Investors were worried about a probable decline in advertising revenues for some tech giants. But the stay-home mandates boosted Alphabet’s ad revenues. YouTube ad revenues grew about 33% year over year, while total ad revenues increased more than 10%. Google Cloud jumped a solid 55% and now forms about 6.7% of its top line.
However, the company noted that the performance was strong during the first two months of the quarter, but a considerable slowdown in ad revenues was noticed in March.
Tech earnings are likely to decline 0.7% in Q1 of 2020 on 4.6% higher revenues. This is in contrast to a 15.3% slump in S&P 500 earnings on 1.2% increase in revenues. The technology sector is among the very few outperformers in the otherwise-downbeat earnings trends. Estimated long-term EPS growth rate for the tech sector is 12.6% versus 8.4% of the S&P 500.
Tech companies are cash-rich. As of fourth-quarter 2019, cash, cash equivalents and marketable securities was around $452.5 billion. Microsoft was the most cash-rich company globally, with about $134 billion in cash balance (read: “Cash is King:” Buy These Tech ETFs to Beat Coronavirus).
From the price/cash flow (P/FCF) angle, the tech sector is slightly cheaper than the S&P 500. Investors should also note that the P/FCF ratio of the computer and technology market now stands at 19.2x against the S&P 500 Composite Market ETF’s P/CF of 20.8x.
Tech sector’s debt profile is also impressive. Debt as a proportion of equity of the tech sector is 61.4% versus 82.7% of the S&P 500. Long-term debt as a percentage of capital is 38.4% versus 43.6% for the S&P 500 as a whole.
Investors should also note that hoarding cash could be a great strategy for the near term. Fund managers are of the view that “looking for companies that have strong balance sheets, less debt, stable cash flows and carrying a respectable dividend yield are the preferred plays.”
Against this backdrop, we highlight a few Zacks Rank #1 (Strong Buy) tech ETFs that could be bought on the recent dip.