As usual, the arrival of a few hundred tech earnings reports and calls during earnings season has put some big-picture themes into focus for the sector. Here are some of the ones that have particularly stood out to me.
1. The Bar Is Being Set Higher for a Lot of Tech Favorites
Apple's (AAPL) stock is trading slightly below where it stood before it posted a blowout earnings report -- one in which it disclosed 60%-plus iPhone, iPad and Mac growth -- on April 28. Likewise, Amazon.com (AMZN) is below where it stood before it trounced estimates on April 29 thanks to better-than-expected international, seller services and ad growth. And though Roku (ROKU) rose sharply on Friday after blowing past sales estimates and issuing strong guidance, its shares are still below where they were a week ago and more than 30% below their February high.
The story is similar for the likes of Microsoft (MSFT) , TSMC (TSM) , AMD (AMD) and Zillow (ZG) . While there are some well-known tech companies that have rallied to new highs post-earnings, such as Alphabet (GOOG) and Facebook (FB) , their numbers are easily dwarfed by the ranks of those for which markets decided the good numbers that were shared have already been priced in.
In some cases, concerns about the sustainability of current demand trends amid reopenings might be on the back of investors' minds. And with so many high-multiple, high-growth names now well below their highs, the post-earnings reactions could also be a sign that retail investors now have less influence on how the tech sector moves than they did a few months ago. Regardless, markets appear to be signaling that the days of easy gains for growth tech names posting beat-and-raise quarters are at an end.
2. E-Commerce Spending Is Still (Mostly) Healthy
For now at least, fears that reopenings would cause a major drop in e-commerce spend are proving unfounded.
Along with Amazon, firms such as Shopify (SHOP) , Wayfair (W) and PayPal (PYPL) delivered strong numbers, while indicating that demand remains solid in markets that have seen large-scale reopenings. Likewise, Google and Facebook both reported that they're still seeing very strong demand from e-commerce advertisers.
One general message from the earnings calls of e-commerce-related firms: While some demand could shift back to offline channels in the coming months, the pandemic will have a long-term effect on how many consumers choose to shop for various items, as well as on how much many businesses rely on online sales channels.
They were admittedly some soft spots. Etsy (ETSY) and eBay (EBAY) issued cautious second-quarter guidance, while noting their outlooks take into account both reopenings and the end of stimulus-related spending boosts. And Amazon's second-quarter guidance was arguably just OK, rather than great, after accounting for the fact that Prime Day will take place in Q2 this year. But having a period of modest e-commerce sales growth following several quarters of strong double-digit growth is still a win in the grand scheme of things.
3. Chip Demand Remains Well Ahead of Supply
Microcontroller (MCU) and analog chip suppliers with strong automotive and industrial exposure, such as NXP Semiconductors (NXPI) and Microchip Technology (MCHP) , made it clear that they expect to remain supply-constrained through year's end, and possibly longer. Indeed, Microchip CEO Ganesh Moorthy went as far as to say that he hasn't seen a supply/demand imbalance this large in his 40 years of working in the chip industry.
Meanwhile, Western Digital (WDC) noted that flash memory controller shortages are impacting its sales. And Apple forecast supply constraints (largely iPad and Mac-related) would have a $3 billion to $4 billion impact on its June quarter sales.
One bright spot amid this mess: Shortages for leading-edge process capacity at foundries appear to be easing, as TSMC continues adding new production lines to support major leading-edge clients such as AMD, Apple, Qualcomm (QCOM) and MediaTek. But the story remains very different for mature-process capacity, which from the looks of things could remain supply-constrained until sometime in 2022.
Of course, an environment where supply can't keep up with enormous demand is better on the whole than the opposite scenario. And with a lot of demand for things such as cars, notebooks, tablets and game consoles currently being unmet, it's unlikely that sales of such items will fall sharply during the back half of the year, even if consumer demand for them does cool some.
4. Reopenings Are Beginning to Impact Some Consumer Tech Activity
Though posting strong top-line numbers, Pinterest missed its first-quarter monthly active user (MAU) consensus and issued a subdued second-quarter MAU forecast. Also, Teladoc (TDOC) forecast it would see only a tiny amount of paid membership and visit growth over the remainder of the year, and companies such as Facebook (FB) and Activision (ATVI) indicated they've seen modest hits to user engagement in markets seeing reopenings.
On the flip side, Uber (UBER) and Lyft (LYFT) both reported that their U.S. rides rose by a triple-digit percentage in April relative to depressed year-ago levels, albeit while noting driver shortages are limiting their near-term ability to address demand. And Expedia (EXPE) disclosed that its April bookings were down by less than 20% relative to 2019 levels (for comparison, Expedia previously said its January bookings were down by a high-40s percentage).
Expect a lot of these trends to strengthen in the coming months, as COVID-related restrictions are loosened in more regions and vaccines become more widely available in various foreign markets.
5. Online Ad Spend Is Inflecting Higher
Aside from Twitter (TWTR) , just about every major online ad seller to report in recent weeks -- from Google and Amazon, to Facebook and Pinterest, to Roku and Criteo (CRTO) -- delivered strong ad first-quarter sales figures, with many of the companies also issuing upbeat second-quarter outlooks.
Continued e-commerce ad strength is naturally helping, and so is rebounding brand and travel/local business ad spend. But it's also increasingly clear that the pandemic led many businesses (both big and small ones) to do major rethinks of how they spend on advertising -- rethinks that led them to shift more of their budgets to online ad channels, thanks to what those channels could deliver in terms of targeting, measurement and ROI.