Big Tech Reported Big Earnings

Big Tech Reported Big Earnings

almost 4 years ago3 mins

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Hot on the heels of Netflix, the rest of the FAANG gang – and, er, Microsoft – reported quarterly earnings this week, showing what people have been up to while trapped between the same four walls for the last couple of months.

🕰️ Recap

  • Last week, Netflix announced it’d added 16 million new subscribers last quarter
  • On Tuesday, Google-parent Alphabet reported higher revenue but lower profit than expected
  • On Wednesday, Microsoft and Facebook exceeded investors’ expectations
  • And on Thursday, Apple and Amazon announced largely better-than-expected results of their own

✍️ Connecting The Dots

Investors began the week expecting US tech companies to report quarterly profits that were modestly higher than a year ago, in contrast to the 16% fall in earnings American companies were expected to show overall. And at over 20% of the US stock market (which in turn represents about half the global stock market), those tech stocks had the potential to influence the overall direction of all investments – for better if they reported strong results, and for worse if they didn’t.

Just as well for investors, then, that most brought positive updates. Demand for Amazon’s ecommerce capabilities, for example, got a boost from the closure of physical stores and locked down shoppers. Demand for cloud computing and productivity services from the likes of Amazon and Microsoft, meanwhile, saw an uptick from a surge of people working from home. And that’s to say nothing of Netflix, which benefited from a sharp rise in subscribers looking to switch on and switch off.

Even the less positive updates – from Apple, Facebook, and Alphabet – weren’t all that bad. Apple sold more iPhones than expected given the shutdown of factories and retail stores, and its highly profitable services business grew by more than forecast. And while there was a marked halt in advertising spending on Google and Facebook in March, the latter said revenue in April was flat versus a year ago, suggesting advertising-reliant businesses should stabilize pretty quickly. That bodes well for the future, what with rising levels of lockdown-induced engagement: Twitter, for one, announced record-high first-quarter user growth.

🥡 Takeaways

Analysis by Goldman Sachs showed that the biggest five companies (four of which are tech) represent a larger share of the US stock market than ever in recent history. That suggests the stock market’s recent recovery hasn’t actually been driven by as many companies as you’d expect after a dramatic selloff like the one in March – and that tech stocks may single-handedly be propping things up. Investors might be relieved that, by and large, they continued to do so this week.

Investors will be on tenterhooks this quarter waiting to learn whether last quarter’s trends will continue, or if they were just a flash in the pan. Working remotely certainly seems like it’s here to stay: half the companies in a new US survey said they’re planning to offer remote working as a permanent option for some jobs, and 40% say they’ll now accelerate automation and new ways of working. But the drop in advertising spending might be short-lived: when the economy opens back up and consumers up their spending again, brands will pay up to win back their hard-earned cash.

🎯 Also On Our Radar

Data out on Wednesday showed the US economy shrank for the first time in six years by a worse-than-expected annualized rate of 4.8% last quarter, laying bare the coronavirus’s dramatic effect after just one month of disruption. “Hold my beer,” said the eurozone on Thursday: its economy shrank at an annualized rate of 14% in the first quarter. And that’s just the start: this quarter’s going to be even tougher than the last for both economies.

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