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It has been a confusing quarter for tech investors, and mixed results from Amazon and Alphabet have not helped settle concerns.
This week has been a volatile one for global markets. Earnings reports from Google parent company Alphabet and e-commerce firm Amazon disappointed analysts, with financials below expectations.
Results from both Amazon and Alphabet caused US futures to dip, triggering a sell-off in Asia where shares hit 20-month lows, according to analysts.
Investor anxiety
While Alphabet’s impressive Q3 sales figure of $33.74bn was a 21pc increase, it still missed analyst estimates of $34.05bn. Good performances from YouTube, Google Cloud, and Search on both desktop and mobile contributed to this quarter’s report.
In contrast, Google reported 26pc revenue growth in the second quarter of this year, according to CNet. Between struggles over the company’s alleged covert Chinese search project and the recent Google Plus shutdown, it has not been a smooth period for the Silicon Valley stalwart.
Amazon falls short despite AWS success
Amazon told investors that sales for Q3 of 2018 rose 29pc to $56.6bn, but this figure still fell short of the $57.1bn estimate from analysts. Once again, Amazon Web Services (AWS) was the star performer, with revenues here surging to $6.8bn.
A record profit of close to $3bn was announced by Amazon but this was not enough to soothe picky investors. According to Forbes, an Amazon conference call raised investor questions such as the financial impact of its recent move to raise the minimum wage as well as its ‘omnichannel’ strategy.
Amazon chief financial officer Brian Olsavsky said that some of the shortfalls may have been the result of a negative foreign currency translation impact, as well as an accounting change on Prime membership subscription revenue and the timing of the Diwali festival this year in India, a key market for the online shopping giant. It also faces competition from retail juggernauts such as Target and Walmart.
Tech stocks have a ripple effect
Mark Tepper, president and CEO of Strategic Wealth Partners, told CNBC: “Earnings were strong, but the revenue misses were really disappointing. Unfortunately, it seems like that’s becoming a trend as of late.”
According to Reuters, after the bell on 25 October, Amazon shares dipped 8pc while Alphabet stock dropped by 4.7pc. The FANG group of stocks (Facebook, Amazon, Netflix and Google [now Alphabet]) have been hit hard in a volatile month for US equities.
The FANG collective and other tech stocks such as Microsoft and Apple have made major contributions to market gains in recent years, so analysts and investors are wary of what a prolonged dip could do to the market. While the earnings for both Amazon and Alphabet were positive, the top-line miss on revenue estimates hurt both firms.
