Tech giants to report earnings amid scrutiny
Fans of technology stocks will be paying close attention Thursday as four of the biggest names in the sector — Alphabet Inc., Amazon. com Inc., Microsoft Corp. and Twitter Inc. — are among those scheduled to announce results.
The tech giants, though, continue to deal with increased scrutiny from lawmakers and regulators over their tightening holds on market share and everyday lives. If the scrutiny leads to action, it could put the shining share prices of some of those companies — and heady returns for investors — at risk.
Here’s a look at the four different situations that the big four tech stocks reporting Thursday are currently facing.
ALPHABET
Google parent company Alphabet found itself in the European Union’s crosshairs this year, slapped by regulators with a $ 3.4- billion fine over accusations the search engine operator was tilting results in favour of its shopping service.
Barclays Capital said in a note earlier this month that “increased regulatory scrutiny” was one of the issues weighing on the stock, which is still up nearly 25 per cent on the year, closing Tuesday at US$988.49.
But Alphabet isn’t straying away from the shopping space, and recently struck up a partnership with Wal-Mart to deliver voice shopping and personalized results for customers.
“The company does not view its recent partnership with Wal- Mart as an ‘ anti-Amazon’ alliance, but sees a large opportunity to work together to drive value for consumers,” BMO Capital Markets said in September. “From Google’s perspective, we believe this could potentially help drive increased adoption of Google Home devices, particularly among Wal-Mart shoppers.”
MICROSOFT
Microsoft is also no stranger to EU- style justice, having been fined by the bloc’s regulators in 2004 over complaints of anti- competitive conduct.
Now, however, Microsoft appears to be the one successfully putting pressure on governments to change, as the software leader launched a lawsuit last year in connection with allegedly routine U. S. government orders that kept demands for user emails and other records a secret.
Microsoft said Monday it would move to drop that lawsuit after the Department of Justice put forward a new policy. Microsoft president and chief legal officer Brad Smith said in a blog post that the new guideline “limits the overused practice of requiring providers to stay silent when the government accesses personal data stored in the cloud.”
Meanwhile, s hares of Microsoft have gained nearly 27 per cent on the year, closing Tuesday at US$78.86.
Morgan Stanley predicted last week that the company’s coming results should bolster returns further.
“Increasing traction in hybrid cloud, machine learning and integrated LinkedIn opportunities raise the probability of MSFT executing to our $111 bull case, keeping us ( overweight),” the firm said. “As investors garner higher confidence in this sustained double-digit EPS growth and the conservatism in FY18 expectations, the stock should continue grinding higher.”
AMAZON
The Seattle- based e- commerce company is certainly trying to live up to its reputation as the “everything” store.
Amazon is even reportedly getting into the activewear game, putting pressure on the likes of Canadian- based Lululemon Athletica Inc.
“As for timing, we suspect AMZN will start slow to gauge and test consumer appetite before scaling the business rapidly,” Canaccord Genuity said in a note last week. “That said, we know from discussions with our industry contacts that AMZN is highly focused and determined to become the # 1 online shopping destination ( for) fashion customers and this push into athletic apparel is evidence of that directive.”
But, along with other tech companies, Amazon has been spending millions of dollars on lobbying the U. S. Congress. Recently released disclosures showed the company was targeting issues regarding “competition, and the Whole Foods Market acquisition.”
Amazon’s purchase of Whole Foods was a move that put the online retailer in direct competition with traditional grocers and won U. S. antitrust approval, despite founder Jeff Bezos’ owner- ship of The Washington Post newspaper, a target of President Donald Trump’s distaste at times.
“Retail profitability is likely to continue to suffer near term from heavy investments in both core AMZN and Whole Foods, but most investors understand that margin is available when AMZN decides to capture more,” Barclays said in a note. “Revenue growth is what matters most at this stage of development, hence we don’t see a ton of downside."
Shares of Amazon are up more than 30 per cent for the year, closing Tuesday at US$975.90.
Twitter has a s pecial place in the pantheon of tech stocks, as the platform is seemingly Trump’s go- to spot for slinging insults and pronouncements. Twitter executives, along with their counterparts from Facebook Inc. and Google, have also reportedly been asked to testify before the U.S. Congress, which is probing al- leged Russian meddling in the 2016 U.S. election.
Twitter, however, faces its own internal challenges as well, with the company reporting no movement in its monthly active users for from the first to second quarter of 2017. Twitter’s stock price is up around 5.8 per cent for the year, but down more than 58 per cent since it started trading nearly four years ago, closing Tuesday at US$17.25.
Barclays said earlier this month that it expects Twitter to report an additional three million or so monthly active users this quarter, as the company “continues to make progress on the product side, with algorithmic ranking and the new Twitter Lite app driving most of the user growth.”
“Stepping back from the print, we have been cautious on TWTR in 2017, and are waiting to see if ad revenue growth and user growth can move up together, likely in 2018,” Barclays added.