Microsoft and Alphabet shed $60bn of value

April 22, 2016 5:40 pm
Microsoft and Alphabet shed $60bn of value

Adam Samson and Pan Yuk in New York

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People are silhouetted as they pose with laptops in front of a screen projected with a Google logo, in this picture illustration taken in Zenica October 29, 2014. REUTERS/Dado Ruvic (BOSNIA AND HERZEGOVINA - Tags: BUSINESS SCIENCE TECHNOLOGY BUSINESS LOGO) - RTR4C1AD
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The US technology sector came under pressure on Friday as Alphabet and Microsoft shed a combined $60bn of market value in an earnings-induced sell-off.

The S&P 500 technology sector declined by 2.2 per cent on Friday against a broader market that was only slightly lower.

Alphabet, the parent of Google, said its first-quarter net profits soared 20 per cent to $4.2bn, but adjusted earnings of $7.50 a share missed estimates of $7.96. The group’s overall sales jumped 17.3 per cent to $20.3bn however it reported sales excluding the costs of acquiring traffic of $16.5bn, below Wall Street estimates of $16.6bn.

The Mountain View, California-based group’s core division, which houses its search engine and streaming video website YouTube among other properties, reported a 17 per cent rise in revenues and a 20.9 per cent jump in profits. However, the “other bets” arm that is home to risky ventures such as self-driving cars, continued losing money, with its quarterly loss deepening from $633m in the first quarter of 2015 to $802m.

Shares fell 5.8 per cent to $734.87 on Friday. However, they are still up 31.8 per cent over the past 12 months as investors have cheered the group’s tightened expense discipline, ushered in by Ruth Porat, Alphabet chief financial officer who formerly held the same job at New York investment bank Morgan Stanley.

Microsoft stock declined after the world’s biggest software maker disclosed quarterly profits that missed analysts’ expectations as the group’s transition into the cloud has put pressure on its margins.

Microsoft’s net earnings tumbled 25 per cent in the quarter to the end of March to $3.8bn. Adjusted profits per share of 62 cents missed estimates by 2 cents. Revenues declined 6 per cent in the fiscal third quarter to $20.5bn, matching estimates.

Washington-based Microsoft is in the process of transitioning away from the deteriorating PC-software market that helped establish the group as a technology heavyweight, and into the faster-growing cloud computing sector under the direction of chief executive Satya Nadella.

Investors have so-far cheered the initiative, with the shares rallying since Mr Nadella took over in early 2014. However, they plummeted 7.4 per cent on Friday to $51.67.

The decline in the two tech-sector heavyweights knocked the Nasdaq Composite down by 1.4 per cent to 4,877.2. The broader S&P 500 fell 0.4 per cent to 2,082.1 and the Dow Jones Industrial Average dipped 0.3 per cent to 17,926.9.

Elsewhere, industrials were in focus after Honeywell and General Electric both reported better than expected first-quarter results.

Honeywell lifted its full-year guidance amid strong performance from its aerospace and residential businesses. First quarter sales rose 3 per cent to $9.5bn, topping analyst forecasts of $9.4bn. That was driven by 1 per cent organic growth, with the rest coming from acquisitions.

However, the shares — up more than 10 per cent over the past year before Friday, fell 1.5 per cent to $113.16 as investors moved to book profits.

General Electric also beat market expectations on the back of a strong performance from its aviation business. But the stock fell 1.4 per cent to a one-month low of $30.55 after the company said second quarter margin would be “a challenge”.