July 31, 2018

Pegler’s market report – 31.07.18: The technology winners and losers of the week

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (31.07.18) Business section under the title Pegler’s Market Report:

The technology winners and losers of the week

Facebook’s stock saw the biggest one-day drop in history last Thursday, with $119 billion wiped off its value after the company reported slower-than-expected revenue growth for the second quarter of 2018. Then on the Friday, Twitter saw its own market meltdown: Its stock plunged by 20pc after its earnings report said the number of monthly active users on the platform fell.

In the case of both companies, part of the weakness in their second-quarter numbers was a long time coming – for example, Facebook’s market penetration in North America and Europe is already quite high. But it also stems from the multiple controversies they’ve been embroiled in and their attempt, or those of lawmakers, to fix them.

Both Facebook and Twitter were also affected by the General Data Protection Regulation or GDPR, a new privacy law enacted by the European Union on May 25. It’s designed to make sure users know and understand the data companies collect about them and consent to sharing it.

Facebook and Twitter’s numbers, while not exactly what Wall Street was expecting, weren’t terrible. Facebook beat analysts’ expectations for earnings per share, and Twitter matched them. However, the message from investors is clear: They’re nervous about what bad headlines and subsequent changes from social media platforms could do to their bottom lines. If Twitter and Facebook police their sites in a way that affects engagement or cracks down on content, or if privacy controls that ask users to opt in to their data being shared lead to more of them opting out, ad dollars could fall. And hiring workers to increase privacy protections and monitor activity is expensive.

Amazon’s results provided some respite for Wall Street, which had been rocked by the Facebook and Twitter news. The online retailer continued to benefit from strong growth in its cloud computing and Prime subscription services and posted profits that surpassed $2bn (£1.5bn) for the first time in the second quarter.

Amazon’s stock moved higher, with its market cap of $877bn bringing the business closer to becoming the first $1 trillion company. Only Apple currently has a larger market cap, valued at just over $950bn.

The US economy grew at an annual rate of 4.1pc in the second quarter of this year, its fastest rate of expansion since 2014.

Meanwhile, President Trump proclaimed a “new phase” in trade relations between the US and EU following a meeting with European Commission president Jean-Claude Juncker. A joint statement after the meeting said the US and EU would “work together towards zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods”.

Back at home, the CBI business organisation said the recent heatwave had boosted UK retail sales but warned that sales growth could be cooling off. Most retail subsectors saw higher volumes. Footwear & leather, recreational goods and department stores performed well, though clothing and furniture & carpets saw sales fall.

By David Pegler, Brighton Capital Management