Why most tech companies’ earnings could disappoint this week

Market Realist

Overview: What to expect from this week's tech sector earnings (Part 8 of 8)

(Continued from Part 7)

Tech companies’ earnings could disappoint this week

Tech heavyweights such as Google (GOOGL), Yahoo (YHOO), Intel (or INTC), SAP (or SAP), and eBay (or EBAY) are expected to announce their second quarter earnings this week. Market Realist believes that with the exception of SAP, other companies’ earnings could disappoint and stocks of these companies could decline. If that happens, it won’t be good news for exchange-traded funds (or ETFs) such as the DJ Internet Index Fund (FDN), the Nasdaq Internet Portfolio (PNQI), and the iShares U.S. Technology ETF (IYW), which have high exposure to some of these stocks.

For example, Yahoo—which had started to show some signs of a comeback in the first quarter— might again struggle in the second quarter. Yahoo lost some share in the U.S. core search market in the last three months, according to Comscore. Overall, Yahoo hasn’t been able to leverage the growth of mobile fast enough. According to a report from eMarketer, Yahoo isn’t present in the top six players in the mobile advertising market, which is currently dominated by Google and Facebook (or FB).

 

Google too losing mobile market share

In addition to Yahoo, Google is also struggling in the mobile advertising market. Google’s share in this market has declined, while Facebook is making rapid strides. Also, in the mobile search market, Google is facing high competition from mobile apps. As a result, Google might not be able to meet the high expectations that market has for the company, when it will announce its earnings today.

Intel and eBay’s stock upside should be limited after earnings announcement

Intel’s stock already had a large run-up last month after it announced an improvement in its revenue and gross margins outlook for the second quarter. Similarly, eBay hasn’t taken much initiative in the last quarter. As a result, its stock is already down ~4% in the last three months. However, if it fails to meet analysts’ expectations for the second quarter earnings, the stock may go down even more.

SAP may show some upside

SAP’s stock has actually declined by 1% in the last three months, so there could be upside in the offing. The company has taken a few initiatives in the last quarter and forged partnerships with Microsoft (or MSFT) and Adobe (or ADBE) to increase its presence in the fast growing cloud services market. It will be interesting to see if it manages to surprise the market with better-than-expected earnings.

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