Shares in Apple and Facebook jumped in after hours trading this morning after the two tech giants reported better than expected quarterly reports.
And with late news that the giant General Electric company is plotting a $US13 billion offer for French-owned high speed train and power generating group, Alstrom, Wall Street shares are sure to surge tonight, our time, shaking off the overnight hesitancy.
The reports from Apple and Facebook in particular should be enough to end the negativity surrounding big techs (the so-called momentum stocks). Both showed the big techs continue to generate the market and user performance to justify their high valuations, especially Apple.
Facebook shares, which had been sold down heavily in the recent tech stock slide, jumped 3.5% in after hours trading, adding to their gains over the past week as investors punted on the company producing a solid quarterly report.
It did that with better than expected news on mobile revenues, earnings and user numbers.
But it was Apple which caught the eye of investors with not only a better than expected set of numbers, but a huge share split to make the shares more accessible, a higher dividend and promise to raise dividend every year from now on, and an increase in its share buyback.
Rather than its usual tech-driven news appeal, it was the financial data in the quarterly report and the added bonuses that saw Apple shares leap more than 8% in after hours trading in New York.
Apple surprised the market by reporting a jump in iPhone sales for the quarter, as well as beating revenue and earnings forecasts (and profit margins). Sales rose 5%, which was much stronger than market forecasts.
On top of the good news from its earnings statement, Apple added another $US30 billion to its capital return programme, increasing its dividend by 8% and taking its total share buyback plan to a massive $US90 billion until the end of 2015.
Apple also said it expects to issue more debt later in the year to help fund the buybacks (its tax effective to use debt and Apple raised $US17 billion in 2013), including for the first time looking outside the US to raise funds. That’s despite it holding well over $US100 billion in cash, much of it outside the US.
The company also said it would increase its dividend annually from now on, continuing its slow evolution from pure growth stock into a moderate value performer.
The company also announced a seven-for-one stock split, to take place in June, which the company hopes will make its stock more accessible to retail investors, and add buying support to the stock.
The shares closed around $US568 this morning in New York. The news of the split will spur buying pressure until it happens in June, meaning the shares could be worth close to $US100 each when it happens.
Apple’s earnings and sales surprise was driven by a 17% surge in iPhone sales to 43.7 million units (well above forecasts for 38 million of sales), helped by a 13% jump in China where it has partnered with the giant China Mobile.
The surge in iPhone sales helped offset a slump of 16% in Ipad sales (compared to the very strong sales quarter a year ago).
Profit margins nevertheless jumped to 39.3% (39.3 cents gross margin in every sales dollar), instead of around 37% to 38% as projected by market forecasts.
Apple’s overall revenues grew 5% to $US45.6 billion with net profit of $US10.2 billion.
Apple said it lifted smartphone market share in the US, UK, Canada, Germany and Japan in the quarter he said. In China, the 13% lift in sales more than offset the 2% rise in the Americas.
Meanwhile Facebook topped market expectations with strong growth in its mobile advertising, and convincing analysts that what had been seen as a major weak point, was now one of the company’s strengths.
The company said first quarter net profit was $US642 million, on a 72% lift in revenues to $US2.5 billion.
Facebook said revenue in all four geographic regions increased by more than 70%.
Mobile advertising revenue, which topped 50%of total ad revenue in the December quarter, rose to a 59% share in the three months to March.
Helping that was a surge in the company’s mobile monthly active users which surged 34% to more than one billion for the first time.
Daily active users rose 21% from the March quarter of last year to 802 million. Monthly active users jumped 15% to 1.3 billion (as many people there are in China).
And the reported move on Alstrom by GE (first reported by Bloomberg) will add to the deal mania developing on Wall Street.
This week we saw well over $US70 billion of bids and asset sales and purchases in the drug sector, and several other smaller deals.
The GE move will face opposition in France where Alstrom is considered to be a national champion.
But it is struggling and earlier this week announced cost cutting plans involving the sacking of s200 jobs in Spain and France.
Alstrom makes power generating equipment for conventional and nuclear stations – which is also a core strength of GE.
