Today: The sharp, sudden decline in Silicon Valley's skyrocketing tech stocks was erased by the end of the second quarter, with extreme performances characterized by Apple and Twitter. Also: Facebook challenges Twitter with its own ad acquisition.
The Lead: Apple helps tech stocks rebound in Q2 after early plunge
Silicon Valley's second quarter was actually a tale of two halves: A well-publicized tech-stock meltdown that decimated market caps across different sectors, followed by an Apple-led rebound that resulted in only slight overall movement for the quarter.
The SV150, an unweighted index of Silicon Valley's largest 150 technology companies in terms of sales, declined 0.6 percent in the second quarter, and that deficit was erased completely on the first day of the new quarter. That story ignores the extreme volatility involved in reaching the break-even point: The index fell 9 percent in the first half of the quarter, then gained 9.3 percent from May 15 though the end.
"It was a really extreme quarter for technology," said Brendan Connaughton, chief investment officer of San Francisco wealth management firm ClearPath Capital Partners.
The extremes were not just apparent in the roller-coaster nature of the quarter but in the performances of different companies within the tech sector: Silicon Valley's freshest faces brought up the rear, with the 21 companies that have entered the index after initial public offerings falling 6.3 percent, while the valley's standard-bearers -- the 20 largest companies by revenues -- shot 7.1 percent higher.
Apple, the valley's largest tech firm, "carried the day and in turn carried the sector," Connaughton noted. "That's what really roared back in the second half of Q2. It was an Apple story almost from the get-go,"
Apple gained 21.2 percent in the second quarter, and managed to avoid the down-then-up roller coaster, increasing 9.1 percent in the first half of the quarter and 10.5 percent in the second half, after adjusting for its 7-to-1 stock split. Other established companies also avoided wild swings and ended with substantial gains: SanDisk gained 28.6 percent and continued to hit record highs while boosting its enterprise unit with the $1.1 billion purchase of Fusion-IO; Intel improved by 19.7 percent as personal-computer sales boosted revenues; and Cisco added 10.8 percent to while beating lowered expectations.
Connaughton theorizes that a revival in enterprise spending has led to investors to move toward Silicon Valley's largest companies, as they begin to see the fruits of an improving economy.
"Capital expenditures are coming back. And when capital expenditures from corporate America comes back, its not going to go to these small companies, its going to go to these big legacy companies" like Oracle and Cisco, he explained.
That money flowing into Apple and Intel may be profits taken from the post-IPO companies that helped send the SV150 into a spiral early in the quarter. Twitter's dovetail, which coincided with the end of its post-IPO lockup period that kept employees from selling shares, was indicative of the trend -- the San Francisco social networking company plunged 29.8 percent from the end of the March 31 session to the end of trading on May 15, and its 25 percent recovery couldn't keep Twitter from an overall 12.2 percent decline. Rival Facebook -- the only company in both data sets, as a top-20 tech firm and recent IPO -- avoided the weakness and increased 11.7 percent.
"Now that they're publicly traded companies, you have to prove your results, you have to prove your stock price, you have to support your stock price with results. Facebook has gotten there, Twitter is doing that but they're not yet there."
Despite the back-to-earth trend for post-IPO companies such as FireEye (down 34.1 percent in the quarter), Gigamon (down 37 percent) and Splunk (down 22.1 percent), investors were not deterred from chasing new companies. While the IPO market cooled down as tech stocks were plunging, sending Box and others to the sideline, it came back fast with debuts from companies such as Zendesk, Arista Networks and GoPro. In all, 23 tech companies went public in the quarter -- the most in a three-month period since 2004, Renaissance Capital reported -- and received returns that topped 21 percent.
SV150 market report: Facebook acquires and ad-tech company
Wall Street changed little Wednesday as Silicon Valley's rapid pace of acquisitions continued with Facebook's purchase of a company focused on video advertisements.
Facebook announced the acquisition Wednesday of San Francisco-based LiveRail, which helps companies sell advertisements for Web-based videos. The Menlo Park social network did not reveal a purchase price, but TechCrunch reported that Facebook paid between $400 million and $500 million for the seven-year-old firm, which is the third largest video ad seller in the U.S. according to ComScore. Facebook's purchase arrives just two days after Twitter made its own acquisition of an advertising-technology company. Facebook stock dropped 2.4 percent to $66.45 on the day, as executive Sheryl Sandberg sort-of apologized for a study conducted on the social network, and Twitter fell 0.7 percent to 41.77.
Shutterfly roared 14.9 percent higher to $50 a share after a report said that the Redwood City company had hired a bank to find potential buyers for the firm, which ended the day with a market cap just shy of $2 billion. Google fell 0.1 percent to $590.78 as reports suggested a purchase price of nearly $40 million for Tuesday's acquisition of Songza; The Mountain View Internet giant also took steps to wipe porn advertisements off its books. GoPro finally slowed down from its fast-paced post-IPO gains, falling 13.9 percent to $42.04. Nvidia dropped 0.4 percent to $18.68 as details emerged about its plans to offer a tablet, and Yahoo gained 1.5 percent to $35.88 while closing down some services.
Up: AMD, Yelp, Gilead, Yahoo, NetApp, SolarCity, Juniper, Electronic Arts
Down: Tesla, Facebook, Splunk, Netflix, Workday, Zynga, Hewlett-Packard
The SV150 index of Silicon Valley's largest tech companies: Down 1.47, or 0.1 percent, to 1,528.27
The tech-heavy Nasdaq composite index: Down 0.92, or 0.02 percent, to 4,457.73
The blue chip Dow Jones industrial average: Up 20.17, or 0.12 percent, to 16,976.24
And the widely watched Standard & Poor's 500 index: Up 1.3, or 0.07 percent, to 1,974.62