The Economy Is in Record Decline, but Not for the Tech Giants


A day after lawmakers grilled the chief executives of the biggest tech companies about their size and power, Amazon, Apple, Alphabet and Facebook reported surprisingly healthy quarterly financial results, defying one of the worst economic downturns on record.

Even though the companies felt some sting from the spending slowdown, they demonstrated, as critics have argued, that they are operating on a different playing field from the rest of the economy.

Amazon’s sales were up 40 percent from a year ago and its profit doubled. Facebook’s profit jumped 98 percent. Even though the pandemic shuttered many of its stores, Apple increased sales of all its products in every part of the world and posted $11.25 billion in profit. Advertising revenue dropped for Alphabet, the laggard of the bunch, but it still did better than Wall Street had expected.

“The strong continue to get stronger,” said Dan Ives, managing director of equity research at Wedbush Securities. “As many companies are falling by the wayside, the tech stalwarts continue to gain muscle and power in this environment.”

The tech companies’ financial performance was a remarkable contrast to the overall health of the U.S. economy. The Commerce Department said on Thursday that the country’s gross domestic product fell 9.5 percent in the second quarter of the year as consumers cut back spending. It was the steepest drop on record.

Combined, the companies reported $28.6 billion in quarterly net profit, underscoring how regulatory scrutiny remains more background noise and a distraction for them rather than an imminent threat to their businesses.

On Wednesday, a congressional antitrust panel questioned the companies’ leaders — Jeff Bezos of Amazon, Tim Cook of Apple, Mark Zuckerberg of Facebook and Sundar Pichai of Alphabet — about their market power and business practices.

It was part of a broader inquiry by regulators and lawmakers into the dominance of the tech giants, with open investigations from the Justice Department, the Federal Trade Commission and state attorneys general.

The spectacle of the chief executives of the four companies, worth nearly $5 trillion by market capitalization combined, appearing before a House subcommittee was historic. But antitrust investigations often take years, especially if regulators seek more drastic measures like breaking up companies.

The pandemic has reinforced the advantages held by the big tech companies. As consumers stay home, demand for Amazon’s shopping site surged, while companies are turning to its cloud computing products to keep their services up and running. Apple said the shift to working and learning from home had led more people to splurge on Apple’s devices and use its services.

“Our products and services are very relevant to our customers’ lives, and in some cases, even more during the pandemic than ever before,” Luca Maestri, Apple’s finance chief, said in an interview. He noted, however, that Apple could have made several billion dollars more if not for the pandemic.

Facebook and Google continue to be important to marketers and they are weathering the downturn in advertising better than rivals. Facebook shrugged off a spending slowdown, hailing record levels of engagement with its products.

Alphabet said revenue from Google search ads fell 10 percent — pushing the company’s overall revenue lower for the first time in the company’s history — but that still was better than rivals. Last week, Microsoft reported an 18 percent slide in search advertising revenue.

Since the beginning of March, the companies’ stock prices have risen by an average of 35 percent, compared with a 10 percent rise in the S.&P. 500.

Buoyed by a pandemic-induced surge in online shopping, Amazon had $88.9 billion in quarterly sales, up 40 percent from a year earlier. Profit doubled, to $5.2 billion, even though the company invested in expanding warehouses and other ways to increase capacity.

“Simply put, Covid-19, in our view, has injected Amazon with a growth hormone,” Tom Forte, an analyst at the investment bank D.A. Davidson & Company, wrote in a recent note to investors.

In April, Mr. Bezos told investors to expect no operating profit, and maybe even a loss, as the company planned to spend about $4 billion on coronavirus-related expenses like temporary pay increases, declines in warehouse efficiency because of social distancing, and $300 million for testing its work force for the virus.

But even those costs did not compare to the immense surge in demand, with online retail sales up 48 percent.

On a call with reporters, Amazon declined to say if it would give its warehouse workers virus-related bonuses or raises in the current quarter, but added that pandemic-related expenses would fall to $2 billion in the quarter.

Sales at Amazon’s lucrative cloud computing business, whose customers include major corporations and small start-ups, grew 29 percent, to $10.8 billion, falling short of analyst expectations, though it was more profitable than they had expected.

Facebook’s revenue for the second quarter rose 11 percent from a year earlier to $18.7 billion, while profits jumped 98 percent to $5.2 billion. The results were well above analysts’ estimates of $17.3 billion in revenue with a profit of $3.9 billion, according to data provided by FactSet.

Despite increasing scrutiny from regulators, questions about its role in subverting elections and how people use the platform to spread misinformation, neither users nor advertisers have shown an inclination to stop using Facebook.

More than three billion people now regularly come to Facebook or one of its family of apps, as the services have overtaken much of the developed world. And some 2.47 billion people use one or more of Facebook’s apps every day.

Apple also announced a stock split on Thursday that would quadruple its number of shares, allowing people to buy a share in the company for a quarter of the current stock price, which closed at $384.76 on Thursday.

Google’s parent company, Alphabet, reported its first-ever decline in quarterly revenue, hurt by a slowdown in spending by advertisers. The company posted revenue of $38.3 billion and a profit of $6.96 billion — significantly higher than what Wall Street analysts had predicted.

Ruth Porat, Alphabet’s chief financial officer, said advertising revenue “gradually improved” as the quarter went on. The decline came largely from lower sales of advertisements that run alongside Google’s search results, but the company’s efforts to diversify its business paid off as revenue from YouTube ads and its cloud computing business grew.

When asked in a call with financial analysts about the congressional hearing, Mr. Pichai said the company would have to learn to live with the investigations.

“The scrutiny is going to be here for a while and we’re committed to working through it,” he said.



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