It has been a busy week in Silicon Valley and three of the largest and most widely-recognised tech names – Pinterest, Apple, Microsoft – have all found themselves in the headlines. Fortunately, this is not because of anything bad. No CEOs have been called to testify in front of congress and no data has been breached.
In fact, each of these companies are in the press because their share prices have rallied over the past few days (though each for very different reasons). So, what’s going on?
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On 31 July, Pinterest shares had their best ever trading day after rallying 36% off the back of a very encouraging set of Q2 results. Pinterest shares had already been gradually recovering from their 2020 low ($11 on 18 March when the extent of Covid-19 became apparent) and closed at $25.19 on 30 July. By the weekend though, shares had hit $34.29.
The good news was that Pinterest had been able to benefit during lockdown as more users flocked to the site. In March, the platform had around 367 million monthly average users and this is now estimated at 416 million. To give you an idea of how good this is, Pinterest had only been hoping to grow this to 379 million in the three months to the end of June.
So why has Pinterest flourished?
Essentially, the site picked up users in lockdown while they were stuck at home. Not only has Pinterest benefitted from a purely recreational perspective, but this has also driven an increase in marketing spend from businesses eager to remind customers they still exist. The platform expects a 50% increase in revenue growth between June and July, while total revenues stood at $272m for Q2, up from $261m the year before. For investors looking to build portfolios that are resistant to lockdowns, growing businesses like Pinterest will surely capture attention.
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Apple
Apple’s share price also rallied in the last week, jumping from $384.76 on 30 July to $425.04 by market close the next day. However, the share price of the world’s largest company (by market capitalisation) did not increase 10% in a day because it launched a new iPhone or operating system. Instead, it announced a stock split.
For those unfamiliar with the term, a stock split is when a company divides its existing shares to create more. This has no impact on the fundamentals or market cap of the company but, to use Apple’s phrasing, is done to “broaden appeal” among investors. With a four-for-one stock split, Apple is effectively lowering the price of its shares by a quarter. This means buying a share in Apple suddenly becomes easier to stomach for investors and stimulates market demand.
Stock splits are cosmetic and are all about investor psychology. In fact, this is Apple’s fifth stock split since it listed in 1980 (since then, one Apple share would amount to 224 after this most recent split finalises). The split is due to happen later in August, which could present a price opportunity for investors who have not yet bought into Apple. It’s worth mentioning that at eToro you can already buy fractional shares, which essentially means rather than buying the full stock, you buy a fraction of the stock/share from as little as $50.
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Microsoft
Not to be outdone, the world’s second largest company by market capitalisation Microsoft is also in the headlines. This is because it is pushing forward with a bid to buy TikTok, the social media video platform that has exploded in popularity in 2020. Microsoft is seeking to further expand into online advertising and is hoping to make the same success of TikTok that it did with LinkedIn when it acquired the corporate social media platform in 2016 for $27bn.
TikTok had already been in the news when President Trump, as part of a continuing dispute with China, threatened to ban the platform in the US because of its Chinese owners. Many thought the deal was dead in the water, but Microsoft did not and the company’s CEO spoke to the President to change his mind.
Now, not only is Microsoft pushing ahead with the acquisition but it has received backing from the President himself to seal the deal by September. Microsoft shares had been up and down in the previous week off the back of Trump’s comments but closed on 31 July up at $205.01.
Microsoft is already an impressive company, but the fact Trump has been persuaded by its CEO to change tack is nothing short of remarkable. A risky deal from the outset, many investors may now be encouraged by Microsoft’s determination.
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