Amazon’s market value rose by a record amount as tech stocks had a week of gains and losses

2022-05-22 0 By

Big tech was once again the winner of the earnings season.Tech investors just had one of the most volatile earnings periods we’ve seen.These tech giants — Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platfroms (FB), and Microsoft (MSFT) — are some of the most watched companies in the world.Investors, analysts, journalists and lawmakers are eager to analyze, dismantle, test and study them with microscopes.Then this quarter, everyone was surprised.Facebook parent Meta Platforms pounded the market after Posting weak earnings on Feb. 3, but Amazon’s impressive growth came to the rescue a day later.Amazon added $191.3 billion to its market value on Feb. 4 after it reported better-than-expected earnings, the biggest one-day gain ever recorded for a U.S. company, according to Dow Jones market data.The previous record was $181.3 billion set by Apple on January 28.Amazon’s gains boosted the Nasdaq and S&P 500, as their movements are weighted by the market capitalization of their components.The Nasdaq rose 1.6% on Feb. 4, while the S&P 500 gained 0.5%.The Dow Jones Industrial Average, excluding Amazon, fell 21 points.Amazon’s intraday market value of $1.4 trillion represents about 6% of the nasdaq’s total market value.As of the close of trading on Feb. 4, Amazon’s share price was $3,152.79, giving it a market cap of about $1.6 trillion.Now let’s take a breath and consider some thoughts on this week’s tech frenzy: Amazon’s diversification strategy is paying off: In its quarterly earnings report, the company made it clear that it’s more than just an electronics retailer.Its cloud business, Amazon Web Services (AWS), is on fire — arguably even more commercially valuable (and with a shorter cycle) than the company’s traditional e-commerce arm.It was no accident that Jeff Bezos, amazon’s founder, chose Andy Jassy, who created and runs AWS, as his successor as CEO.But this quarter’s results revealed something else.Amazon’s advertising business has doubled in just over a year, generating $10bn in revenue during the reporting period.It now generates more advertising revenue than Google’s YouTube.People come to Amazon stores with their own shopping intentions, but no matter what you search for, you’ll see a variety of sponsored ads.To prove it, I searched “Bookstapler,” which still included a dozen sponsor lists.Meanwhile, Amazon’s third-party services business has achieved an annual operating rate of more than $120 billion.Thanks to Amazon’s warehousing and delivery services, the business has become an indispensable channel for suppliers of all kinds.Amazon has built one of the most efficient logistics networks on the planet — some analysts estimate it will deliver more packages this year than UPS, which has a market capitalisation of $200bn.Even after a 14% gain on Feb. 4, Amazon shares are down for the year and up only slightly in 2021.The stock looks cheap.The importance of cloud computing can’t be overstated: one of the biggest themes of the past two weeks has been the cloud businesses of Amazon, Microsoft, and Alphabet getting better and better.All three companies had better-than-expected results.Microsoft reported 46% growth in its Azure business in the quarter ended December 2021, and expects even faster growth in the March 2022 quarter.Google’s cloud revenue rose 45% and recorded its second straight quarter of growth.AWS revenue growth improved to 40% from 39%, accelerating for the fourth quarter in a row and helping offset weakness in Amazon’s core e-commerce business.The big three’s cloud computing business is the best enterprise computing business on the market.Price hike: Last week, Amazon raised the monthly fee for Prime members by 15% to $14.99 and the annual fee by 17% to $139.The company last raised its Prime subscription fees in 2018, and with labor and delivery costs rising, the increase seems reasonable.Amazon’s move comes weeks after Netflix (NFLX) raised prices for its US and Canadian subscribers.The consumer reaction should look interesting, but I suspect it’s very resilient — subscription services are valuable and not easily replaceable.The rise in subscription fees shows that Amazon and Netflix are confident in their customers.Here’s a quick observation: The New York Times has set a goal of 15 million total subscribers by 2027;The New York Times recently announced acquisitions of The Athletic and Wordle.Amazon and Netflix have more than 200 million subscribers.Spend wisely: Alphabet announced a 20-for-1 stock split last week, which will take the stock down to about $150.They should have paid actual dividends to shareholders, but they didn’t.The company has $140 billion in cash and equivalents;It generated $18.6 billion in free cash flow in its most recent quarter.Meta highlights the risks of choosing buybacks over dividends.In the past two quarters alone, Facebook’s parent company has repurchased $33 billion of its shares.Given last week’s sell-off in Meta, that cash is basically on fire.If the company had declared a special dividend instead, it could have paid holders close to $14 a share.The turmoil isn’t over yet: The underlying problems that have plagued tech stocks for months remain.Interest rates will continue to rise.Chips are still in short supply.The level of inflation is disturbing.Markets have little appetite for speculative names.There’s a reason the best-performing tech stocks so far this year — including familiar names like VMware (VMW), HP Enterprise (HPE), DELL (DELL) and IBM (IBM) — are cheap.Over the past two weeks, we’ve learned that markets like consistency more than ever.That’s why Meta’s earnings and outlook last week were so troubling: Facebook is no longer the reliable performer investors have come to expect.But other big tech companies still fit the bill.Apple and Microsoft consistently beat market expectations with products that customers want.You could say the same about Google and Amazon.Big tech was once again the winner of the earnings season.Article | barron’s writer Eric j. savi, editor (Eric j. Savitz) | | yi-dan Lin translation yi-dan Lin copyright statement: barron’s (barronschina) original articles, without permission, shall not be reproduced.Here Are the Tech Stocks to Buy After a Crazy Week of Earnings, February 4, 2022.(This article is for informational purposes only and does not constitute the provision or reliance of investment, accounting, legal or tax advice.)