over 1 year ago • 3 mins
Amazon and Apple saved Big Tech’s bumpy earnings season, but the general vibe didn’t exactly fill investors with confidence about the months ahead…
✍️ Connecting The Dots
Investors were nervous going into Alphabet and Meta’s updates this week, after fellow social media giant Snap posted disastrous quarterly results on the back of a slowdown in the digital advertising market. And they were right to be: Meta was hit by advertisers’ shrinking budgets last quarter, as well as privacy updates from Apple that continued to hamper the ads Meta did run. That all conspired to send Meta’s second-quarter revenue 1% lower than the same time in 2021 – the firm’s first-ever drop from the year before.
Alphabet didn’t do much better: Google's ad revenue beat estimates, but growth still slowed down from the year before. Revenue from its cloud business also missed expectations, which is an important one: the segment is still seen as one of the firm’s best bets for growth, even if it is lagging behind market leaders Amazon and Microsoft. Overall, Alphabet’s sales grew just 13% last quarter from the same time last year – the slowest in two years.
Then Amazon came along: revenue from its cloud business climbed by a better-than-expected 33%, while its fast-growing ad business grew by a higher-than-expected 18% after claiming a bigger share of the market. Apple chimed in shortly after, boasting expectation-beating revenue and profits of its own thanks to higher-than-expected iPhone sales. Investors could relax that earnings season hadn’t been a total bust, and they sent both companies’ shares up after the announcements.
1. TikTok is social media platforms’ worst enemy.
Social media platforms are all battling one fierce competitor for advertising dollars and user attention: TikTok, the fast-growing short-form video app. Meta has responded by putting Reels – its equivalent short-form video format – front and center on Facebook and Instagram, in hopes it’ll drive more engagement. Problem is, the more time users spend watching Reels, the less they’ll spend on products that make more from ads. YouTube’s facing a similar problem: viewers are spending more time watching its “Shorts” video clips, but the short-and-sweet format is yet to prove it can bring in money like YouTube’s lengthier ones can.
2. The strong dollar is weighing on Big Tech.
Corporate America is starting to feel the pain from the strong dollar, which lowers the value of international sales when converted back to their home currency. And the tech sector might feel the burn more than most: it collectively made 59% of its revenue abroad last year – twice as much as the average across the S&P 500 as a whole. The damage was laid bare this week: the strong dollar caused Microsoft to miss out on $600 million in revenue last quarter, while knocking 4 percentage points off Alphabet and Meta’s revenue growth over the same period.
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In a déjà vu moment for Europe, Russia slashed the flow of natural gas to the region once again: Gazprom cut shipments on the Nord Stream pipeline – Europe's main gas import infrastructure – from 40% of its capacity to 20% on Wednesday. And with that, European natural gas prices surged to a five-month high.
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