MorningWord 10/28/16: Nasdaquiri

by Dan October 28, 2016 9:30 am • FREE ACCESS

Yesterday in this space I did a little compare and contrast between expectations into (AMZN) and Alphabet’s (GOOGL) Q3 earnings due out last night (here). In a nutshell, I emphasized:

AMZN is likely the one where investors shoot first and ask questions later with the stock up 72% from its 52 week lows made in February. The stock is sitting on the uptrend that has been in place from those lows, with the next real technical support level at $750, down about 9%

Well, the company issued Q3 results that were fairly decent but offered Q4 guidance that was below expectations, and the stock is down 5.5% in the pre-market as I write.

Of the 48 Wall Street analysts who cover the stock there are NO Sell ratings, and only 5 Holds.  The universal optimism surrounding AMZN is astounding. One of those who rate the shares a Hold, is SunTrust’s Bob Peck. And in a research note this morning he pointed to the company’s weak margin guidance, and suggests Q4 might not be a one quarter blip:

at the mid-point would represent the first operating margin decline in over 2 years as the company invests heavily in video, fulfillment/ Prime, grocery, India and other initiatives. Investments to expand Amazon’s core customer proposition and stickiness are prudent, though we believe there may be more near-term margin pressure for investors to discount

My quick take is fairly simple. I have missed the stock’s recent run after trying to pick holes in the story. My Bad. But with just two months left in the year, and AMZN making up a healthy bit of the Nasdaq’s ytd performance, I’d be shocked to see the stock completely fall apart. AMZN should find near term technical support at $750, but if it can’t hold, there is an air-pocket below to $700 which should serve as staunch support. On the upside, the uptrend from the February lows should serve as massive resistance:

AMZN 1yr chart from Bloomberg
AMZN 1yr chart from Bloomberg

As for Alphabet (GOOGL), they appeared to put up a very solid quarter, with ad growth hitting the highest level in 2 years, despite an 11% decline in cost per clicks, company wide margins were better than expected, losses from their “other bets” category declined in the quarter, and the company added $7 billion to their share buyback. I think there is a couple ways to think of this next point, but GOOGL has a monopoly in mobile search (per WSJ) with 95% market share (vs 78% on computers) as the default search engine in both iOS and Android phones. But Facebook (FB) is coming to take a bite out of this massive pie, and GOOGL will need to continue to spend to fend them off. And let’s not forget regulators who are sure to scrutinize competitive moves.  GOOGL is trading very near its prior all time highs made earlier in the week, up about $10, a somewhat tepid response. The stock has decent near term technical support at $800, with room down to $760ish:

GOOGL 1yr chart from Bloomberg
GOOGL 1yr chart from Bloomberg

Consensus estimates for 2017 call for 18% eps and 16% sales growth for GOOGL in 2017. The stock trades 20x that expected eps growth, which seems fairly reasonable considering 15% of their market cap is in cash, and the potential for the narrowing losses in other bets to actually turn into gains in 2017.  For what it is worth, Microsoft (MSFT) which broke out to a new all time high last week after its fiscal Q1 results trades 20x expected f2017 eps growth of 6% and 2% sales growth. If we are playing would you rather, I’d rather GOOGL!

Lastly Apple (AAPL). I have little to add on their quarter and guidance reported on Tuesday. I had some thoughts here on Wednesday where I was less than positive (Apple’s Blurred Vision). But I want to focus on a couple product issues this weak that I think speak to future problems for Apple. First things first. I bought the new iPhone 7. It’s a great phone, probably the best out there, but while I might not miss the 3.5mm headphone jack as much as I thought I would, I was looking forward to their Airpods (at least trying them) and settle into a Bluetooth headset solution. When the company announced them in early September with the iPhone 7, they said they would be available in late October. Well they need more time:

Ok. Get it right. But in the meantime I just bought a pair of Bose wireless headsets. I bought Bose because Beats (who Apple acquired in 2014 for $3.2 billion) is dead to me. I own PowerBeats wireless which after gentle use for a little more than a year just stopped working. Apple has generously offered to fix the $200 headphones for $100. So they are out for good.

And lastly, Apple held an event yesterday to introduce new laptops. Shockingly, the new MacBooks don’t have a port to connect their new Lightning headsets, WTF??  To connect these you need…. wait for it, a DONGLE.

Regular readers know that I love Apple products, but I like you seem a bit puzzled by recent product tweaks. It seems like the left hand doesn’t know what the right is doing over at Apple.