Internet ‘Big 3’ poised for biggest test: living up to their reputations
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Internet ‘Big 3’ poised for biggest test: living up to their reputations

The world’s three biggest internet companies, Amazon, Facebook and Alphabet, release earnings this week, with expectations buoyed by a rally in tech stocks that has played out over the year. Investors are positive, and that means that earnings have to be too. The question is: can these companies live up to their reputations? Analysts have warned that any sign of weakness in the figures could dent the prevailing investor sentiment of the moment.

Alphabet, Amazon and Facebook are having a fantastic year

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SOURCE: Yahoo Finance

Last week, the S&P 500’s technology sector saw its collective value surpass its March 2000 dotcom peak for the first time. Investors have developed a strong preference for dominant companies that “own” their sector, and that has played into the Big 3’s favour: Facebook owns social media, Google owns online advertising, and Amazon owns ecommerce. Smaller, weaker, companies like Snap have not fared so well.

These companies have a habit of producing predictably strong results, and that adds pressure to live up to expectations. Jan Dawson, an analyst at Jackdaw research, said: “Any sign of a break in the momentum of the business obviously would change the trajectory of the shares. People can be easily spooked by these stocks.”

Still, they have weathered previous storms this year admirably. Six months ago, all three companies saw shares drop after fourth quarter reporting. But the pull back was shortlived, and they have out performed dramatically in the time since. Facebook is even more notable: for the last three quarters, its share price has dropped the day after it reports earnings. Yet its share price is up by 43% so far this year.

Disclosure

Dominion holds Facebook, Amazon and Alphabet in its Global Trends Ecommerce Fund. 


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