Buy, Sell, or Hold? Earnings from 3 Major Tech Companies
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While the broader Nasdaq index has risen more than 7% so far this year, the S&P 500 has outperformed technology stocks with a 10% gain through early April. One could argue that a 7% gain for tech is noteworthy, given large technology stocks such as Apple have declined in the double-digits.
Part of the rally in the Nasdaq index can be attributed to Hewlett Packard, which investors have been buying on the belief of Meg Whitman’s turnaround strategy. eBay and Amazon also continue to perform, following news that comparable sales rose 19.2% and 31.6% in March respectively.
Here are three noteworthy technology companies that report earnings in coming days. Readers should be able to make an informed decision to buy, sell, or hold based on the valuable insights below.
Thursday, Apr. 18 after market close; EPS $10.69 / Revenue $14.22 billion
A changing of the guard has taken place in technology so far in 2013, as money outflows from Apple and Facebook have lead investors back to Google (NASDAQ: GOOG). Shares of Apple have fallen nearly 20% between January 3 and April 9, and while Facebook is unchanged on the year, the stock has also declined 20% from a high of $32 reached in late January.
On a fundamental basis, investors are focused on Google’s continued progress in mobile search monetization. The company’s AdWords product, which is responsible for the vast majority of revenue, is scheduled to roll-out an update called Enhanced Campaigns that will require all advertisers to participate in mobile search listings. Google’s move to unify desktop and mobile categories shouldn’t be a surprise, as historically the cost of mobile advertising has been a highlight for companies and a weak spot for Google shareholders.
The Wall Street Journal published an article titled Google Acts to Raise Mobile-Ad Prices which speaks further on the initiative. In addition to mobile advertising, Google’s YouTube online video portal continues to grow as companies use the platform for video advertising. All in all, the company’s lucrative desktop search is now being applied successfully to mobile and video mediums.
After dismissing Google in favor of Facebook in 2012 in advance of the latter’s horrific IPO, Wall Street has resumed its love affair with Google. Analysts raised their price targets on the stock in synchrony following the Q4 earnings report in January, but more firms have jumped on board in recent weeks. Jefferies has a $1,000 price target on the stock, while JMP Securities recently initiated coverage with a $955 price target.
Although business at Google appears picture-perfect, the New York Times recently published an article which discusses the intricacies of mobile search and how competitors such as Amazon and Apple may be taking market share from the search king. I consider the article to be required reading for all Google investors.
Thursday, April 18 after market close; EPS $0.76 / Revenue $20.68 billion
Microsoft (NASDAQ: MSFT) announced on Apr. 9 that the company will discontinue offering technical support for Windows XP beginning in April 2014. The announcement was bound to happen and will require corporate managers to upgrade to Microsoft’s newer Windows 7 and Windows 8 operating systems. Originally released in 2001, Windows XP became a mainstay within corporate America for its all-around performance, reliability, and stability. Sales from the Windows operating system comprises a large amount of Microsoft’s revenue, so the news is a boon for shareholders.
Ahead of the upcoming earnings call, analysts at Bank of America Merrill Lynch downgraded Microsoft to Neutral from Buy based on lack of momentum with Windows 8 and discouraging PC supply chain data. The firm has a $33 price target on the stock.
Aside from Windows, Microsoft is planning to release its Surface Pro tablet imminently in China and rumors are persisting that a new Xbox console will be released on May 21. Chip maker AMD has reportedly been selected to produce the semiconductor for the Xbox over larger competitor Intel Corporation. Intel reports earnings on Apr. 16.
Analysts believe that success in tablets and smartphones is critical for Microsoft to maintaining its market share of Windows desktop. The company is planning to open specialty stores similar to Apple in prime retail markets, such as New York, Florida, and select other states.
Finally, technology insiders are reporting that Microsoft and Chinese search firm Baidu are both planning to develop their own version of Google Glass, computerized eye glasses which have voice recognition and search functionality. Google is planning to release the product later this year.
Overall, Microsoft’s business path remains variegated and unclear, therefore I cannot recommend purchase of the stock for new investors. I would advise existing owners to hold Microsoft for the strong dividend yield.
Friday, Apr. 19 before market open; EPS $0.58 / Revenue $3.81 billion
SAP (NYSE: SAP) competes directly with Oracle and IBM in providing business software solutions to corporations. The German software giant offers solutions within enterprise resource planning, financial management, human resources management, and supply chain applications. Furthermore, SAP offers extensive database software, and new applications in analytics, cloud, and mobile computing.
In March, SAP’s co-CEO told reporters that the company is ahead of schedule on it’s plan to achieve $26 billion in revenue by calendar year 2015. The company recorded 16 billion Euros of revenue in the last 4 quarters, and is planning to reach 20 billion Euros ($26 billion USD) within the next 2 years based on market share gains.
Analysts at Credit Suisse added the German software giant to its “Europe Focus List” on April 8 ahead of Friday’s earnings call. The investment firm has an $85 price target on the stock. Investors will be looking for confirmation of SAP’s business strength after competitor Oracle reported weaker-than-expected results on March 20. Revenue has grown 14% at SAP in the last year alone. I recommend that readers hold shares of SAP and consider buying on any weakness.
Foolish bottom line
Investors should pay attention to earnings season in order to assess whether your original investment thesis still holds true. "Why did I purchase Microsoft, and have the fundamentals changed based on today's earnings announcement?"
I suggest that Fool readers compile a list of questions you may expect to be answered during the release, and then revisit afterwards in order to see if any concerns remain. Hopefully, the information provided above will allow you to feel informed going into this earnings season for tech giants Google, Microsoft, and SAP.
Thanks for reading, and consider subscribing to my posts for more Foolish ideas on outperforming the market.
John Macris has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!
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