Technology stocks’ third-quarter 2020 earnings season is likely to reflect gains from consistent demand for remote working and web-based learning technology amid coronavirus scare.
Particularly, coronavirus-induced work-from-home wave might have bolstered sales of processors utilized in enterprise laptops and data center servers, which in turn is expected to have benefited the technology sector in the to-be-reported quarter.
In fact, per Gartner’s preliminary data, PC shipments in third-quarter of calendar 2020 improved 3.6% year over year to 71.4 million units.
Moreover, work-from-home trend may have benefited the companies offering video conferencing tools and workspace management offerings.
For instance, Citrix Systems' third-quarter results were driven by solid adoption of unified workspace solutions driven by coronavirus crisis-induced demand for secure work-from-home solutions. (Read more: Citrix Earnings and Revenues Beat Estimates in Q3)
Further, stay-at-home wave is likely to have driven adoption of cloud computing solutions, including contactless payment, online education portals, cloud-gaming, social media platforms, and other leisure tools, which is expected to have acted as a tailwind.
Strong adoption of digital transformative techniques and increasing deployment of 5G are expected to have benefited the technology companies in the quarter to be reported.
Aftermath of COVID-19
Third-quarter performance of tech stocks is likely to provide a glimpse into deep and lasting business impacts of coronavirus outbreak as the pace of recovery doesn’t match up to expectations for some companies.
Impacts from coronavirus-led sluggishness in IT spending, weakness across small and medium sized businesses are likely to have weighed on the tech companies’ performance in the third quarter.
The after-effects are already apparent and can be ascertained from disappointing third-quarter results from IBM, Intel INTC and SAP SE SAP. Notably, shares of IBM, Intel and SAP are down 10.6%, 13.3%, and 23.2%, respectively, since their earnings releases.
Although Intel’s third-quarter results gained from growth in PC shipments, sluggish data center demand across enterprise and government end-markets led to overall decline in the top line. Also, an unfavorable product mix weighed on margins, and disappointed investors. (Read More: Intel Q3 Earnings Beat, Stock Down on Weak Sales Mix)
Meanwhile, both IBM and SAP witnessed lower adoption of software offerings due to the coronavirus-induced business weakness. Although IBM gained from Red Hat acquisition synergies, revenues from the Transaction Processing Software, which includes software that runs mission-critical workloads, declined 9% on a year-over-year basis. (Read More: IBM's Q3 Earnings Beat Estimates, Stock Down on Revenue Miss)
SAP witnessed slump in software licenses & support revenues. In fact, the company was compelled to issue guidance update. Management noted that despite robust uptake of its digital transformation solutions, the fear of second wave and re-imposition of lockdowns in some regions, and macroeconomic weakness have muted demand recovery. (Read More: SAP Q3 Earnings Up Y/Y, Stock Down as COVID-19 Dims View)
Impending Tech Stock Earnings Releases
Considering this mixed backdrop, investors interested in the technology sector are eagerly awaiting earnings releases from players like Pinterest PINS, Cognizant CTSH, ServiceNow NOW, Etsy, Inc. ETSY and Western Digital WDC on Oct 28.
Pinterest’s third-quarter 2020 results are likely to reflect user base expansion and ARPU growth.
The company’s initiative to improve user engagement by announcing inclusive product updates during the quarter under review to increase the discoverability of beauty products and tutorials personalized to individual skin tone, style, and preference might have accelerated conversion of searches into product purchases. (Read More: Pinterest to Report Q3 Earnings: What's in Store?)
Moreover, this discovery-based networking platform provider has a Zacks Rank #3 (Hold) and an Earnings ESP of +128.57%. Notably, per the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pinterest, Inc. Price and EPS Surprise
Pinterest, Inc. price-eps-surprise | Pinterest, Inc. Quote
The Zacks Consensus Estimate for third-quarter earnings has been revised upward by 33.3% upwards in the past seven days to 4 cents per share.
Meanwhile, Cognizant has a favorable combination of a Zacks Rank #3 and an Earnings ESP of +2.22%.
The company’s third-quarter 2020 results are likely to reflect steady demand for its digital engineering, cloud infrastructure, IoT and analytics solutions.
However, reduced client demand, primarily in the travel and hospitality industries hit by the coronavirus-led restrictions, is expected to have limited top-line growth in the to-be-reported quarter. (Read More: Cognizant to Report Q3 Earnings: What's in Store?)
Cognizant Technology Solutions Corporation Price and EPS Surprise
Cognizant Technology Solutions Corporation price-eps-surprise | Cognizant Technology Solutions Corporation Quote
The consensus mark for third-quarter earnings has been revised upward by a cent in the past seven days to 90 cents per share.
ServiceNow’s third-quarter 2020 performance is anticipated to have benefited from solid traction for its digital workflow solutions courtesy of rapid digital transformation taking place across all industries owing to coronavirus-led remote work wave.
However, coronavirus induced weakness across small and medium businesses is likely to have limited growth. Also, higher expenditure on product innovation may have weighed on margins during the quarter under review. (Read More: Factors You Must Note Ahead of ServiceNow's Q3 Earnings)
ServiceNow, Inc. Price and EPS Surprise
ServiceNow, Inc. price-eps-surprise | ServiceNow, Inc. Quote
Our proven model does not conclusively predict an earnings beat for ServiceNow this time around as it has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The Zacks Consensus Estimate for third-quarter earnings has been steady at $1.03 cents in the past seven days.
Etsy's third-quarter 2020 results are likely to reflect the strengthening product portfolio, mobile app and free shipping services.
Further, strengthening ecosystem on Etsy’s Marketplace platform for both sellers and buyers is likely to have expanded its addressable market size in the to-be-reported quarter. (Read More: Etsy to Report Q3 Earnings: What's in the Cards?)
Etsy, Inc. Price and EPS Surprise
Etsy, Inc. price-eps-surprise | Etsy, Inc. Quote
Etsy’s has a Zacks Rank #3 and an Earnings ESP of -0.50%.
Notably, the Zacks Consensus Estimate for earnings has been steady at 59 cents in the past seven days, indicating growth of 391.7% from the year-ago reported figure.
Western Digital’s first-quarter fiscal 2021 results are likely to reflect weakness in capacity enterprise HDD sales, which might have negatively impacted the top line. Further, ongoing transition to SSDs may have put pressure on HDD business. (Read More: Factors to Note Ahead of Western Digital's Q1 Earnings)
Western Digital has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%, which makes surprise prediction difficult.
Nevertheless, increasing PC shipments triggered by coronavirus crisis induced work-from-home wave and online schooling wave is likely to have benefited Western Digital’s fiscal first-quarter performance.
Western Digital Corporation Price and EPS Surprise
Western Digital Corporation price-eps-surprise | Western Digital Corporation Quote
The consensus mark for earnings is pegged at 54 cents per share that suggests an improvement of 58.8% from the year-ago quarter. Notably, the estimates have been stable in the past 30 days.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.5% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Cognizant Technology Solutions Corporation (CTSH): Free Stock Analysis Report
Intel Corporation (INTC): Free Stock Analysis Report
Western Digital Corporation (WDC): Free Stock Analysis Report
SAP SE (SAP): Free Stock Analysis Report
ServiceNow, Inc. (NOW): Free Stock Analysis Report
Etsy, Inc. (ETSY): Free Stock Analysis Report
Pinterest, Inc. (PINS): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.