After a day of closely following the markets, it is time to wait for the closing bell, sit back and enjoy the rest of a relaxing evening, right? Well, not so fast.
Today, the Apple Maven explains how the Cupertino company caused shares of Snap and those of its social media peers to tank in the evening. Even the tech-rich Nasdaq index dipped 0.7% in after-hours trading, instantly erasing an estimated $120 billion in market value.
(Read more from the Apple Maven: Apple’s Mac Event: The Consensus Is Clearly Bullish)
Snap’s Q3 results were not disastrous, at first glance. The revenue miss of $30 million (or four percentage points’ worth of top-line growth) was noticeable, but arguably not enough to make nearly one-third of the market value of Snap’s equity vanish in a snap of the fingers (pun intended). On earnings per share, Snap even topped Wall Street’s expectations by 9 cents.
The problem is that the revenue disappointment brought to light a sore subject in the internet and social media sectors. Earlier this year, Apple updated its iOS policies, giving device users the ability to opt out of activity tracking by third-party apps. The move was widely expected to hurt those whose business models rely on serving targeted ads – i.e. most social media and other internet companies.
The fears were largely confirmed on Thursday, following Snap’s Q3 print. CEO Evan Spiegel explained:
“We missed the lower end of our guidance […] due to a few key factors, including changes to advertising tracking on iOS. […] While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS.”
The after-hours bloodbath was not limited to Snap stock. Facebook (FB) - Get Free Report, a near-trillion-dollar stock, also sank by as much as 8% instantly, before recovering about one-third of the losses within the hour. Alphabet (GOOG) - Get Free Report, valued at almost $2 trillion, dipped nearly 3%. Twitter (TWTR) - Get Free Report, a much smaller company by market cap, shed around $2 billion in value.
The contagion across the social media space can be explained by the fact that Snap was the first major internet company to report earnings this season. In the face of bad news, fearful investors were caught asking themselves: how bad will Facebook’s, Twitter’s and Alphabet’s number be, next week?
(Read more from the Apple Maven: One More Reason To Buy Apple Stock Today)
What to do
There is a chance, some may argue a meaningful one, that the after-hours selloff in internet stocks will prove to be overdone. Therefore, bargain hunters might want to take advantage of widespread panic to buy the dip. In this case, I would probably be more comfortable betting on the established players with a more diversified user base and better infrastructure to handle the challenges posed by iOS.
But ultimately, this Thursday’s events help to reinforce one idea. Because of its condition as a gatekeeper of sorts, since it provides the hardware needed to access a plethora of tech services, Apple seems to be in the utmost position of power. This may explain why, as SNAP crumbled in after hours, Apple stock (AAPL) - Get Free Report headed higher instead by about 0.3%.
Within the tech sector, and in part for the reasons above, I continue to find AAPL one of the best names to own at current levels.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)