The biggest tech companies should be thinking about these 3 things during the rest of 2018 (FB, AMZN, NFLX, GOOGL)

Sundar Pichai

Three themes could shape the performance of the biggest tech companies in 2018, according to UBS Analyst Eric Sheridan.
The challenges companies like Facebook, Amazon, Netflix, and Alphabet's Google have faced in the fourth quarter will likely follow them into 2018, Sheridan says.

The latest earnings season was a mixed bag for some of the biggest tech companies, like Facebook, Amazon, Netflix, and Alphabet's Google, but any stock underperformance this quarter was mostly underscored by a lack of catalysts or communicated prospects that could enthuse investors, rather than any fundamental weakness, Eric Sheridan of UBS said.

The fourth quarter revealed several key themes among the high-flying stocks that will shape their growth prospects throughout 2018, Sheridan said.

He listed these three key "debates:"

The use of cash. On the heels of a one-time tax charge and repatriation of assets from the new tax law, companies will need to choose what to spend their tax breaks on, which could be on operating expenses, capital expenditures, or shareholder buybacks. Even with stock outperformance and earnings beats, how companies spend their cash will determine how they would ignite future growth. The result could energize investors or disappoint them. Google, for instance, missed estimates last quarter over higher traffic acquisition costs and higher expenses to reach smartphone users. Meanwhile, Netflix's projected spending on original content may help them "build a global moat."
Regulatory environment. Tech companies will have to grapple with the General Data Protection Regulation, Europe's new privacy law, which limits the types of personal data tech companies can collect, store and use within the EU. Compliance with the law will likely result in a ripple effect on how these companies treat users' data in other markets. Google, Amazon, and Facebook have already rolled out changes to their user privacy terms in January, which included simplifying customer agreements and being more transparent about what data they use and what other people can see.
Competition. The tech giants will face increasing competition "between online vs. offline [and] within new players emerging vs. large scaled players," Sheridan said. The challenge will be staying ahead of traditional companies, such as Walmart and Target, that have attempted to acquire or partner with others to retain or grab market share against the likes of Amazon. Moreover, new entrants, like Spotify — which filed to go public last week — or Baidu's iQiyi, which also wants to go public, will also compete with streaming companies like Amazon and Netflix for subscribers.

Sheridan said that investors could view these themes as key to determining how these companies may perform, and what challenges they will face, in 2018.