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The tech-heavy Nasdaq index lost 32.4% in 2022. 2023 has been better for the sector as the index has gained almost 9% since January 25. While the bounce-back has begun, tech stocks are still massively beaten down. This offers investors an excellent opportunity to buy good stocks for a bargain. However, some stocks might be past their peak. They’ve had their time in the sun, and it is unlikely they will bounce back.
Dan Loeb, CEO of Third Point Research, tweeted this in December: “I don’t think camping out in the last decade’s darlings, with rosaries in hand, hoping for a comeback, will be the winning strategy. We have already seen the revenge of the value nerds. I think more to come.”
Tech Earnings expected to drive market movements
Top 4 Tech Earnings That Can Dictate Market Movements This Week
The coming week will see four Big Tech stocks report their numbers. We take a look at their prospects:
1. SNAP
Snap stock has fallen almost 67% in the last year and around 80% in 2022. It is scheduled to release its Q4 2022 and full-year earnings on January 31. It closed January 25 at $9.67, down 5.75% for the day. RBC internet analyst Brad Erickson told Yahoo Finance Live that it is likely profit estimates for SNAP are “washed out”. He said, “As we look through street models, I think we wonder if that’s [cost cuts] reflected, meaning that has the potential that earnings estimates need to move up directionally from here.” However, in December, Jefferies downgraded SNAP from a ‘Buy’ to a ‘Hold’ because it said SNAP’s revenues expectations were too optimistic.
The average analyst revenue expectation for Q4 2022 is $1.3 billion. SNAP reported a net loss of $1.1 billion for the nine months that ended September 30, 2022. The figure for the corresponding period in 2021 was $510 million. JMP Securities analyst Andrew Boone said, “Short-form video platforms are taking share of time from Snapchat.”
He said he prefers Meta and Google to SNAP, adding that US time spent on the app fell by 7%. “We believe short-form video from TikTok, Reels, and YouTube Shorts are taking share of time from Snapchat’s Discover and Stories,” Boone said, “Importantly, these are Snap’s most monetizable surfaces as we expect impression growth to be pressured looking ahead.” From the looks of it, it doesn’t matter if the stock is over or undervalued. Until SNAP starts reporting net earnings instead of net losses, it’s best to stay away from this stock.
2. Meta
Facebook, Instagram, and WhatsApp’s parent company will release its earnings on February 1 after market hours. The reason we mentioned all its three major brands is to give an indication of the hold it has over the social network universe. But 2022 has been troublesome for the stock. The economic slowdown and lower demand for advertising had a massive negative impact on social stocks, and since Meta owns three of the biggest brands globally, it hit severely. Competition from TikTok and the Apple band both decimated its performance. The stock is down over 50% in the last year.
For Q4 2022, it is expected to report a 6.3% drop in revenue and a 38.7% drop in EPS. Meta will lay off 11,000 employees. But Meta’s digital advertising business might be in better shape than most market watchers think. It will take only a little good news for Meta shares to start reversing the trend.
CFO David Wehner said, in the Q3 2022 earnings call, “We’re not going to be facing as significant headwinds next year from the signals point of view as we are now lapping the big changes that were made on the iOS platform.” Meta has invested heavily in its reels feature and says this has been claiming market share from TikTok and YouTube Shorts. This stock could be a bargain buy.
3. Alphabet
This stock could do no wrong for over 15 years. It was consistently on an upwards trajectory. It hit a peak of $148 levels in November 2021. Since then, it has been steadily declining, closing on January 26 at $99.16, down 33%. It is scheduled to release its earnings on February 2.
Alphabet’s revenues come from three segments: Services, Cloud, and Other Bets. Services include Search, Android, Google Play, Maps, YouTube, and Chrome. Google’s search engine is a near monopoly globally and accounts for 94% of global search queries. Search-based ads are the company’s cliched golden goose. However, this goose is now under pressure. The economic slowdown and potential recession gas impacted its numbers. The Services business grew 2.5% year-over-year in Q3 2022, but the second most significant contributor to Services (after Search), YouTube, fell 2.5%.
In contrast, Google’s Cloud business saw revenues go up 38% to $6.9 billion in Q3 2022. However, this segment faces intense competition from Amazon’s AWS and Microsoft’s Azure. These two segments are key numbers to watch out for on February 2. How much has Services grown or declined versus the pace of Cloud’s growth? If Services continues to grow, albeit slower, it could give Alphabet breathing room.
Alphabet stock closed at $99.16, and the average analyst target is $124.7, a potential upside of almost 36%. Keep an eye out for its earnings.
4. Apple
This was the steadiest Big Tech stock in 2022. It lost less than 10% in the last year. In 2023, it has already gained over 18%. Apple has yet to take drastic cost-cutting measures like other Big Tech firms. It has avoided layoffs while Alphabet has cut 12,000 jobs, Microsoft 10,000, Amazon 18,000, and Meta 11,000.
However, the last quarter of 2022, traditionally the best quarter for Apple (because of the holiday shopping season), could see a bump because of supply chain issues. The company released an update on November 6, 2022, saying, “now expects lower iPhone 14 Pro and iPhone 14 Pro Max shipments than previously anticipated.” EPS for Q4 2021 came in at $2.1, but the estimate for Q4 2022 is just $1.95. The average revenue estimate for Apple is $121.9 billion compared to actuals of $123.94 billion in Q4 2021. Even the steadiest ship is not immune to a storm.
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