Internet companies are expected to report mixed earnings in the third quarter.
Amazon.com Inc., Alphabet Inc. and Twitter Inc. slumped Wednesday in a broad market rout with the S&P 500’s tech sector logging its biggest percentage drop since August 2011. The selloff coincided with a warning from Barclays of a choppy earnings season for internet companies in the third quarter.
Ross Sandler, senior internet analyst at Barclays, noted that many internet companies missed their second-quarter revenue targets for the first time since the financial crisis and subsequently cut their revenue forecasts for the third quarter.
Among the factors the companies cited were a less favorable foreign-exchange climate, regulatory changes in Europe, the World Cup and unrealistic analyst growth targets.
“Shares seem to have started to reflect this more challenging backdrop just in the past few weeks, and we think we are headed into another choppy earnings season, hence we would be selective adding to positions,” said Sandler in a report to clients.
Outside of Facebook Inc. FB, -4.13% and Spotify Technology S.A. SPOT, -7.46% Sandler projected a number of companies will lower their estimates and cautioned investors to brace for a “modest level of disappointment.”
The analyst said he expects Alphabet Inc. GOOGL, -4.63% GOOG, -5.06% to be “OK,” while eBay Inc.’s EBAY, -4.84% earnings will be “in-line.” Amazon.com Inc. AMZN, -6.15% is likely to be a “mixed bag,” while Twitter Inc. TWTR, -8.47% and Snap Inc. SNAP, -5.86% are expected to be “washed out.”
Facebook closed down 4.1%, Spotify tumbled 7.5% and Alphabet fell 4.6%. Snap also declined 5.9%, Amazon dropped 6.2%, Twitter skidded 8.5% and eBay lost 4.8% as the S&P 500 SPX, -3.29% sank 3.3% and the Nasdaq COMP, -4.08% cratered 4.1%.
Still, Sandler stressed that such moves are not too exceptional.
“Stepping back, these corrections are normal, have happened regularly over the past decade, and will ultimately lead to the next leg higher, so we remain very constructive [over a] longer term,” he said.
Providing critical information for the U.S. trading day. Subscribe to MarketWatch's free Need to Know newsletter. Sign up here.