In the past two weeks the most well-known tech brands such as Apple, Twitter, Google, Amazon and Facebook have all reported earnings.
Only Facebook managed to impress investors with its results as its tech peers struggled to justify the huge expectations placed on them by the market.
Facebook was the best performing stock of the large-cap tech companies after it reported a significant rise in revenue, particularly from mobile advertising.
Its share price is currently 15.6 per cent higher than before its results were announced on January 29. Moreover, Facebook’s share price is now 64 per cent higher than when it was first listed on the stockmarket in 2012.
But Apple, Amazon and Twitter all disappointed investors with their results and the shares in all three fell significantly.
Apple remains the top holding for many managers in the IMA Technology and Telecoms sector and its fall of 9 per cent following its results has hurt funds in the sector in recent weeks.
Investors were discouraged by the slowdown in growth at the company, which had seen such a meteoric rise in recent years.
RCM Technology Trust manager Walter Price, whose trust is a member of the Investment Adviser 100 Club of top-performing funds, said Apple “will not achieve the growth rates it once did given its size” and expected its price to rise and fall depending on how each new product cycle was received.
He said it was still worth maintaining a weighting in it from a total return perspective, due to its potential to return cash to shareholders, but the manager cut Apple out of the trust’s top-10 holdings in January.
Stuart O’Gorman, co-manager of the Henderson Global Technology fund, said he had also been cutting back his holding in Apple during January, having added to it during the final quarter of 2013.
He had also cut the fund’s holding in Amazon during the same quarter, and that proved to be prescient as Amazon’s share price fell in January following its results. The retailer’s share price is now 15.3 per cent lower than when it announced its results.
The fall came in spite of a significant rise in profits, but Amazon was unable to match the lofty expectations of the market that had propelled the stock 50 per cent higher in the year leading up to its results.
The moves were a blow for the Pictet Digital Communication fund, managed by Sylvie Sejournet, who had added to the fund’s positions in Amazon and Apple in the fourth quarter of 2013.
At the end of December, Amazon was the biggest weighting in the fund, as the manager expected it to benefit from “a big upswing of its cloud computing services”.
But it missed Wall Street analysts’ earnings expectations because of problems with shipping items in December, which forced the company to issue a large number of refunds.
Twitter also saw its share price fall by as much as 19 per cent as it announced a slowdown in its user growth, which caused investors, who had doubled the firm’s share price since November, to flee the stock.
Tech stocks: the winner… and losers
The week before it celebrated its 10th birthday, Facebook smashed estimates with earnings 63 per cent higher than the final quarter of 2012.
The most remarkable rise has been in mobile advertising, which now makes up 53 per cent of Facebook’s advertising revenue, up from 26 per cent a year ago.
Apple
Yet another record-breaking quarter was not enough to prop up Apple’s share price, as its growth was not as much as expected.
The firm also lowered its outlook for 2014, expecting revenues of between $42bn (£ 25.7bn) and $44bn, which caused investors to question its growth potential.
A 30 per cent rise from last year in active users was not good enough for Twitter’s investors, who were concerned growth had slowed from a 39 per cent rise a year earlier.
The firm’s net loss of $511.5m was also double analysts’ expectations, leading to fears the micro-blogging site might not be able to justify its lofty valuation.
Amazon
A difficult holiday season led Amazon to miss its earnings estimates for the fourth quarter of 2013 and its share price consequently suffered.
The firm is priced for extraordinary growth, at 85x estimated 2014 earnings, and needs to start justifying that price tag.
