Facebook, Twitter shares highlight their diverging fortunes

The second-quarter earnings season has been anything but smooth sailing for technology investors.

That may come as a surprise to many given the Nasdaq Composite Index's ascent to record highs this month and the recent media focus on the "FAANG" stocks -- the colloquialism for Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Google parent Alphabet (GOOGL).

But with actual numbers being reported, reality has pieced the veil and emotion is giving way to reasoned analysis. In some cases, tech sector earnings have justified investor optimism. But in others, it's resulting in some nasty declines as overconfidence is revealed.

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On the upside, look at Facebook. Shares tested a high of $175.49 last week, up nearly 19 percent from their July 3 low, after the social media kingpin reported better-than-expected results and significant user growth. Earnings of $1.32 per share beat the $1.12 estimate on revenues of $9.3 billion, up 44.8 percent from last year. Daily active users of 1.3 billion -- which is an incredible mass of humanity -- shot up 17 percent from the year-ago period.

Netflix shares are up nearly a third from their early July low after reporting solid results and the addition of 5.2 million users. Apple is due to report on Tuesday after the close of trading. Analysts are looking for earnings of $1.57 per share on revenues of $44.96 billion. Keep an eye on iPhone sales and demand out of China ahead of the eagerly anticipated launch of the iPhone 8 due in September.

On the downside, Amazon dropped 2.5 percent on Friday after quarterly results missed expectations on a decline in profitability amid a fresh increase in investment spending. Cash flow is dropping, which is another worry. Alphabet is testing the lower end of a three-month trading range -- down about five percent from its recent high near the $1,000-a-share level -- with profitability sapped by a $2.7 billion fine for violating European competition laws. 

But such problems pale compared to the ongoing frustrations beleaguering Twitter (TWTR) investors, who suffered the indignity of seeing a more than 20 percent fall from the high set two weeks ago after disappointing user metric numbers were reported. Monthly average user growth is flat as management struggles to find a way to broaden the service's reach. And ad sales were down five percent from last year.

So, although tech stocks remain an area of red-hot momentum in the aggregate, investors would do well to remember there is still a big difference between companies executing well in this environment and those struggling to remain relevant and protect profitability. 

  • Anthony Mirhaydari

    Anthony Mirhaydari is founder of the Edge , an investment advisory newsletter, and Edge Pro, options newsletter. Previously, he was a markets columnist for MSN Money; a senior research analyst with Markman Capital Insight, a money management firm; and an analyst with Moss Adams focusing on the financial services industry.