Spooky earnings call for tech giants 🎃
Last week was a scary week for big tech and we are not talking Halloween
This last week, almost a trillion dollars was wiped off the value of the US’s biggest tech companies. It was a brutal week! The period of the pandemic has been a whale of a time for most tech companies, but post-pandemic conditions have brought them back to reality.
The week started with reports of slowed growth in Alphabet’s digital advertising, both YouTube and Google network ad revenues. Advertising may be suffering from weaker product demand, higher costs, interest payments (a result of the US Federal Reserve interest rate hikes aimed at taming inflation) and competition from platforms like TikTok. The need to cut back on spending surfaces.
Amazon, the e-commerce giant, has also recently warned the public of slowed earnings. As the festive season approaches, Amazon has forecasted far fewer sales than investors were expecting majorly due to the impact of the macroeconomic situation weighing in on the economy and the public. The company’s earnings and projections for the remaining part of the year have been affected by the strong dollar, rising inflations and interest rates, and most of all fears of recession. With this, investors have reacted rapidly causing a tank in the share price by a cumulative 20% last Thursday.
The news of Amazon’s shocking forecast and slowed growth in other cloud computing and search advertising businesses (Microsoft and Google) has left the value of the five tech giants about a trillion dollars less than at the beginning of the earnings season. Although Apple has been able to keep its head a little above water with its reported earnings exceeding analysts’ expectations, no thanks to iPhone, iPad, and services, these are areas that fell short of expectations but encouraging figures were spotted for Mac and wearables sales.
With the growing demand for Artificial Intelligence (AI), Meta and Google are not planning to cut back on capital spending anytime soon. This past week (Thursday) witnessed about 24.6% cuts from Meta’s share price due to a loss of investor confidence in the metaverse vision. Somewhere else on the tech stage, Elon Musk finally completes the Twitter acquisition deal, the entrepreneur is immediately making changes with the first line of action of firing the CEO and CFO.
So what?
The pandemic was a tide that rose all tech stocks as cheap money (low-interest rate, stimulus checks) and a captive audience propelled record revenues but as the pandemic has given way, the war in Ukraine, oil prices, and inflation concerns have inspired the US Federal Reserve to raise interest rate. The higher rate has increased the cost of business (think higher interest payments) and reduced consumer spending. These two factors have led to a fall in revenues and profit margins for these businesses.
Overall, the various reactions by a business including layoffs and restructuring are targeted at building resilience. When everywhere is rosy, growth-oriented companies outperform the market, when it gets tough, they take a beating and 2022 has been anything but rosy.