The first quarter results season for global equities has seen company trading and earnings ahead of markets expectations across most sectors so far. From January to March, the technology sector underperformed the broader market, however, positive earnings momentum demonstrated in the recent first quarter results propelled the sector forward - 7% in April against the FTSE All World of 4.6%.
Of particular interest were Alphabet’s strong first quarter results. These were well ahead of market expectations as the company grew EBITDA by 60%. In 2020, Alphabet suffered from reduced advertising spend due to the COVID-19 pandemic, however, it is now experiencing a strong recovery in advertising driven by good performance in retail and travel advertising starting to pick up too. YouTube is also growing very strongly, posting a 49% year-on-year growth for the quarter. The Cloud Services business grew 46% to $4 billion although it is still making a loss, with Alphabet focusing on the long-term opportunity.
Samsung also posted very strong results, although these earnings were well guided ahead of its earnings announcement which meant a muted share price response. Operating profit growth of 45% in the first quarter was largely driven from the mobile division which saw profits increase 66%, backed by higher sales of flagship models such as Galaxy S21. Although the company has benefited from strong growth in the mobile channel, we believe the rest of the year will be about its semi-conductor memory business where we expect tight capacity and strong demand will support semi-conductor memory chip prices. Samsung trades on a very undemanding forward price to earnings ratio of 13x with the expectation of 40% profit growth for 2021. This makes the company a very compelling investment opportunity.
Overall, the results coming out of the technology sector were positive as Microsoft continues to benefit from digitalisation and Amazon from strong growth in e-commerce, two secular trends which have been accelerated by the COVID-19 pandemic. The sector remains well supported and unless we see a substantial tightening in monetary conditions, we believe it will continue to perform well in the long term. However, with some markets reaching all-time highs, we would recommend avoiding those technology stocks where valuations look too frothy.
The Ashburton Global Leaders funds holds positions in Alphabet, Amazon, Microsoft and Samsung.