Technology companies, from the established through to the newer disruptors, have enjoyed a relatively strong year from a performance perspective. This is not so much of a surprise given the general outperformance of the US equity markets, and technology sector, relative to the rest of the world.
Recent volatility has taken some of the shine off some stocks, particularly those belonging to the technology sector. Time will tell whether the volatility is temporary or the beginning of a more prolonged correction, however Macrovue’s Head of Investment Committee Clay Carter remains focused on the underlying economic and market fundamentals and is optimistic regarding the market’s medium-long term prospects.
Dev Sinha, co-CEO and Head of Investment Products at Macrovue examined some of the strongest performing tech companies over the past 12 months and considered their future prospects. An excerpt from his research is below.
Mastercard Inc. (NYSE: MA)
Mastercard, Inc. is a technology company which engages in the payments industry that connects consumers, financial institutions, merchants, governments, and business. It offers payment solutions that enables the development and implementation of credit, debit, prepaid, commercial, and payment programs and solutions.
There are a number of tailwinds for MasterCard which has been reflected in the share price appreciation this year. It is a market leader in the payments space with robust pricing power. Globally, there is a shift toward digital payments with growth in e-commerce and innovation in various payment channels giving the company strong tailwinds. Its 2016 acquisition of VocaLink, a UK based payments company is likely to underpin strong future growth. VocaLink provides Mastercard with faster payment technology infrastructure, helping Mastercard to mitigate the risk of getting outcompeted by more innovative startups.
Mastercard is slated to release 3Q FY2018 earnings on 30 October. Last reported 2Q revenue numbers were fairly in line with market consensus expectations, while earnings were better than anticipated. The company saw strong growth across all major businesses including domestic assessments, transaction processing fees and cross-border volume fees. The business saw operating margin expansion as well, despite growing investments in strategic initiatives around digital infrastructure, security, data analytics and geographic expansion.
Mastercard returned +71.67% (AUD) in the year to 30 September 2018.
Microsoft Corp. (NASDAQ: MSFT)
Microsoft engages in the development and support of software, services, devices, and solutions. It’s the largest consumer and enterprise software company globally. Windows and Microsoft Office are the company’s claim to fame, with Windows running on more than 1 billion devices globally. Some of the more recent products/businesses launched include the Xbox gaming system and its internet businesses in search (Bing), display advertising and cloud (Azure).
While the company derives most of its profits from its enterprise businesses, Microsoft continues to invest in and grow its consumer businesses. Although the consumer business is very competitive, low margin and requires significant ongoing investments it is a good entry point for introducing new users to the Microsoft eco-system which translates to more business for its enterprise division. Commercial licensing currently generates lion’s share of Microsoft’s profits, but the company is transitioning to cloud-based solutions and a subscription-based business model (in contrast with current up-front payments for a license). The Office 365 and Azure platform are seeing good growth.
Microsoft reported 1Q FY 2019 earnings on 24 October 2018. Q1 GAAP EPS (earnings per share) of US$1.14 beat consensus estimates by US$0.20. Revenues of US$29.1 billion for the period grew ~+19% over the same quarter previous year and was ahead of consensus estimates by US$1.22 billion. All three divisions (Productivity & Business Processes, Intelligent Cloud, and Personal Computing) delivered robust growth beating consensus estimates.
Microsoft returned +68.85% (AUD) in the year to 30 September 2018.
Apple Inc. (NASDAQ: AAPL)
Apple doesn’t need much of an introduction, with its ubiquitous iPhones and MacBooks. The company engages in the design, manufacture, and marketing of mobile communication, media devices, personal computers, and portable digital music players.
On 12 September, Apple announced a slew of new and upgraded products including a redesigned Apple Watch 4, and two new versions of the iPhone (Xr and Xs). The Home Pod, the wireless speaker going head to head against Amazon’s Alexa and Google Home also got new features and additional language capabilities via Siri. The reviews for iPhone Xr have been broadly positive from consumers and industry analysts are quite positive in their outlook for volumes.
While devices have been the key driver for Apple’s profitability, the company is making a conscious move towards increasing its services business. The Apple Care, Apple Music, Apple Media and Apple Pay are all steps in that direction. If Apple can execute well, there could be a lot of upside in the stock.
Apple returned +60.66% (AUD) in the year to 30 September 2018.
You can invest in these companies directly through Macrovue’s American Tech Stars Vue.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual and does not constitute financial advice. Consider the appropriateness of the information in regards to your circumstances.
1 Past performance is not a reliable indicator of future performance.