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Technology Stock Roundup: In The Thick of Earnings Season

Technology earnings started pouring in last week with more misses than beats. As a result, shares have mostly moved down past the announcements. Here is a brief recap of the Intel INTC, Advanced Micro Devices AMD, Yahoo YHOO, Alphabet GOOGL, Microsoft MSFT and Netflix NFLX earnings stories plus other top news.

Earnings Reports

Intel: While Intel did report first-quarter earnings last week, what stole headlines was its decision to let go of 11% of the workforce. But the restructuring was probably in the cards given the persistent decline in the PC market, failure of the mobile business to take off and new headcount acquired through Altera.

Management said that the rationale for the restructuring was Intel’s diversification away from the PC business: 40% of revenue and 60% of margin came from non-PC business in 2015. That’s probably why Intel shares recovered after the initial sell-off.

Advanced Micro Devices: In AMD’s case too, the earnings announcement wasn’t the factor driving investor sentiments. Instead, the shares soared 52.3% on Friday upon the announcement of a licensing deal with the Chinese JV Tianjin Haiguang Advanced Technology Investment Co., Ltd. Under the deal, the company will license x86 chip technology (high performance processor and SoC) to the JV to facilitate the manufacture of servers within China for use by Chinese players.

AMD expects to make around $300 million from the deal. AMD also delivered better-than expected results and guidance (although it’s still reporting losses) and promised to turn profitable on a non-GAAP basis in the second half of the year.

Yahoo: The Internet company’s results were a tale of two parts: One part, i.e. the sale of the company that management refused to comment on and the other part, i.e. Yahoo’s earnings, that came in higher than expected. Bloomberg said that offers for Yahoo’s core were in the $4-8 billion range and it was reported that bidders would be narrowed down to seven for the second round. As far as the results were concerned, the core Mavens business that seems to be what the excitement is about saw decelerating growth, search continued to struggle and headcount was taken down.

Alphabet: The Alphabet story is still mostly about Google, which continues to grow strongly despite increased competition from multiple quarters and rising costs related to mobile. While overall results missed the Zacks Consensus Estimate, they were significantly hit by currency (54% of the business is generated internationally). The Other Bets piece remains an area of investment where losses increased while revenue continued to grow strongly. Around 60% of cash ($45 billion) is held overseas. While share repurchases continue, management focus remains on investing in the business because of significant growth potential in some capital-intensive Other Bets.

Microsoft: Microsoft also missed both top and bottom line estimates, which naturally sent shares crashing. But of greater concern for investors was the apparent slowdown in the cloud business. Microsoft is still dependent on transactional revenue to a significant extent as a chunk of its software comes pre-loaded on devices. So when device sales fall, there is a negative impact on revenue.

Management commentary about annuity revenue was encouraging, as it grew across segments. The business seems on track strategically, but there will be more clarity in the Dec 2016 quarter when enterprise adoption of Windows 10 begins.  

Netflix: Netflix reported a mixed quarter with earnings beating the Zacks Consensus Estimate on revenue that missed. Shares slumped in response to the guidance, which was much weaker than expected. The growth in international paid subscribers outpaced that in domestic, so the investment strategy appears justified.

Lexmark In Buyout Talks

Lexmark LXK is another hardware company looking for an exit from hardware. The company has been transitioning to a more software focused and MPS driven business. But these initiatives may not bring as much to shareholders as the $40.50 a share that a consortium of companies led by Apex Technology Co. Ltd. and PAG Asia Capital and including Legend Capital Management Co. Ltd is offering.

That’s what management is purported to have thought because after the news became public and share prices responded appropriately, two law firms, namely Tripp Levy PLLC and Robbins Arroyo LLP are investigating the deal on behalf of shareholders. Both law firms point to the fact that the shares have traded higher at some point during the past year.

This may not the only glitch, however, as the U.S. government has in the past not been too keen on transferring key technology to Chinese companies. Hardware has been a different story however, so we have to wait and see.

Amazon Streaming Update

Amazon AMZN has launched a new Prime Video subscription that offers consumers the option to stream Amazon instant video. Consumers now have the option of buying a video-only subscription for $8.99 a month or a full Prime subscription for $10.99 a month. The existing plan requires an upfront payment of $99 a year, which also includes video.

Amazon’s reasons for this tiered pricing weren’t mentioned by the retailer itself, but there could be a number of reasons. The first would be that not all subscribers would be able or willing to make an upfront payment of $99, so the monthly pricing model would help to draw them into Amazon’s ecosystem. This would ultimately help to increase Prime memberships in a highly profitable way. The second could be an attempt to wrest some market share from Netflix, which charges $9.99 per subscription and is in the process of migrating customers to its premium service, which costs a buck more. Netflix and Amazon aren’t exactly comparable (they have different shows and original content Netflix appears more popular). But Amazon has gone slow and steady with its video plans, so this could be beneficial.


