Show Transcript
The big U.S. tech companies reported quarterly earnings and topped analyst estimates, as the pandemic pushed consumers to rely more on personal devices. Anthony Okolie speaks with Vitali Mossounov, Global Technology Analyst, TD Asset Management, about whether tech’s rise is likely to continue.
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- Vitali, technology has been one of best performing sectors early on in the COVID-19 crisis. And of course, we just had some big earnings news, which we'll get to in a second. But as we enter August, it looks like the outperformance is continuing. What are you seeing?
- Hey, Tony. Yeah, I'm going to sound a bit like a broken record. But yeah, the outperformance is continuing. We're seeing for the year the S&P is flat. And given everything, that's not so bad, I suppose. But technology stocks, they're up 17%, which is remarkable.
And that's a balance of actually outperformance heading into COVID before we knew there was a COVID, and then even more outperformance post-COVID. And again, we've talked about this before. But just to recap, one, heading into COVID, it was about, wow, these companies have a lot of recurring revenue. They don't have any debt, squeaky clean balance sheets. And post-COVID, it's, oh, wow, the digital world is substituting for the physical world. And, well, who's going to be the winner in that? It's going to be tech stocks.
- Is this positive sentiment justified? How did the Q2 earnings look to you?
- Well, a lot of investors out there are worried. And it's always good to have skepticism and concerns. But certainly, based on yesterday's results, I think those that doubt it are in the wrong. I think there's a lot to talk about.
But to sum it all up, I recall it was just a few days ago, it was James Markel that you had on the show as an economist. And what was that number, 32%, down 32% US GDP in the quarter? Well, the big four tech companies that reported yesterday grew their sales that same quarter by 16%.
So to give you-- to summarize everything, the essence of what tech means as COVID, it's minus 32 for the economy and plus 16 for tech. Look, on a company by company basis, it's more of the same. I mean, with Amazon, it's accelerating growth over 40%, and that's e-commerce. We saw the same results with Shopify.
With Apple, it was actually a far bigger surprise, because they managed to grow their iPhone revenues by 2% in the quarter. And again, in a quarter where there is an economic collapse worldwide, you would not expect the discretionary purchase of $600, $700, $800 device to be at the top of people's lists.
But again, Apple is Apple. It was in demand. Far different than Android phones, actually, which fell 20%, 30% of their sales. And Apple, of course, was helped by the launch of a new device called the SE too in April. So a bit of a product cycle helped.
And then finally, with Google and Facebook, their results weren't as good because they're ultimately advertising companies, and advertising doesn't do well in a recession. But even, then I think that the key takeaway is that the results weren't too bad, given the kind of business that they're in. And actually, the value of those platforms, measured by the user bases, arguably accelerated. So on the whole, I would say good results.
- OK, so good results. Do you see any potential headwinds for these big four companies looking ahead?
- Well, I think probably maybe I made my prime time TV watching the same as you and everyone else, and that was these caught congressional hearings, right? The-- what is it, the subcommittee that's kind of basically grilling the CEOs of Facebook, Amazon, Alphabet slash Google and Apple.
And really, what they're getting into is, are these companies using the power of their platforms, so the billion plus user base, to stifle competition, are they being anticompetitive. And I would say that it was-- I mean, it was remarkably entertaining in the sense that, one, I thought that the congressmen and women had actually well-prepared and tactful questions, which is new for Congress in their interactions with technology companies.
And two, it was interesting to see this $100 plus billion of personal net worth answering these questions and sort of being very-- you can see the answers were very coached, and they were very smooth. And they were basically saying, you know, we face a ton of competition. I'm not sure anyone bought that.
But key takeaway, there's no immediate action that comes from any of this. There's more work to be done. The subcommittee should release a report in the fall that could recommend some sort of remedy, some sort of antitrust action against the companies. That remains to be seen. So this is something that, for the next few months, we can expect to weigh on the sentiment around the stocks, and something, obviously, we all monitor very, very closely.
- And from those congressional hearings, do you see a company coming out as a winner from that?
- Yeah, I think Apple probably came out as the real winner. I wish I could measure the amount of time that each CEO spoke and the intensity of those interactions. But Tim Cook was just kind of sitting there and saying, well, you know, we sell phones. And they would grill him and say, yeah, but your App Store doesn't give fair access to developers, and you're taking this fee, and Amazon paid you a smaller fee.
And these things are kind of on the margin. They could be issues for Apple, but they do nothing to undermine the business model. So I would say Apple, the real winner based on those hearings, actually.
- The bottom line, it sounds like more of the same for big tech.
- Yeah. It's strong operating performance, great loyalty from their user bases, and their financial performance you're seeing diverge in COVID because of the nature of what they do. But ultimately, on the other end of this, they're all, we think, better off than they were coming in.
- OK. Let's talk about an ETF as a way for investors to participate in these trends.
- Yeah. It'll be the same ETF that I always talk about. It'll be the TD Global Technology Leaders Index ETF. It's essentially a curated ETF of over 200 technology companies all across the 20-plus developed markets. And so the companies we discussed today are some of the top holdings there, as are others like the Teslas and the Shopifys of the world.
