When it comes to the tech sector, two companies stand out in the crowd — Apple and Facebook.
Unsurprisingly, these two titans have a huge impact on the sector’s earnings growth.
Apple is expected to be the largest detractor to the sector, while Facebook is expected to be the largest contributor, according to a blog post by FactSet Insight’s John Butters on Tuesday.
The current mean earnings per share (EPS) estimate for Apple for the calendar fourth quarter is $3.22, compared to a year-ago actual EPS of $3.28. Earnings per share serves as an indicator of a company’s profitability.
Apple’s drop is dragging down the tech sector as a whole. Butters notes that the blended earnings growth rate for the overall S&P 500 information technology sector is 7.1%. However, without Apple, the blended earnings growth rate for the sector would improve to 12.6%, according to the post. Apple’s falling EPS can be boiled down to declining iPhone sales as the iPhone product segment reported an average YoY revenue decline of 14% from Q4’15 through Q3’16, according to Butters.
Meanwhile, Facebook is expected to be the largest contributor to Q4 ’16 earnings growth for the sector. The current mean EPS estimate for Facebook for the calendar fourth quarter is $1.31, compared to a year-ago actual EPS of $0.79, according to the post. If Facebook were excluded, the blended earnings growth rate for the overall tech sector would fall to 5.3%, lower than the actual growth rate of 7.1%.
So Facebook is propping the sector up. This can be attributed to an increase in mobile advertising sales for Facebook, according to Butters. From Q4’14 — Q3’16, mobile advertising sales have reported year-over-year revenue growth of 80% on average.
Apple reported earnings on Tuesday that beat Wall Street’s expectations on revenue and profit and Facebook is reporting earnings on Wednesday after the close.
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