The five largest US tech companies, whose sales are based primarily on advertising revenue, lost almost a billion dollars in value this week, according to the Financial Times. Quarterly figures and forecasts from Meta, Alphabet, Microsoft and Amazon caused prices to plummet. Apple alone spread optimism. An overview:
Stock market losses picked up steam Thursday night after Amazon scared Wall Street with a weak sales forecast for the important fourth quarter. The Christmas business traditionally actually boosts sales.
High inflation, rising interest rates and gloomy economic prospects mean that many consumers are reluctant to make purchases - the world's largest online retailer is also feeling the effects. The group therefore expects revenues of between 140 billion and 148 billion dollars in the final quarter, as it announced after the US stock market closed. That corresponds to a meager growth by Amazon's standards of between two and eight percent compared to the same period last year. Analysts had expected significantly more. Investors dropped the stock more than 20 percent after the market closed. "Amazon is disappointed and has to change everything," says Konstantin Oldenburger from broker CMC Markets ntv.de.
Even the lucrative cloud division, which offers storage space and online services for other companies, has seen growth slow. Amazon Web Services (AWS), the flagship of the cloud space, increased revenue by 27 percent to $20.5 billion. In the previous quarter, the increase was just under a third. According to Oldenburger, one cannot currently be satisfied with either the margin or the breakdown of the profit makers. "Despite a modest improvement at AWS, margins in the International and US segments fell to their lowest levels in the past decade." In fact, without AWS, Amazon would have negative operating results. "The specter of even a possible decline in sales in the coming quarters is now weighing heavily on the share," said Oldenburger.
Facebook parent company Meta also posted a drop in revenue this week due to weak third-quarter revenue from digital advertising. It was the second drop in sales in a row. In addition, the profit fell short of expectations. Revenue fell 4 percent to $27.7 billion. It had already fallen by 1 percent in the previous quarter. The average price for ads on Meta dropped 18 percent compared to the same period last year. At that time it had risen by 22 percent. Advertising revenue fell 4 percent to $27.4 billion. In such an environment, the group has increased its workforce by 28 percent compared to the previous year and expects additional costs of a further 16 billion dollars in the coming year. "At first glance, this looks like zero cost control, which is why investors sent Meta shares to their lowest level since 2016," says Oldenburger.
Meta faces a number of challenges. The economic slowdown, competition from Tiktok and Apple's privacy rules are putting pressure on digital advertising sales. The stock fell nearly 24 percent in after-hours trading, knocking the company's market value by $84.6 billion. That put Meta's shares 74 percent below the record high they hit 14 months ago, extending Big Tech's two-day slide.
Alphabet's disappointing numbers are also fueling fears of a harsh winter for online advertising. Many investors had hoped that the Internet group would be able to withstand the strains of the weakening economy thanks to its strong market position. Alphabet reportedly increased its quarterly revenue to $69.092 from $65.118 billion in the same period last year, but missed the analysts' forecast of $70.58 billion.
At the same time, the advertising revenue of the video platform YouTube shrank to 7.07 from 7.2 billion dollars. Net income of $1.06 per share also fell short of the market's expectation of $1.25. "This shows that the company is not immune to the challenges of the online advertising industry," said analyst Jesse Cohen of online brokerage Investing.com. Financial service providers in particular would have placed less advertising, said Alphabet CFO Ruth Porat. In addition, exchange rate effects would have reduced the result. These charges are expected to increase in the fourth quarter.
At Microsoft, the ongoing trend towards working from home is cushioning the losses caused by the worldwide decline in PC sales. The quarterly turnover is above the forecasts, but investors have sold the share after the business hours. Despite increased concerns about inflation and the economy worldwide, the computer giant was able to significantly increase revenues in the summer. In the three months to the end of September, sales increased by eleven percent compared to the same period last year to 50.1 billion dollars (50.3 billion euros). Analysts had expected proceeds of $49.61 billion and a profit of $2.30 per share. However, the group is suffering from the strong dollar, which is reducing foreign earnings in US currency.
"Just a few weeks ago, such news would have had the potential to drag down the entire market," said Oldenburger, looking at the numbers from Alphabet and Microsoft. The fact that this did not happen "is a good sign and speaks for the robust condition of the ongoing recovery." At the same time, Oldenburger notes: The problems of Alphabet and Microsoft could hardly be more different. While Microsoft was able to beat analyst estimates, Alphabet fell well short of expectations for revenue and earnings. "As already feared, the search engine giant's advertising sales are collapsing as customers reduce their marketing expenditure. The high inflation and correspondingly higher interest rates are weighing on consumer demand, which is why there is no real prospect of improvement in this area in the coming months," says Oldenburger.
Only Apple was able to break away from the development of the other tech giants, which are suffering from falling advertising spending or economic concerns, this week. Even in times of high inflation and concerns about the economy, the iPhone has been a reliable money machine for the manufacturer and can thus defy consumer restraint. "The iPhone is and will continue to be the company's cash cow," says Oldenburger. In the past quarter, the group increased sales by eight percent year-on-year to $90.1 billion. Bottom line, profit increased from $20.55 to $20.72 billion.
CFO Luca Maestri also limited that sales growth in the current quarter will be below the eight percent of the past three months. The main trigger is the strong dollar, which will reduce income by up to ten percent when converted into US currency. The holiday quarter is traditionally the most important for Apple. The iPhone was a key driver of the business with sales increasing from $38.9 billion to $42.6 billion. As usual, Apple launched the new iPhone generation in September - this time a week earlier than 2021.
"Even if the share tends to be slightly negative according to the figures presented, Apple has once again proved its critics wrong," says Oldenburger. The renewed good numbers of the largest company by market capitalization in the midst of economic uncertainty are a good signal for the stock market and could well serve as a catalyst for the recent resurgence of investor optimism.