- Vitali, thank you very much for your time.
- Thanks, Anthony. Good to see you again.
[MUSIC PLAYING]
- Hey, Tony. Yeah, I'm going to sound a bit like a broken record. But yeah, the outperformance is continuing. We're seeing for the year the S&P is flat. And given everything, that's not so bad, I suppose. But technology stocks, they're up 17%, which is remarkable.
And that's a balance of actually outperformance heading into COVID before we knew there was a COVID, and then even more outperformance post-COVID. And again, we've talked about this before. But just to recap, one, heading into COVID, it was about, wow, these companies have a lot of recurring revenue. They don't have any debt, squeaky clean balance sheets. And post-COVID, it's, oh, wow, the digital world is substituting for the physical world. And, well, who's going to be the winner in that? It's going to be tech stocks.
- Is this positive sentiment justified? How did the Q2 earnings look to you?
- Well, a lot of investors out there are worried. And it's always good to have skepticism and concerns. But certainly, based on yesterday's results, I think those that doubt it are in the wrong. I think there's a lot to talk about.
But to sum it all up, I recall it was just a few days ago, it was James Markel that you had on the show as an economist. And what was that number, 32%, down 32% US GDP in the quarter? Well, the big four tech companies that reported yesterday grew their sales that same quarter by 16%.
So to give you-- to summarize everything, the essence of what tech means as COVID, it's minus 32 for the economy and plus 16 for tech. Look, on a company by company basis, it's more of the same. I mean, with Amazon, it's accelerating growth over 40%, and that's e-commerce. We saw the same results with Shopify.
With Apple, it was actually a far bigger surprise, because they managed to grow their iPhone revenues by 2% in the quarter. And again, in a quarter where there is an economic collapse worldwide, you would not expect the discretionary purchase of $600, $700, $800 device to be at the top of people's lists.
But again, Apple is Apple. It was in demand. Far different than Android phones, actually, which fell 20%, 30% of their sales. And Apple, of course, was helped by the launch of a new device called the SE too in April. So a bit of a product cycle helped.
And then finally, with Google and Facebook, their results weren't as good because they're ultimately advertising companies, and advertising doesn't do well in a recession. But even, then I think that the key takeaway is that the results weren't too bad, given the kind of business that they're in. And actually, the value of those platforms, measured by the user bases, arguably accelerated. So on the whole, I would say good results.
- OK, so good results. Do you see any potential headwinds for these big four companies looking ahead?
- Well, I think probably maybe I made my prime time TV watching the same as you and everyone else, and that was these caught congressional hearings, right? The-- what is it, the subcommittee that's kind of basically grilling the CEOs of Facebook, Amazon, Alphabet slash Google and Apple.
And really, what they're getting into is, are these companies using the power of their platforms, so the billion plus user base, to stifle competition, are they being anticompetitive. And I would say that it was-- I mean, it was remarkably entertaining in the sense that, one, I thought that the congressmen and women had actually well-prepared and tactful questions, which is new for Congress in their interactions with technology companies.
And two, it was interesting to see this $100 plus billion of personal net worth answering these questions and sort of being very-- you can see the answers were very coached, and they were very smooth. And they were basically saying, you know, we face a ton of competition. I'm not sure anyone bought that.
But key takeaway, there's no immediate action that comes from any of this. There's more work to be done. The subcommittee should release a report in the fall that could recommend some sort of remedy, some sort of antitrust action against the companies. That remains to be seen. So this is something that, for the next few months, we can expect to weigh on the sentiment around the stocks, and something, obviously, we all monitor very, very closely.
- And from those congressional hearings, do you see a company coming out as a winner from that?
- Yeah, I think Apple probably came out as the real winner. I wish I could measure the amount of time that each CEO spoke and the intensity of those interactions. But Tim Cook was just kind of sitting there and saying, well, you know, we sell phones. And they would grill him and say, yeah, but your App Store doesn't give fair access to developers, and you're taking this fee, and Amazon paid you a smaller fee.
And these things are kind of on the margin. They could be issues for Apple, but they do nothing to undermine the business model. So I would say Apple, the real winner based on those hearings, actually.
- The bottom line, it sounds like more of the same for big tech.
- Yeah. It's strong operating performance, great loyalty from their user bases, and their financial performance you're seeing diverge in COVID because of the nature of what they do. But ultimately, on the other end of this, they're all, we think, better off than they were coming in.
- OK. Let's talk about an ETF as a way for investors to participate in these trends.
- Yeah. It'll be the same ETF that I always talk about. It'll be the TD Global Technology Leaders Index ETF. It's essentially a curated ETF of over 200 technology companies all across the 20-plus developed markets. And so the companies we discussed today are some of the top holdings there, as are others like the Teslas and the Shopifys of the world.
- Vitali, thank you very much for your time.
- Thanks, Anthony. Good to see you again.
[MUSIC PLAYING]
