Investors in the technology sector are apprehensive heading into the final weeks of earning season. The number of technology companies that have posted disappointing results in recent days exceeds the amount that managed to beat consensus. Apple Inc. (NASDAQ:AAPL)
, Intel Corporation (NASDAQ:INTC)
, Microsoft Corporation (NASDAQ:MSFT)
, Nokia Corporation (ADR) (NYSE:NOK)
, and Western Digital Corp. (NASDAQ:WDC)
all showed weaker-than-expected hands in January. In contrast, eBay
, and Netflix
are among the select few that posted a strong report card.
Here are three technology standouts that provide quarterly earnings on Tuesday and my expectations for each.
Amazon.com, Inc. (NASDAQ:AMZN)
Tuesday, Jan. 29 after market close; $0.28 EPS / Revenue $22.27B
Shares of the world’s largest online marketplace continue to defy gravity with a 12% year-to-date gain through Friday, January 25 compared to only a 6% YTD gain for the S&P 500 index. A possible reason for the outperformance in Amazon is the underperformance in Apple, which has declined 12% year-to-date. Money managers who need to maintain exposure in the technology sector quite likely are rotating out of Apple and into Amazon. Apple has a market capitalization of $413 billion compared to Amazon’s market cap of $129 billion, approximately one-third the size.
Amazon has also seen multiple analyst upgrades in recent days, ahead of upcoming fourth quarter results. On January 18, Pacific Crest raised the stock to Outperform from Sector Perform, stating Amazon should be able to sustain its high level of revenue growth due to acceleration in mobile commerce. The investment firm has a $346 price target on the shares. ISI Group also initiated coverage of Amazon on January 24 with a $320 price target.
My take on Amazon: I feel it’s important to emphasize that the positive outlook on Wall Street does not pay enough credence to the fact that Amazon hardly makes money as a public company. Amazon has only posted a profit in two of the last four quarters, and the company’s net profit margin is a narrow 0.28%, leaving little room for error. Many critics feel Amazon CEO and Founder Jeff Bezos continues to get a “free pass” on Wall Street. Amazon has seen earnings decline in spite of positive revenue growth in the last 12 months. Revenue has grown a massive 31% in the last year.
On a technical basis, Carter Braxton Worth believes shares are overextended and could pull back up to 30% in coming months. Worth is the chief market technician at Oppenheimer & Co. in New York. When presenting his analysis, Worth displayed a multi-year chart of Amazon, stating the stock needs to retrace back to the trend line in order for the long-term uptrend to remain healthy.
Broadcom Corporation (NASDAQ:BRCM)
Tuesday, Jan. 29 after market close; $0.73 EPS / Revenue $2.07B
Broadcom was founded in 1991 and became a became a public company in 1998. This $20 billion dollar technology giant develops semiconductors for wired and wireless communications.
For the current quarter, investors will give significant weight to Broadcom’s mobile and wireless growth outlook. The company’s networking chips are used in a “Who’s Who” list of today’s most popular devices, including both Apple and Samsung manufacturers. Shares of Broadcom fell following Apple’s quarterly results on Wednesday, as investors believe Apple has decreased its order for iPhone 5 parts following weaker-than-expected demand.