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Tech, media companies report ripple effect of US tax reform

Earnings results, the impact of the new tax law, and major product and strategy initiatives shook several large media and tech stocks during the week ended Feb. 2.

The immediate effect of U.S. tax reform was mixed, with some companies reporting big gains as the U.S. corporate tax rate fell, while others, most notably technology companies with large overseas cash holdings, reported one-time tax expenses related to bringing money back to the U.S. AT&T Inc. got a significant boost from tax reform, for instance, reporting fourth-quarter 2017 net income attributable to the company of $19.04 billion, compared to $2.44 billion in the prior-year quarter, while Apple Inc., Facebook Inc. and Alphabet Inc. all reported one-time tax expenses associated with repatriating cash. Speaking on various conference calls to discuss earnings, executives were generally positive on the long-term impact of the tax reforms.

More broadly, the S&P 500 was on track to report one of its worst weeks since 2016, which market commentators attributed to concerns about potential inflation after a strong U.S. jobs report.

Turning to earnings reports, Apple Inc. saw its shares fall as fears about lower sales of its iPhones came true, though CEO Tim Cook said on a Feb. 1 call that the flagship iPhone X model has been the company's top-selling phone since its November 2017 launch. IPhone unit shipments dipped about 1% from the year-ago quarter to 77.3 million units sold, but revenue for the devices was up by 13% to $61.58 billion, due in part to higher prices. Earlier in the week, The Nikkei reported that Apple will decrease its production target for the iPhone X by about 50% for the first quarter of the year due to lower sales. Apple's shares were down early in the week and fell further Feb. 2, closing the day at $160.50, down about 6.4% for the week.

Alphabet Inc. also saw a big drop Feb. 2 after the Google parent reported its fourth-quarter 2017 results, which included a one-time $9.9 billion tax charge. Weighed down by the charge, the company recorded a net loss for the quarter of $3.02 billion. Its Google segment, which includes the advertising businesses, reported revenue of $31.91 billion, up from $25.80 billion reported in the 2016 quarter. Shares of Alphabet closed Feb. 2 at $1,119.20, down about 5.8% for the week, with most of the decline occurring after the earnings report.

Facebook Inc. said a jump in its income tax provision decreased quarterly earnings by 77 cents for the fourth quarter, though the company still reported a 20% year-over-year gain in net income, to $4.27 billion, or $1.44 per share. On its Jan. 31 earnings call, the social media giant reported steady user and financial growth during its most-recent quarter and also shared some key strategy shifts. Facebook's shares fluctuated through the week and ended Feb. 2 at $190.28, roughly flat from the prior week.

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AT&T's shares dropped slightly at the beginning of the week, notched some gains Feb. 1 but then fell again as the week came to a close, ending Feb. 2 at $38.07. The stocked ended Feb. 2 up by less than 1% as compared to a week earlier. On a Jan. 31 earnings call, CEO Randall Stephenson said he is "very confident" his company will complete its planned acquisition of Time Warner Inc., which he called a top priority for 2018, despite pushback from U.S. antitrust regulators.

In other company news, Intel Corp.'s shares lost nearly 8% for the week, closing Feb. 2 at $46.15. Bloomberg News reported during the week that the company plans to sell a majority stake in its augmented reality glasses unit. The company's augmented reality business, valued at about $350 million, plans to start sales of smart glasses to consumers as early as 2018.

Pandora Media Inc. proved to be one of the media sector's biggest movers for the week, with shares gaining almost 20% after the streaming music company announced cost-cutting measures expected to provide annualized savings of $45 million to Pandora's adjusted EBITDA. Shares of Pandora jumped sharply in the days after the restructuring news, ending Feb. 2 at $5.08, up 17.6% for the week.