Here’s how some of tech’s biggest stocks fared in 2013

2013 was a fascinating year for the technology sector in the stock market. We witnessed Apple’s share price fall from grace in the most dramatic of ways and climb back up again. Twitter’s IPO was all the buzz and lived up to expectations, while Facebook shareholders were finally rewarded for their patience (and faith).

If there’s one thing we can take away from this year, it’s that there’s no room for error when it comes to satisfying investor expectations in the tech industry. Shareholders are quick to doubt and fast to sell over any sign of earnings weakness. Tech is, after all, not the simplest of sectors to evaluate and a lot of assumptions are associated with the growth forecasts of companies venturing into unchartered territories and new markets. On the flip-side though, when a company surprises on the up-side, investors are just as quick to reward the stock with double-digit share price appreciation.

So here’s a broad rundown of the performance of some of the most popular names in tech, social media, mobile and software. I’ve included lots of charts to help us get our head around why the share price did what it did and how each company is positioned in terms of market share, earnings growth and future prospects.

1. APPLE INC: Because everyone loves a good comeback story

2.18%. Yup, that’s it, the sum total of an investor’s capital gain had she bought Apple shares on the 1st of January 2013. Not a great return for the tech giant, and certainly not in line with the double-digit appreciation it has experienced every year since 2009. But it could have been worse, much, much worse. So what happened?

Things took a turn for the worse early in the year on January 23rd when Apple reported quarterly earnings of $54.5 Billion, below analyst expectations of $54.86 Billion. Not a massive difference, but like I said: no room for error when it comes to tech! Even more astounding is that this was actually a record high for Apple in terms of both iPhone and iPad sales, but just a small miss sent the share price plunging 12.35%. Apple stock reached its trough for the year (down 28.87% since Jan 1st) before rebounding the following day on April 23rd when Second Quarter earnings came in above expectations. Apple reported selling 37.4-million iPhones and 19.5-million iPads during the quarter, a massive annual sales increase. iPhones and iPads have come to dominate Apple’s revenue generation.

Here’s a graph depicting the percentage contribution of Apple’s different products to its revenue over the last few years. By contrast, the iPod and Macintosh are diminishing in terms of their contribution:

Apple hit another stumbling block on the 11th of September after announcing the launch of the iPhone 5C and 5S. Investors punished the share-price by 3.7% on the day although it did recover somewhat in the following week. Investors were particularly concerned with the pricing of the so-called “cheap” iPhone 5C and whether Apple could really increase its penetration of emerging markets with such an expensive low-end phone. It seems that although emerging market consumers prefer the iPhone to its competitors, they are not willing to pay for it. Check out this infographic to get an idea.

Apple managed to recover from its dismal, mid-year lows but investors remain cautious with regards to the company’s ability to capture new markets, maintain its innovative edge in a post-Jobs era and prevent its profit margin from further declining:

2. SAMSUNG ELECTRONICS: Great Expectations (are hard to live up to)

Samsung shares delivered an unimpressive -12.33% return to day-one 2013 investors and took them for a bumpy ride along the way. Midway through the year (8 July), the stock hit its trough having shed 27.8% since January. The downward trajectory was fuelled by investor concerns over sales of the Samsung Galaxy S4 and in particular its “stripped down” version which was set to hurt the company’s profit margins. After swinging up and down for a few month the stock price took a decisive plummet on June 7th. And just when it looked like the stock might recover in early July, it took another hit when reported operating profit of 9.5 Trillion Won was below market’s expectation of 10.6 Trillion.

But there remains strength in numbers, and Samsung has the numbers (at least for now). Over the last 5 years Samsung has increased its smartphone market share eleven-fold, going from 3.2% in 2008 to a whopping leader-of-the-pack 32.2% in 2013. The company’s dominance clearly counts for something, and saw the share price recuperate some of its earlier losses.

But if there’s one thing we can take away from the chart above, it’s that anything can happen in five years. Nokia’s demise is a case in point. BlackBerry too. And as the saying goes: the bigger they are the harder they fall. Samsung needs to implement forward-thinking strategies to maintain its market share without sacrificing profit margin. They’d also do well to pay close attention to the little guys from the East, creeping up from behind them in the form of Huawei and ZTE. Because if Huawei is the Samsung of 2008, that would make Samsung… 2008’s Nokia.

