Daily Brief: With Big Tech Comes Big Expectations

Daily Brief: With Big Tech Comes Big Expectations

over 1 year ago3 mins

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Microsoft pulled off reported better-than-expected quarterly results late on Tuesday while Google-parent Alphabet fell short, but investors tarred them both with the same brush anyway.

What does this mean?

Microsoft’s previous report disappointed analysts earlier this year, but the tech giant sure made amends to that last quarter: its darling cloud computing business made 20% more revenue versus the same time last year, while its business productivity segment – think Office 365 and LinkedIn – grew 9%. Layer on a better-than-expected performance from its PC segment, and both Microsoft’s revenue and profit tidily beat expectations. But since that cloud revenue actually grew slower than expected, hard-to-please analysts still sent the firm’s shares down 2%.

Microsoft revenue
Source: CNBC

And while Alphabet managed to grow its cloud segment’s revenue by an impressive 38% last quarter, its all-important ad business – which spans across YouTube and Google and makes up the bulk of its revenue – grew a measly 3%, seemingly following in Snap’s ominous footsteps from last week. Alphabet, then, disappointed in both revenue and profit, so downcast investors duly sent its stock down 6%.

Alphabet revenue growth

Why should I care?

For markets: Gimme five.

The rest of the Big Tech firms –Meta, Apple, and Amazon – are due to report results this week. And since the superstar fivesome make up nearly half of the tech-heavy Nasdaq, the group’s performance could dictate the direction of the index in the going forward. If Microsoft and Alphabet’s negative receptions are anything to go by, the index – which has dipped over 30% this year and lost about $6 trillion in value – could have even further to fall.

Big Tech Nasdaq

Zooming out: Show-ers, not growers.

Growth is harder to come by during a downturn, so eagle-eyed analysts will be expecting tech companies to cut costs and increase efficiencies. That could include cozying up to blockchain technology: see, while enthusiasts might get dizzy over its world-changing decentralization potential, companies seem focused on more vanilla uses. In fact, a Bloomberg survey of tech executives showed they’re most excited about blockchain’s ability to speed up transactions, improve supply chains, and cut costs. How seductive…

Keep reading for our next story...

HSBC Beat Expectations, But Its Stock Still Fell

HSBC image

HSBC, Europe’s biggest bank, reported better-than-expected quarterly results on Tuesday.

What does this mean?

Higher interest rates might mean mortgage nightmares for the rest of us, but the recent hikes are like Christmas came early for the likes of HSBC. The firm’s net interest income – the money it makes from lending minus the interest it pays out on deposits – hit an imposing $8.6 billion last quarter, its best third quarter in over eight years. But there was some coal among the presents: the bank set aside $1.1 billion to cover costs in case borrowers default on debts – about a third more than analysts expected. But the firm’s bumper net interest income still carried the day, as pre-tax profit rose a cool 18% from the same time last year to hit $6.5 billion.

HSBC profit
Source: HSBC

Why should I care?

For markets: Iffy investors.

HSBC’s shares fell 4% when the report went live, and a few factors could be to blame. First off, that hefty $1.1-billion rainy day fund will have investors all het up about potential trouble ahead. Secondly, it’s starting to seem likely that share buybacks won’t make a comeback until the second half of 2023 at the earliest. And completing the troubling trifecta, HSBC’s well-regarded CFO is leaving without much of an explanation, something which could mean there’s trouble a-brew in the bank.

HSBC stock
Source: Barron’s

The bigger picture: Due east.

Despite investors’ caution, HSBC’s results should strengthen its hand against Ping An Insurance Group, a major shareholder that’s been calling for it to separate its Asian and western operations. HSBC’s resisted so far, adamant that its pivot toward Asia – where it made over 55% of pretax profit last quarter – is a smart bet. So far, the bank’s made eastward strides, shedding its western operations: its French and US arms have already gone under the hammer, and Canada’s could be the next.



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