Why the tech giants could deliver more growth than your bank shares

American technology giants Amazon (NASDAQ: AMZN) and Facebook (NASDAQ: FB) have risen strongly following an impressive beat of earnings expectations for Q1 2018.

Shares in e-commerce company Amazon have surged by 6.7% to US$1,620 in after hours trade following the release of its Q1 earnings report after the close of Thursday’s trading session. Revenue surged by 42.9% over the prior corresponding period (pcp) to US$51.04 billion, beating the market consensus by US$1.1 billion. The company’s bottom line beat was even more impressive, with earnings per share of US$3.27 exceeding expectations by US$2.02. 

Social media giant Facebook rose 9.1% to US$174.16 in Thursday’s trading session following the release of its Q1 earnings report after the close of trade on Wednesday. Revenue for the quarter rose by 49% over the pcp to US$11.97 billion, exceeding expectations by US$560 million. Diluted earnings per share increased by 63% over the pcp to US$1.69, beating the consensus estimate of US$1.33.

Fears of a backlash from users following the Cambridge Analytica privacy scandal have not materialised, with daily active users rising by 13% to 1.45 billion and monthly active users increasing by 13% to 2.2 billion. 

However, it must be noted that the backlash stemming from the Cambridge Analytica scandal occurred in late March and the company’s Q2 results should provide investors a more accurate gauge of any potential negative impact. The main catalyst for the earnings beat was the 50% rise in advertising revenues to US$11.8 billion. Facebook continues to effectively monetize its platform with average revenue per user up 31% to US$5.53 helping fuel a jump in its operating margin from 41% to 46%.

Foolish takeaway

The large American tech blue chips continue to outperform the large end of the Australian market which is heavily skewed towards the financial sector. The bearishness surrounding some of Australia’s largest banks such as the Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) has risen following revelations at the Hayne Royal Commission. The headwinds facing the larger end of the market combined with the depreciating Australian dollar increases the attractiveness of investing offshore for Australian based investors.

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Motley Fool contributor Tim Katavic owns shares of Facebook. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and Facebook. The Motley Fool Australia has recommended Amazon and Facebook. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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