Daily Brief: Microsoft And Alphabet Aren’t Quite The Tech Giants They Used To Be

Daily Brief: Microsoft And Alphabet Aren’t Quite The Tech Giants They Used To Be

over 1 year ago3 mins

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Microsoft and Google-parent Alphabet posted disappointing quarterly results late on Tuesday.

What does this mean?

Microsoft had gone into this update having beaten analyst expectations for 14 quarters straight, but that run has finally come to an end. The company’s cloud computing business and productivity segment – which includes Office 365 and LinkedIn – saw revenue climb, sure, but by a weaker-than-expected 20% and 13% respectively. Consider too that the sales Microsoft made abroad were worth less – $600 million less, to be precise – when converted back to a strong dollar, and it stands to reason that its overall revenue was a letdown.

Microsoft earnings

Alphabet couldn’t maintain its form either, with revenue from its cloud business and ad business – on platforms like Google and YouTube – climbing by 36% and 12%. That’s not the sort of growth investors have come to expect from the tech giant, but it’s also not the disaster that rival tech company Snap experienced last week. That’ll do: investors initially sent its shares up 3% after the news.

Google ad revenue

Why should I care?

The bigger picture: Growth starts with people.

After years of building out their businesses, Microsoft and Alphabet have both said they’re hitting the brakes on hiring – indefinitely and for the rest of the year respectively – as they brace for the all-but-inevitable economic slowdown. And with fewer people putting their heads together to get things done, these drop-offs we’re seeing could become even more pronounced.

For markets: When Big Tech falls, everything falls.

Microsoft, Alphabet, Meta, Apple, and Amazon account for nearly a quarter of the key US stock market index’s overall value between them. And while the other members of the group are yet to reveal how they performed last quarter, Microsoft and Alphabet’s lackluster updates don’t exactly bode well for the index. Still, some analysts are staying optimistic: they argue that the index bottomed last month, and that the worst of the bear market has already passed.

SP 500 bottom

Keep reading for our next story...

Unilever And Coca-Cola Are Hiking Prices And Hanging Onto Customers

Coke image

Consumer staples giants Unilever and Coca-Cola reported impressive quarterly results on Tuesday.

What does this mean?

Unilever upped prices by 11% last quarter, and it’s easy to see why: the company said it’s expecting the prices of the materials it uses to make its products – everything from palm oil to natural gas – to drive up costs by nearly $5 billion this year. But while the company sold 2% fewer products on the back of the move, it also seems like it was the right one to make: Unilever’s overall sales were 9% higher than the same time last year.

Unilever stock
Source: Google Finance

Coke was in a similar boat: its organic revenue climbed 16% last quarter, even as it pushed up prices by 12%. It benefited from the fact that around half its sales come from social venues like cinemas and theme parks, which have been getting a lot more love since Covid faded into the background.

Coke sales

Why should I care?

Zooming in: All publicity is good publicity.

Unilever upped its sales growth outlook for the rest of the year too, but the company knows it won’t hit its target just by raising prices. Cue a different approach: Unilever’s planning to boost its investment in advertising, having already stepped up marketing spending by around $200 million in the first half of the year. That way, it’s hoping customers will realize its products are worth every penny.

The bigger picture: Walmart’s glory days are gone.

Unilever’s sales might be holding up for now, but there are signs Americans are reining in their spending. Just look at Walmart, which issued its second profit warning in 10 weeks on Monday. No surprises there: the world’s biggest retailer specializes in low-income customers who are typically the first to scrap big-ticket buys and trade down to cheaper – and ultimately less profitable – products.

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