What happened
On a day when many technology and consumer goods stocks are down big, two companies holding up well are Meta (META -2.41%) and Shopify (SHOP 1.61%). The two companies have a symbiotic relationship: To drive sales, Shopify store owners advertise on Meta. And the market sees their large moats as more valuable today, with shares climbing as much as 6.6% and 4.5%, respectively. Meta closed the day up 2.3%, and Shopify was up 1.4%.
The flip side is that Roku (ROKU 4.10%), which competes with Meta for ad dollars, was down as much as 4.8% and closed down 3.5% on the day.
So what
A few tailwinds have helped Meta over the last week, including JPMorgan analyst Doug Anmuth putting out a positive analyst note saying there are "encouraging signs of increasing cost discipline." A hiring freeze is helping reduce costs, and that can have a big impact on earnings very quickly.
On Capitol Hill, a number of antitrust bills have floundered as lobbying by companies like Meta has kept lawmakers at bay. Meta's lead in advertising and social media has been a target for years, and no news is likely seen as good news today.
Economic activity also appears to be strong after a great earnings report from Nike and increasing speculation that the Federal Reserve is nearly done increasing interest rates as inflation slows.
These indicators are important for Meta and Shopify because the two companies are dependent on direct-to-consumer advertising and sales for their growth. Many shop owners build stores on Shopify and then generate sales by advertising on Meta properties like Facebook and Instagram.
Roku, on the other hand, is using its streaming business to try to gain a foothold in the advertising market. If Meta's stranglehold is broken, it could be good for the company. But that doesn't appear to be happening today.
Now what
I think part of what we're seeing today is value-hunting by investors. It's notable that some of the big, established tech companies are up big while smaller, less entrenched companies are falling. You can see below that Meta, for all its issues, is incredibly profitable. And Shopify was, too, before recent headcount reductions due to over-expansion.
META Net Income (TTM) data by YCharts. TTM = trailing 12 months.
Roku saw a pandemic-related bump in earnings but hasn't proven it has a durable competitive advantage that will drive long-term value. If investors are seeking safety and value, it makes sense that Meta and Shopify are up as Roku falls. But keep in mind that today's trend could quickly reverse course if the market's mood changes.
Tech companies have a lot to prove in 2023, as investors focus less on growth and more on earnings and cost controls. I think all three companies have bright futures, but that doesn't mean it won't be a rocky ride along the way.
