Snap disappoints, cloud worries put Amazon in the shade and NatWest deposits drop

“The FTSE 100 was flat to modestly lower in early trading, reinforcing the feeling the markets are getting into a bit of a funk despite strong earnings from the tech sector,” says AJ Bell investment director Russ Mould.

“Inflation continues to stick like glue and the economy is starting to show signs of real strain, while the impact of the big increase in interest rates is being felt in a financial system which continues to creak.

“Not all tech names are created equal. While the big names have largely been outmatching subdued expectations, those without their scale, brand strength and financial heft are finding life a lot harder. Snapchat owner Snap is a prime example of this, as key metrics like revenue and average revenue per user came in lower than expected.

“The company is heavily exposed to a wider drop off in online ads and any slump in user numbers will only reinforce the idea that the platform itself is starting to lose relevance, which will have its own knock-on effect on advertisers’ decision making.”

Amazon

“At first the market seemed cock-a-hoop at Amazon’s latest earnings, the shares enjoying big gains in after-hours trading as it flagged a resilient start to the year and better than expected earnings.

“The excitement proved as short-lived as that of a typical toddler with a birthday present though, as attention shifted to slowing growth for its Amazon Web Services cloud computing platform.

“The reaction, which wiped out all the early gains and more, showed just how important the cloud division is to Amazon. This is both the most profitable part of the business and the fastest growing – it’s the one which tends to excite institutional investors.

“Without it contributing in the same way the focus shifts uncomfortably onto the retail business, which enjoys phenomenal scale but much skinnier margins.”

NatWest

“A drop in customer deposits, while nothing like on the scale seen at other crisis-ridden banks, has helped put the wind up investors in NatWest.

“The gap between the amount NatWest charges for loans compared to what it pays out for deposits, also known as the net interest margin, is also tighter than many had hoped.

“This runs counter to Barclays’ own first quarter numbers which showed higher base interest rates were feeding into a strong net interest margin.

“The disappointing news elsewhere overshadowed NatWest’s better than expected earnings for the first quarter – driven by higher non-interest income and lower impairments on bad debts.

“It felt telling that full year guidance remained unchanged off the back the performance in the first three months of the year, including on the level of impairments, implying NatWest is expecting a deterioration in the credit outlook.

“Given its history of state ownership and uneven recovery from the credit crunch, NatWest has to work hard to earn the trust of the market and updates like today’s do not help.

“It was no surprise to see NatWest’s close lookalike Lloyds pulled lower ahead of its own results on 3 May.”

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