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What's going on?
On Monday, Googles parent company, Alphabet, reported better revenue and profit than Wall Street was expecting but its stock still fell about 3%! (tweet this)
What does this mean?
Like other tech stocks, Alphabets stock has had a stellar year (it is up about 25%). Its gains had accelerated in recent weeks with the stock hitting new all-time highs. Such a strong performance can make it difficult for a stock to jump higher, even after a solid earnings report. There were some things for investors to quibble with, including that the amount Google is able to charge for each click on one of its ads (cost per click) declined more quickly than last quarter. But, on the whole, the stocks poor reaction may have simply been a case of investors high expectations ahead of the results.
Why should I care?
For markets: Alphabets performance may be a bellwether for other big tech firms.
Its not just Alphabet that is heading into this earnings season on the back of a very strong stock performance: the likes of Amazon and Facebook are in similar positions. If the other tech giants perform like Alphabet well but not astoundingly well investors may be similarly underwhelmed (Facebook reports on Wednesday; Amazon on Thursday). It is, however, worth noting that Netflix reported growth numbers last week that were way above expectations and the stock has been on a tear higher since.
The bigger picture: Tech firms cant rest on their laurels which is why Alphabet is re-inventing itself.
Disruptive tech firms, like Google, have created entire new industries and have become some of the worlds most valuable companies in the process. But the nature of tech means that no company is safe at the top: fast-moving and well-funded innovators are constantly challenging the big incumbents for future dominance. In an effort to stay ahead of the curve, Alphabet has been steadily reducing its reliance on digital advertising and focusing its resources on its other bets like autonomous driving and artificial intelligence as well as its fast-growing cloud business.
Originally posted as part of the Finimize daily email.
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