Why Are Amazon, Microsoft Stocks Rising While Facebook, Apple and Alphabet Stocks Fall

Exploring how the Tech Giants are dealing with COVID-19

The IT sector is the best performing sector of the S&P 500 excluding dividends in Q1 of 2020. It is followed by the health care sector.

While you might already be familiar with the statistics of how the leading companies are doing in the market, with this blog we will try to look deeper into what factors have led to wide differences in performance within the leading tech giants. Why have Amazon and even Microsoft been able to keep their hold on the market while their peers Facebook, Alphabet, and Twitter go down?

Just a Few Statistics for your Recapitulation

1. Despite having sunk to $1676 on 12th March 2020, Amazon finally ended up gaining by the end of March.
2. Average analyst expectations for Amazon were $71.6 billion at the end of 2019 and increased to $72.5 billion in Quarter 1 of 2020 as reported by FactSet.
3. On the other hand, the stocks of Facebook and Alphabet went down by 13% in Quarter 1.
4. The stocks of Apple also fell by 7% in Quarter 1.

Ironically, in the initial days of the coronavirus outbreak, most investors were skeptical about investing in Amazon. But their outlook slowly changed as the weeks progressed. Amazon has fared much better than most of its peers in the tech field to emerge as one of the few tech companies to continue gaining even as the stocks of many other tech companies plummet.

So why is Amazon faring better than its Tech peers amid the Covid-19 Crisis?

Amazon is one of the few companies in the S&P 500 list whose shares rose in Q1 of 2020

1. Increasing Viewership of Amazon Prime Video: Amazon provides the popular streaming service Amazon Prime Video to which many are resorting to as they are holed up in their homes.
2. Boost in Amazon Web Services (AWS): Amazon is also the world’s largest cloud service provider and has a 33% global market share in it. The lockdown has also boosted the usage of cloud computing services.
3. A Spike in Online Shopping: Amazon has already been a leader in the e-commerce space but there has been a sharp spike in online shopping due to the Covid-19 crisis. According to an eMarketer report, Amazon controls 38% of the USA’s e-commerce market.
4. Entry into Video Gaming: A report by The New York Times stated that Amazon hopes to launch a cloud gaming platform this year. With this, it can establish a strong foothold in the video gaming market.

Amazon provides an ecosystem of services in the diverse domains of retail, entertainment, and cloud computing. Investors are more interested in Amazon now since the pandemic has led to enormous opportunities in all of these domains.

As reported by Bloomberg Businessweek on April 30, 2020

What made the Stock of Alphabet, Facebook, Twitter fall?

The stock of Alphabet fell by 13% in March to hit a record low in the last 5 years. Investors have started selling its stocks in the last couple of weeks. Let us look at what could be the possible reasons behind the declining stock values.

1. Alphabet: A major part of Alphabet’s revenue comes from advertising sales and therefore it’s stock revolves around how the marketing industry is doing. Since the pandemic has disarrayed many businesses, most companies have been left with no choice but to cut back on their expenses like Google ads so that they are still able to pay the employees and cover other essential costs. Average analyst expectations for it for Quarter 1 declined from $43.17 billion to $42.08 billion as on April 6.
2. Facebook: Covid-19 has similarly taken a toll on the advertising business of Facebook. Facebook provides an advertising platform for various small businesses that have been adversely affected.
3. Twitter: Twitter too faced the brunt of the pandemic as the demand for its ad services lowered greatly. Advertisements make up for 80% of Twitter’s revenue. In fact Twitter had withdrawn its Q1 revenue outlook of 2020 given the uncertain times.

The Policy Change that Covid-19 caused at Google

Google had a policy wherein epidemics or natural disasters cannot be used to promote goods and services using Google Ads. In fact in January 2020, it blocked those who were using Google services to run advertisements on coronavirus. However, since Google contributes to most of Alphabet’s revenue, it shifted it’s policy and now allows clients as well as politicians to run Covid-19 ads to improve its sales.

Why is Google expected to recover much faster than the other loss facing tech giants?

Though Google has reported a surge in its network traffic that has increased the demand for network and data centers. But eMarketer reports that Google has been hit the hardest by the pandemic since 40% of its revenue comes from the ads of the services that have been worst hit like restaurants, travel, and small businesses. But it is also most likely to recover the fastest because of its market dominance.

As a MarketWatch report states, Facebook and Twitter were still startups during the last recession of 2008 while Google was already an established tech giant by then and learned essential lessons from it, says the Google CEO Sundar Pichai.

Since the last recession of 2008, Google has diversified its approach from the search functionality to YouTube and Cloud which in turn have been responsible for 40% of its incremental growth as per a report from MKM Partners.

As possible recovery measures, Google confirmed to have slashed its marketing budget by half for the second half of the year. In addition to this, on 15th April 2020, it imposed a hiring freeze for full time and contractual employees.

How is Microsoft retaining stock market stability in the face of Covid-19?

The shares of Microsoft rose only by a penny by the end of Q1 2020 from $157.70 to $157.71 but at least they didn’t fall. The company reported that COVID -19 had a minimal net impact on the total company revenue.

“We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning to sales and customer service, to critical cloud infrastructure and security — we are working alongside customers every day to help them adapt and stay open for business in a world of remote everything.”
- CEO of Microsoft, Satya Nadella

In the final weeks leading up to the closing of Quarter 1, Microsoft stated that there was “a slowdown in transactional licensing, particularly in small and medium businesses, and a reduction in the advertising spend of LinkedIn.”

However, Microsoft’s shares are now rising and it is optimistic that it will get out of the Covid-19 crisis “pretty strong.”

That’s all! Thanks for reading the entire way! Do leave your feedback.

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