3. GOOGLE INC: Never Stop Searching

2013 was a banger for Google, with the share price up 54.95% since the beginning of 2013 and momentum is growing. The stock experienced a gradual increase with minor hiccups along the way and then October 17th happened. The share price rallied 13.8% on the back of Google’s revenue announcement, which came in at US$14.9-billion versus analyst forecasts of US$11.9-billion. That’s a big beat! Importantly, Google sighted mobile ad revenue as a large contributor to its outperformance.

Other highlights included the announcement that over one-billion Android devices had been activated worldwide, with 1.5-million being activated every day. Combine this with strong mobile advertising performance and the company has hit a winning formula. The proof is in the pudding: Android now holds an 80% smartphone operating system market share.

Google’s revenue now seems to be quite evenly distributed across major economic regions such as America, Europe, Asia (ex-China), China and South Korea. Africa is still too insignificant a contributor and China’s contribution has declined in recent years, which could be something to watch out for. In particular when it comes to Google’s search capabilities, companies such as Baidu still dominate the Chinese market and appear posed to hold onto the throne.

4. MICROSOFT CORPORATION: Still king of the jungle (in spite of the Surface, somehow)

A more than satisfactory 35.45% is how Microsoft rewarded its investors in 2013, which is nothing to complain about. The share price took off to an early lead on April 18th when only a mild beat in quarterly earnings (US$20.48-billion versus an estimated US$20.47-billion) sent the share price soaring up until June. But investors are quick to forget and even faster to punish, which is what happened on July 18th when Microsoft reported quarterly earnings of only $19.9 Billion, missing expectations of US$20.7-billion. The miss sent the share price plummeting down 11.4%!

On August 23rd the market showed some pleasure over the announcement that CEO Steve Ballmer would be retiring after more than a decade at the helm. The share price rose 8% on the day but was quick to revert back to previous levels, as the company’s future leadership remained uncertain. Although Ballmer had been criticized by many over disappointing product launches during his tenure (Windows 8, Microsoft Surface, both underwhelming), he can’t be criticized for not growing earnings, which tripled under his leadership.

In terms of infrastructure software, Microsoft remains in command, dominating market share by a margin of over 5% from its second closest competitor, IBM. Here is a graph showing the market share of various familiar tech companies. (Note: only the top four are in order from largest to smallest, the rest are all more minor players included for interest’s sake).

5. FACEBOOK INC: How’d you LIKE that?

The worry-child of many a social media devotee got to say “I told you so” and it felt good. Facebook delivered an incredible 95.18% in 2013, an amazing comeback after a dismal IPO in May 2012. Things weren’t looking up for Mark Zuckerberg and co. up until the July 24th earnings report:

The results were simple and straight-forward: Facebook proved that it could make mobile work. In fact, concern over Facebook’s lack of a mobile business strategy was a major contributing force to its poor IPO performance. But come July 2013 and everything changed. Facebook reported earnings of $1.8 Billion, beating expectations by only $0.2 Billion but more importantly, mobile advertising went from virtually nothing to 41% of the company’s total advertising revenue. As of the third quarter of 2013, it had reached 49%.

On 11 December, Facebook “became an adult” and joined the S&P (Standard & Poor’s) 500 and S&P 100 Indices. The S&P 500 Index is composed of the 500 largest companies listed on the NYSE or NASDAQ by market capitalization. Facebook’s inclusion in the index saw the share price rally after the news was announced. The reason for this is that several large investment funds and index funds track indices such as the S&P 500 and therefore must own the stocks listed therein. On December 11th, therefore, Facebook became a “must-buy” for all of these.

6. TWITTER INC: New kid on the block holds his own

Twitter’s IPO, in contrast to Facebook’s, was a roaring success. The highly over-subscribed event saw Twitter shares increase by 73% on the day! The stock continued to rally in early December, closing the year up 144.81%.

There is a lot of pressure on the company to live up to expectations, and some have doubts as to whether it can reach profitability levels to equal rivals such as Facebook and Google. On 27 December, the company was downgraded by Macquarie which felt that the share price rally was unwarranted (although they remain positive about the company’s “bright future”).

Twitter has a lot of potential. More than anything, it has and seems set to continue changing the way we communicate with each other, as well as disseminate and share information. Its user base is still growing and, more importantly, it appears to be increasing the revenue it earns per user. But the company is not yet actually profitable, so a lot of the share price appreciation is pricing in the future potential growth and profitability. If Twitter disappoints, all bets are off!

The Grand Finale:

So to summarise, here’s a 2013 comparison. Now it’s time to consider where we put our money in 2014…