Apple (AAPL) and Facebook (FB) reported last week, but investors didn’t show much enthusiasm for either.
Facebook: Results a Non-Event, Teens Lose Appetite
Facebook’s third-quarter earnings jumped from the year-ago quarter, easily beating analyst expectations. However, investors remained dissatisfied due to concerns about future revenue growth.
First, Forrester released a report on the eve of the earnings report saying that Facebook was losing teen engagement. While Facebook’s immediate reaction portrayed denial, management commentary on the earnings call seemed to confirm the fact. Facebook’s attempt to buy rival platform SnapChat -- currently a popular teen destination -- has not been successful so far, and growing interest from other buyers such as Tencent has now made valuation unrealistic.
Second, investors didn’t like the fact that Facebook doesn’t intend to increase the frequency of ads, since this may increase revenues. Facebook’s concern remains that users should not be further dissatisfied with its monetization efforts (something that seems to have reduced usage among teens). The company recently pushed back its video ad implementation wherein video ads in the news stream would load automatically.
The possibility of higher pricing by virtue of its agreement with Google (GOOG) has already been priced in. Therefore the cautious approach to ad serving coupled with tougher comps in the next quarter hurt share prices.
Apple: Results Tell Same Old Story
Apple had a decent enough quarter, but not by its own standards. Earnings declined from the year-ago quarter but beat analyst expectations. Competition remains its main problem, leading to weaker pricing and gross margin contraction. Both iPhones and iPads are seeing increasing competition from various Android manufacturers and iPad now has a closer competitor in Microsoft’s Surface (if only in terms of price).
Pricing is a very important factor in any consumer market because sooner or later, products tend to get commoditized. Market leaders gain only by virtue of growth of the market itself, while smaller players also benefit from share gains. Apple’s success is largely tied to its expansion in new geographies. So it’s not surprising that it saw strength in several emerging markets where its products are a status symbol.
That said, Apple’s margins, while on a decline, remain attractive today and any revolutionary technology, including a wearable device or a payments business (through iBeacon, for example) will drive upside to the shares. An aggressive buyback program as suggested by activist investor Carl Icahn would also be a positive (Apple remains non-committal on the issue).
Intel: Getting Rid of OnCue TV?
Intel (INTC) has recently been in the news more because of its uncertainties than strengths. The company’s PC business is shrinking rapidly and success in mobile appears too slow to be able to offset this weakness in the near term. Intel is definitely on the case and its product roadmap does indicate progress. But the fact remains that the company is likely to see a not-too-exciting fourth quarter, which will mean two straight years of limited growth, which would be bad for any stock. Another disturbing factor is the declining estimate revision trend for 2014, indicating increased caution surrounding its growth prospects.
So this may be a good time for the company to pare losses. Intel’s recent attempt to build a TV business has been much criticized and even current CEO Brian Krzanich has expressed his reservations.
Last week, AllthingsD reported that based on statements from “people with direct knowledge” of the matter, Intel and Verizon were in talks regarding Intel’s TV business. This could mean that the business -- which has seen many challenges, primarily with respect to content acquisition -- will be sold off. Intel’s technology (for streaming TV over broadband) is now operational so this could be a good thing for both. Alternatively, the talks could be about a partnership, which wouldn’t be as great for Intel since this is a lot of time and effort over a non-core business.
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Google Launches Nexus 5: On Thursday, Google announced its Nexus 5 phone running the latest version of Android called KitKat. The device, which is already available on Google Play, is competitively priced. It will run on any carrier network in the U.S. except Verizon and is also available in Europe. KitKat doesn’t allow carriers to block NFC, which could help Google’s payments business.
Top-Secret Barges for Google: Google is setting something up in a barge off the San Francisco coast. There is great secrecy surrounding the project and even government officials were asked to sign confidentiality agreements. There is a lot of guessing going on, but the most plausible appears to be a floating data center using water to generate energy and also cooling. The advantage of floating around could be to meet local demand.
Fresh News About NSA Snooping: The most recent news reports indicate that the U.S. government in conjunction with the UK’s Government Communications Headquarters (:GCHQ) has been appropriating data from overseas Google and Yahoo (YHOO) servers as part of a project called MUSCULAR. Both companies have expressed outrage and Google stated that it has been increasingly encrypting data in anticipation of such an occurrence. Being an overseas operation, the government was not bound by the laws of the country.
Rockstar Files Patent Infringement Lawsuit: Rockstar, which is owned jointly by Apple, Blackberry, Ericsson, Microsoft (MSFT) and Sony (the owners of 6,000 Nortel patents), filed a patent infringement lawsuit in a U.S. District Court in Texas. In addition to Google, the consortium has alleged infringement by Asus, HTC, Huawei, LG, Pantech, Samsung, and ZTE.
Qunar Soars 89% on First Day of Trading: Shares of Chinese online travel booking company Qunar, which is 55% owned by Chinese search giant Baidu (BIDU), soared on its first day of trading on the Nasdaq. The IPO price of $15 went up to $28.4 on its debut trading, despite the fact that the company made losses in the first half of the year. The optimism on the shares is because of the expected growth potential in China. Another Chinese travel company Ctrip has also seen its share prices escalating over the past year.
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