Last Week

Last  6 Months

























Other stories you might have missed-


Apple Products Suspended in China: iTunes movies and books were suddenly taken offline last week, leading many customers to ask Apple (AAPL) for a refund. Neither Apple nor the government gave any reasons for the move, although Apple did say that the service would be restored as soon as possible. NYT citing unnamed sources conjectures that the State Administration of Press, Publication, Radio, Film and Television had ordered the services offline.

Apple Pay Reaches Singapore: Apple Pay has now become available for eligible American Express card holders in Singapore. The service is already available in the U.S., UK, China, Australia and Canada. Similar to other regions, the launch partner in Singapore was Amex although the iPhone maker is optimistic that credit and debit cards from Singapore’s most popular banks, including DSB, UOB and Standard Chartered will soon work with Apple Pay.

GoDaddy Exec Joins Google: GoDaddy’s CTO and EVP of its cloud computing business group Elissa Murphy, is leaving the company to join Google. Her role at Google isn’t public yet but it’s reasonable to surmise that it will be in Google’s cloud division, which recently added Dianne Greene to head it. The cloud infrastructure segment that Greene is heading has a handful of very big players led by Amazon and then Microsoft. Google is a much later entrant, but is growing strongly according to market research reports.

Amazon Fulfillment Center in Texas: Amazon is opening its sixth Texas fulfillment center in Fort Worth, Haslet. The company intends to employ a thousand people at the facility in addition to the 8K it already employs in Texas.  The million square-foot facility will be used to pick, pack, and ship smaller customer items, such as books, electronics and toys.

Alibaba Forms Strategic Alliance with New Zealand: Alibaba has signed a memorandum of understanding (MoU) with the New Zealand Trade and Enterprise (NZTE), according to which there will be formal measures to strengthen trade between the two countries. Alibaba will promote New Zealand brands in China and facilitate their sale in the country.


EU’s Android Anti-Trust Probe: The EU has issued a charge sheet according to which it is investigating Google’s practice of forging secret exclusive agreements with Android device makers so they pre-install 21 of its apps, but most importantly, its Play Store. Google has said that device makers have the liberty to install whatever apps they choose, but it’s also true that it compensates them for choosing its apps.

The EU is targeting Google for its dominant position in three areas: general Internet search, licensable operating systems and app stores for Android-based devices. In short the coffin has been made to size. Google of course claims innocence.

Google Books Scores Win: Google appears to have won the book scanning battle as the Supreme Court refused an appeal case by the Authors Guild alleging that Google should compensate writers for the significant portions (allegedly up to 78%) of the books it makes searchable. Google has digitally scanned books without permission that it says facilitates sales for the authors who however feel that they should be compensated for the money Google makes in the process.

Some of these books are out of print, some in the public domain and some covered by copyright. A lower court (he Second U.S. Circuit Court of Appeals in New York) ruled last October that Google’s activity was “fair use” and therefore, legal.     

New Technology/Products

Facebook May Pay Some Users:  Facebook is considering sharing income with some important verified users it would rather keep on its platforms. These are obviously celebs and other crowd-pullers that have the option of a number of other social networking platforms available today. Last week, the company did a survey of customers and it is currently sending out feelers to see how and if this could work.

Amazon Signs Ebook Deal: Amazon has scored an important win in a segment that only Google and Microsoft has seen any success in. Last week, the company was reportedly awarded a $30 million contract to supply 1.1 million pupils across 18K public schools in New York City. The Panel for Educational Policy apparently approved the three-year contract on behalf of the Department of Education.


Microsoft and Google Shake Hands: It’s significant that Microsoft and Google are adopting very similar ways of doing business, i.e. offering free licensable software and bundling products to induce customers to spend more with them. So it’s not surprising that the two have decided to bury the hatchet because of “changing legal priorities” according to Microsoft and to compete “on the merits of our products, not in legal proceedings” according to Google. At any rate, they are withdrawing all legal proceedings against each other and Microsoft has even withdrawn from FairSearch and ICOMP, two groups fighting antitrust wars against Google.

Microsoft Interested In Mesosphere: Microsoft recently announced that its Azure Container Service, which uses Mesosphere technology is open to all. Mesosphere has also open sourced its data center operating system (DC/OS). Mesosphere is a cloud infrastructure startup with investors including HP Enterprise, Microsoft and the CIA. Microsoft claims that its container management system is more flexible than Google’s Kubernetes (similar to DC/OS), which was open-sourced in 2014. At any rate, this is also good news for Mesosphere, which wouldn’t have been able to compete with Google alone.


Box Ties with Cognizant:

Box has tied with Amazon and IBM so its customers can store data locally while using its file sharing web application. Many countries, especially in Europe and Asia, now require companies to store their data locally, so this agreement makes it easier for Box to offer its services in these regions while also keeping its infrastructure costs down. The new solution is called Box Zones and the company says it has been working on it for the past three years.

Some Numbers

Some Other Companies That Reported Last Week: International Business Machines, Lam Research, Nielsen, VMware, F5 Networks, Checkpoint


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