It was a blowout quarter for big tech. So why are their share prices falling? Could this be a buying opportunity? Kim Parlee speaks with Vitali Mossounov, Global Technology Analyst and Portfolio Manager at TD Asset Management, on the outlook for tech.
Yeah, it was really just a quarter for the record books, literally, and usually we talk about percentages, Kim, this quarter forty-one percent revenue growth for big tech, one hundred percent plus earnings growth. But I thought this isn't going to do with the results justice. So we've got a couple of charts. As you said, the first one, this is really just showing not the total revenue, but the incremental revenue in billions that these companies were able to add year over year just in the first quarter. So we're talking about, for example, Amazon or Alphabet adding 30 billion of new revenue dollars just in this one quarter above and beyond last year's levels. Just tremendous numbers.
It is pretty incredible when you take a look at those numbers, I mean, just given the size of these companies to begin with. But I think even more interesting is that amazing numbers and then the markets kind of went meh, they didn't really have much of a reaction. So why do you think that was?
Right, tech investors were pretty fickle last week, and we obviously see that's continuing into this week, but it was kind of a two, two stories to tell here, actually. If we, we'll get another chart up on the screen and take a look at the actual share price reactions to the results. And so it's a bit of a busy chart. But what you'll see there is there's one bar that's showing you the initial share price reaction right after the company reports in those first couple of hours, once the market closed and after hours trading. And then the second bar for each company is showing you how investors actually reacted the next day once they had a chance to digest those results. And again, a tale of two cities. So first, a euphoric reaction to most of these results, bidding up the results and saying, wow, a blowout quarter, I want to buy these stocks. And then, getting to the next day saying, hang on a second, I'm actually going to press the sell button. And a lot of these stocks performed worse on the actual first full day of trading. Why probably is the question to ask? And the answer is this might be, this might be the peak. This is too good. And investors are looking at this and saying, is this as good as it gets? Because in that case, I'm going to go somewhere else and find another stock to buy.
I guess it's not only just as good as it gets for the for the company's performance, but also you know for the market, because, I mean, we're pretty lofty in some of this. But if we could, if you wouldn't mind, let's dig into some of these companies individually and just to see what happened. And could we start with Microsoft?
Yeah, Microsoft is the paragon of consistency and in this quarter it was no different whatsoever, 16 percent revenue growth, 34 percent EPS growth. Fantastic numbers. And Microsoft really is all about the Cloud. So the Microsoft is your Cloud. That's their major growth driver that is still on fire, growing in the mid to high 40s. And the messaging from Microsoft, very positive. We're going to keep growing and growth is going to be strong.
What about Amazon, because if we take a look at what you had shown earlier, we saw, of course, that was one of the stocks, we had a euphoric reaction and then everything changed their mind.
Yes, Amazon wasn't in that basket very much so. And, you know, as much as we talk about Microsoft just now, that's actually a perfect segway that's a Cloud business, well, there's still the challenger. I mean, Amazon is the big AWS cloud business, that's the behemoth. And again, fundamentals that business accelerated grew even faster than it did last quarter. Amazon's retail business continues to do well, just as it has through all of last year. And so, you know, it was a very similar thing to Microsoft. Those things are really, really good. But again, that one that investors obviously change their mind a bit in the course of the next twenty four hours.
How about Google, I mean, the investor reaction wasn't quite as severe as it was with Amazon,
No, Google and Facebook were kind of in their own camp. And when you think about those two and let's start with Google, since we're on it, I mean, these are really digital advertising businesses, both of them. So they need two things to work. One is they need consumers to spend a lot of time online, to be very engaged with their websites, with their apps. Well, you had that last quarter. You still had the tailwind of Covid. We were all on our phones and our devices. But number two, they need a strong and recovering economy. And they didn't have a lot of that last year. Right, you still had a lot of recessionary forces, but Q1 things could be picked up and advertisers started spending. So for Google, that was kind of a Goldilocks quarter. They grew very quickly and Facebook very much in the same bucket. It's a little bit of a different company in that Google maybe also helps you find real world businesses out there. If you're traveling to book a flight or find a hotel, Facebook is very much about connecting the online advertiser, the online business to the online consumer. And for that, maybe it was Goldilocks because we're all online and spending is picking up. So everything really coming together for those, too. And so they have the better share price reactions for sure.
Facebook is interesting, too, because, you know, you have, you know, at the same time in advertising picking up, you also have, you know, regulatory issues for lot of these companies, including Facebook. But also, you know, in the world of currencies, there's been talk about them kind of delving their toe into that, if you will. So, so anything interesting in that front?
Well, Facebook is remarkable across a number of elements, because just three, four years ago, to start with the regulatory element, coming out of the 2016 election, I mean, this company was a bit of a basket case and there were a lot of questions. What kind of investments did they need to make? Can they keep up their margins? Is this platform permanently impaired? Are people going to stop using it? And since then, not only have they gotten the core business together, but they've gone after successfully all these use cases. So e-commerce and more direct selling on the Facebook platform, not just advertising, virtual reality, augmented reality, cryptocurrency payments. And so Facebook has kind of transformed and is firing on all cylinders right now.
I got, I got about 30 seconds on Apple, I know that's another one you're watching, but again, that's another one that had a not great reaction after the fact.
No, not at all. Maybe the most shocking one, but Apple's quarter was the biggest, the biggest result of any of these with a 54% revenue growth and maybe the most impressive, not just because of its size, but because for these other companies, a lot of their sales are intangible, that they're bits. And so they're kind of easy to generate new sales in a sense. For Apple, they have to ship literally physical product, build them and ship them. And they they did that and they did it remarkably well. But it was kind of the poster child for this phenomenon we've been discussing today was investors looking at it and saying, oh, wow, was this is this too good? Are they really going to sell any more phones? I'm exaggerating, but that is the gist of it.
Let me ask you just if you are to glean anything from all of the roundup of the tech earnings, what do they tell you about the state of the world? What should investors be paying attention to?
Ok, a few things, one, clearly investors are very worried about what the vaccine and what reopening will mean for the tech sector. And we've seen that we've seen these worries, these panics in November when the vaccine was announced. We saw it again in late February when tech was just selling off relative to the market. And now we're seeing it with these good earnings, which are again being sold by investors. So as we look through the summer, one thing to recognize is that vaccines are continuing. Preopening is going to be here. So these debates and this volatility is going to stay with us. But the bigger thing, especially for long term investors, is, hey, these results, these fundamentals are incredibly, incredibly good. And so ask yourself, what are you investing in? If you're investing in the conviction that the next decade is the biggest decade of change in human history, that these platforms with a billion plus users and all the data in the world are going to be able to invent products that we continue to like and spend money with, then these are great businesses and great investments. But there is going to be this this debate that continues throughout the year.