Author: Tronserve admin
Friday 30th July 2021 07:55 PM
Big Tech’s Earnings Triumph Belies the Economic Pain Ahead
Amazon.com sold more groceries than ever before, but warned of steep losses ahead. Traffic surged on Facebook and Google sites, though advertising dried up. Apple made US$11 billion in three months, yet, for the first time in over a decade, did not give a forecast.
First-quarter results the past week for America’s major technology firms came in better than feared. With the global economy in free-fall, the tech giants proved that they remain essential services for millions of people and they have strong enough financial footing to weather the initial wave of the coronavirus pandemic. But anyone looking to these companies for signs of immediate relief did not find it. Beyond the results was a clear indication that the second quarter will be bruising.
Apple’s unusual silence was a case in point. “If the company with the best customers and supply can’t figure out what will happen in the next two months, maybe nobody can,” said Andrew Uerkwitz, an analyst at Oppenheimer & Co.
Similarly, Amazon gave investors an extremely hazy picture of its future. Growth in the number of items sold on the e-commerce site jumped the most since 2012. The online retailer bulked up its grocery delivery by 60 per cent – a sign of surging demand as online ordering becomes a necessity for millions. FBN Securities called Amazon the “ultimate ‘stay-at-home’ stock”.
Yet costs are piling up to deliver goods to the quarantined masses and test employees for the virus. The company cautioned it could lose US$1.5 billion in the current quarter. “If you’re a share owner in Amazon, you may want to take a seat,” chief executive Jeff Bezos said. The “stay-at-home stock” fell 7.6 per cent on Friday.
Before this week, big tech shares led a sharp stock-market rebound. Amazon had surged 44 per cent from mid-March. Facebook was up 23 per cent, while Google and Apple had risen 15 per cent and 14 per cent, respectively. But as the results rolled in, investors accustomed to clear guidance were left staring into a void.
“It’s worrisome,” Mike Walkley, an analyst at Cannacord Genuity, said after Apple’s results late on Thursday. “Tech has been the saving grace with the hope that it’s the leader on the backside of the recovery.”
Google parent Alphabet, a company that never gives specific forecasts, mostly offered vague caution about what lies ahead. Usage soared as the pandemic spread. Searches for information about the coronavirus were four times as high as search activity during the Super Bowl, the annual championship game of the National Football League and a peak traffic event.
But the company does not show advertisements on virus search results. While there were some signs of more commercial searches returning in April, these were not “durable” trends yet, said Ruth Porat, Google’s chief financial officer.
Views on YouTube, Google’s video arm, also shot up. More expensive “brand” ads on the site, however, slowed in March and that continued in April, the company said. The second quarter will be “difficult”, Porat warned.
Facebook, like Google, posted sales above expectations with both companies scooping up ad revenue before a sharp decline in marketing spending during March. Mark Zuckerberg, Facebook’s chief executive, told Wall Street an extended “economic fallout” could dampen sales going forward. “I worry that this could be worse than at least some people are predicting,” he said. The company cut its 2020 spending plans by as much as US$3 billion.
Advertising swings with the economy. And Google’s Porat suggested the company’s main business could easily regain its footing once the economy “normalises”. She did not say when. “It would be premature to comment on timing, given all the variables here,” she said.
For the biggest tech companies, the short-term losses could be offset by an influx of online shoppers, web searchers, social-media posters and cloud-tapping remote workers. During the quarter, Facebook reported an astounding increase of 100 million daily users across all its apps.
--If the company with the best customers and supply can’t figure out what will happen in the next two months, maybe nobody can
Andrew Uerkwitz, Oppenheimer & Co analyst, on Apple--
Likewise, the pandemic has played well to the tech industry’s strengths as the web’s utility providers. Videoconferencing, telemedicine, virtual storefronts – few companies are better positioned to capitalise on these trends than the biggest in Silicon Valley and Seattle.
Microsoft Corp reported a stand-out quarter thanks to growth in cloud computing, which is also aiding both Amazon and Google.These companies are well insulated from an ongoing recession, too, with a total of more than US$400 billion in cash among them.
For Amazon, heavy spending could make the stock even more attractive. On its earnings call, the company said it had invested over US$600 million on Covid-19 related items, including personal protective equipment and testing for warehouse staff. The sum could rise to US$4 billion in the second quarter.
Rather than turn off investors, the statistics showed how far ahead Amazon is from rivals. As the pandemic continues, more people will order online and they will expect sterile packages, Morgan Stanley analysts wrote in a research note on Friday.
Amazon’s “investments are likely to be a differentiator that will make it more expensive to compete against”, the analysts said, raising their share price target to US$2,600.