Stocks Fall Friday and This Week as Big-Tech Earnings Underwhelm

Last Updated: Tuesday, May 3, 2022 2:45 PM | Nick Dey

Stocks finished Friday sharply in the red as tech giants failed to inspire with first quarter earnings reports. Cryptos declined as well, with Bitcoin dropping 4% and Ethereum losing 4.88%.

The week was busy, but stocks failed to find much inspiration and fell across the board.

This week started with a bang, as Tesla (TSLA) CEO Elon Musk agreed to acquired Twitter. But much like the Musk-Twitter saga, it ended with an uncertain feeling of what’s to come as Tesla investors feared how much stock Elon Musk may have to sell to complete his acquisition (which was a lot!). Meanwhile, other investors feared the results of big-tech and mega-cap stock earnings.

Microsoft

As far as the big earnings reports go this week, Microsoft (MSFT) probably had the best one. Not only did the company beat both earnings and revenue estimates, but it also didn’t benefit from a low bar like the company below.

Gaming was the biggest highlight of the report. The Xbox-maker gained market share globally for the second consecutive quarter and named itself the market leader this quarter for next-gen consoles. This business unit got another win later this week when Activision shareholders voted to approve its acquisition by Microsoft.

Azure growth might’ve spooked investors after it moderated in the quarter to 46%, but CEO Satya Nadella said it is seeing unprecedented levels of demand for automation technology because "in an inflationary environment, the only deflationary force is software."

Meta Platforms

Now to the low bar. Meta Platforms (FB) surged after an earnings beat and revenue miss. The reason for the stock popping off after its earnings can be attributed to the company returning to user growth.

Currently, Meta sits 47.19% off of its 52-week high as it continued to struggle for a positive catalyst since the turn of the year after it announced in January that it lost users for the first time in its history.

So why was it a low bar? Well, for starters, they didn’t remove any headwinds. In fact, Russia’s Facebook ban added a big one. Meta continued to gripe about the iOS privacy change and struggle alongside eCommerce companies as supply chain issues and inflation dampen demand for online advertising.

So really, it was better than feared as Meta didn’t continue to bleed users, which - given the steep drop Meta has faced this year - created some strong dip-buying.

The Rest

To avoid getting too negative, we’ll group the large and uninspiring reports together. Alphabet (GOOG), Apple (AAPL), and Amazon (AMZN) all made investors a little more uneasy than they already were.

Google’s report was highlighted by two shortcomings: YouTube’s inability to compete with TikTok and slowing ad revenue on the backdrop of the Russian invasion of Ukraine. YouTube advertising revenue grew just 14%, compared to 25% growth last quarter. It wasn’t all negative for Google though. Cybersecurity revenues surged 45% - which could remain in demand as fears of Russian cybersecurity threats mount - and Google Workspace continues to perform.

Apple’s report had an earnings and revenue beat but was tarnished by its expected $4-8 billion hit due to supply chain disruptions and the silicon shortage in the June quarter. This is substantially larger, according to Apple, than it faced during the March quarter.

Lastly, Amazon plummeted Friday, finishing down 14% after posting an unexpected loss, which was the company’s first GAAP loss in more than five years. The loss can be attributed to the company’s $7.6 billion mark-to-market loss on its stock investment in Rivian, but operating income fell 59% year-over-year and AWS sales slowed.

All told, stocks fell this week. The S&P 500 declined 3.27%, while the Dow fell 2.47%. The Nasdaq dropped 3.93%, while the Russell 2000 lost 4%.

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