recent weeks, the performance of the stock has left much to be desired. But from the cold perspective of Wall Street investors, it’s hard to argue with the scale and monetization of this digital machine — and as a result, Facebook is still up double the typical S&P 500 year-to-date.
Therese Poletti: Facebook investors, are you starting to see a pattern yet?
No. 2: Microsoft
July performance: 5% through Thursday’s close
YTD performance: 28%
It might seem like a silly notion these days, but it wasn’t that long ago that many wondered whether Microsoft was doomed for irrelevance as analysts lamented a “ lost decade ” from the early 2000s through the early 2010s.
That all changed after Satya Nadella took the helm in 2014 and rapidly transformed the company into a cloud computing powerhouse. The latest proof: Revenue growth at the tech giant’s Azure cloud unit surged 50% in its just-ended fiscal fourth quarter — and despite its existing dominance helped Microsoft log its fastest sales growth in three years.
It’s not just infrastructure, either, as Microsoft’s productivity business that includes its Dynamics customer relationship management suite continues to gain momentum behind the scenes. Throw in its dominant legacy software like Office 365, and this narrative of continued vertical integration is a really compelling story for investors.
The icing on the cake is that record sales in its Xbox and videogaming business continues to show significant growth, with this biz seeing hardware sales more than triple over the prior year.
In fact, all Microsoft segments topped analyst expectations last quarter — hinting that all this recent upside momentum is looking durable as MSFT enters the latter half of the year.
No. 1: Alphabet
July performance: 6% through Thursday’s close
YTD performance: 56%
Google’s parent had a big week, jumping nearly 3% after it posted great earnings Tuesday on the back of strong second-quarter digital advertising sales.
Specifically, it posted an amazing 62% surge in revenue to mark its first-ever quarter north of $60 billion in sales and saw operating margins improve to 31% over 17% the prior year. And perhaps most impressively of all, Wall Street was looking for earnings per share of around $19.24 and Alphabet blew that away with EPS of $27.26.
This is yet another bullish sign for investors, after big beats for both earnings and revenue sparked a similar rally a few months ago after its first-quarter report. Back then, it was YouTube’s strength along with plans for a massive $50 billion stock buyback that helped buoy optimism for this digital giant.
Now that both revenue and margins are surging, this stock certainly seems to be firing on all cylinders.
Shares continue to hit new all-time highs like clockwork to prove its short-term momentum, and behind the scenes there remains a lot to be excited about. Google Cloud expansion (revenue in this arm topped $4 billion last quarter) and other long-term bets to fuel growth beyond its recent ad surge. Alphabet’s ascent has been pretty much non-stop since the spring 2020 market downturn, and shows no sign of slowing down in late 2021.
Jeff Reeves is a MarketWatch columnist. He doesn’t own any of the stocks mentioned in this article.