Opinion: Big Tech shows it’s good to be big as slowing growth drives stock gains while smaller rivals find only pain
After soaring double-digit growth during the pandemic, earnings from America’s five biggest tech giants this week showed a slowdown as they grapple with inflation, a looming recession and a general slowing economy, but they have been amply rewarded by Wall Street because their size shows their strength.
Over the past week, all of Big Tech has released second quarter results, and results have been mixed, with a big misfire at Meta Platforms Inc. META,
marring the combined results. But even with the best results from Apple Inc. AAPL,
Amazon.com Inc. AMZN,
and Microsoft Corp. MSFT,
total combined revenue was $354.5 billion, before traffic acquisition costs at Alphabet, posting a combined growth rate of 6.91%, versus $331.64 billion in revenue combined business in the June quarter a year ago.
Each giant saw slower revenue growth and Meta its first drop in revenue. And while analysts touted Apple’s iPhone as “resilient” amid great economic uncertainty, its revenue growth in the June quarter was anemic at 2%. Revenue in its June quarter a year ago rose 36% in contrast. Alphabet, which posted full revenue growth before the TAC rose 62% in the June quarter of the previous year, posted revenue growth of 13%, or 16% in constant currency, while that digital ad spend has fallen. Amazon saw revenue grow 7% slightly better than expected, compared to 27% revenue growth in the second quarter a year ago. But CEO Andy Jassy made a hopeful statement, saying he saw revenue accelerating, which also helped.
Worse still, the profits. As Amazon reports another net loss from its Rivian Automotive RIVN,
investment and Meta reporting a whopping 36% drop in net profit, Big Five net profit totaled $56.9 billion, down 24% from net profit of $74.9 billion a year ago year as rising costs reduced their results, as well as less revenue growth.
Meta’s sharp drop in net profit, after a 101% jump in second-quarter net profit a year ago, was particularly precipitous as the company blithely spends on CEO Mark Zuckerberg’s unproven vision of the Metaverse. Its Reality Labs, the business unit focused on virtual and augmented reality, posted a loss of $2.8 billion, on revenue of $452 million. Ad revenue was unable to fully compensate and fell slightly, amid comments from Zuckerberg saying the situation was worse than it looked a quarter ago.
Still, Meta stock will end July as a mostly balanced month, down less than 1%, down less than 1%, and this is the worst performance of the Big Five. Apple stock rose more than 19% in July, Amazon gained more than 28%, Microsoft rose 9% and Alphabet rose nearly 7%, all gaining after their earnings reports, at the exception of Meta.
Facebook’s parent company was spared the slaughter of other digital ad-based companies, such as Snap Inc. SNAP,
whose shares will end July down nearly 25%, continuing a rapid decline that includes a 50% drop in May, after executives warned of the big ad slowdown also affecting Google and Facebook.
This split between dominant Big Tech platforms and smaller companies trying to compete is likely to continue. While they all see slow growth and have unclear prospects for the immediate future, the sheer size and billions of dollars generated by Big Tech in revenue and revenues will continue to primarily insulate these giants from the type of pain that Wall Street distributes to Snap, Roku Inc. ROKU,
For more: Read about Roku’s “frankly awful” earnings
It’s worth remembering that for the whole of 2021, the Big Five saw annual revenue growth of 27% and a whopping 55% net income growth as they collectively topped $1.4 trillion. income for the year. At the time, MarketWatch pointed out that this was not normal growth, and indeed, this may have been the year tech jumped the shark.
With the resounding themes of most conference calls about reining in, cost cutting, hiring slowdowns or layoffs, and macroeconomic uncertainty, investors mostly seemed happy to avoid worse outcomes. than expected for Big Tech. For the rest of the tech, however, there are many more questions to come as we move into earnings season with many more reports to come.