There have been many noteworthy developments in the technology space recently. Some of these will likely have a material impact on the companies in the sector and the markets they serve.
Apple’s Stock Price Slide
Shares of Apple (AAPL) have fallen about 25% since mid-September of 2012, from a high of around $700. This decline is partly the result of a natural pullback, following the stock’s impressive advance from just over $400 to around $700 from January to mid-September. Weakness materialized after Apple disappointed investors with its September-quarter financial results, as the company experienced softer-than-expected demand ahead of new product introductions. Share net for the December quarter was likely restrained by high product launch costs and a mix shift toward the lower-margined iPad Mini.
The stock may well resume its descent in the coming months, particularly if the broader market weakens. However, it’s worth noting that the equity is trading at a very reasonable price-to-earnings multiple. Moreover, we expect margins to improve in the second half of fiscal 2013 (year ends September 28, 2013), as sales of new offerings continue to pick up steam. Faster iPad adoption within the enterprise market should also contribute.
Google’s Antitrust Settlement
Internet search giant Google (GOOG) has settled an antitrust probe that mostly leaves its search practices alone. The Federal Trade Commission has concluded that there isn’t sufficient evidence to support claims from competitors that the company shows favoritism toward its own products in its search results. This means Google will not have to change its search formula, which is a big win for the company. Google did, however, make some relatively minor concessions. It will license hundreds of patents (which were acquired from Motorola Mobility in 2011) to rivals that produce mobile devices. Also, the company will adjust its own advertising system so marketing campaigns can be more easily managed on rival networks. Regulators in Europe are expected to finish a similar investigation of the company in the near future.
Research In Motion Update
Research In Motion (RIMM) reported unfavorable results for the quarter ended December 1st. The top-line continued to fall, as demand for RIMM’s products declined. Indeed, 6.9 million of its smartphones were shipped during the period, compared to 7.4 million in the quarter ended September 1st. The company posted a share deficit of $0.22, well below the prior-year tally. Importantly, the BlackBerrry subscriber base declined by one million customers during the November interim. On the bright side, efforts to improve efficiency have supported operating performance.
The company has a lot riding on the upcoming BlackBerry 10 launch, which is scheduled for the end of the month. A new proprietary mobile operating system has been developed for the company’s smartphone and tablet handheld devices. Smartphones running BlackBerry 10 are expected to be released in the current quarter.
Zynga Shuts Down 11 Games
Zynga (ZNGA) has shut down 11 underperforming games, many of which were available on Facebook (FB), including “PetVille”. Other titles shuttered include “Mafia Wars 2”, “Vampire Wars”, “ForestVille”, and “FishVille”. Cutting its least popular games should help the company reduce expenses. Social games like these don’t work all that well if they don’t have a large enough base of players. With the proliferation of such titles in recent years, it only makes sense that some of the less popular offerings would not last.
Shares of Zynga have declined considerably since March of last year. Top-line growth has been restrained and share earnings have remained negative, as the company has continued to operate in a difficult environment. The social games provider has experienced slowing revenue growth owing to inadequate demand. But in order for the stock to rebound substantially, Zynga must develop new revenue streams and grow the top line. Efforts to branch out from Facebook (and become a multiplatform developer) and to prioritize new game categories look to be steps in the right direction, and may well bear fruit in the coming years.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.