Fourth-quarter Earnings and Projections for the Big Tech Sector Are Dismal, Causing the Industry to Slump

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Last Updated on October 30, 2022 by Bitfinsider

Alphabet, Amazon, Meta, and Microsoft collectively dropped more than $350 billion in market capitalization after providing negative guidance for the third quarter and balance of the year. After a decade of unrestrained expansion, the IT giants find themselves in an unusual position due to slower revenue growth — or reductions in the case of Meta — and efforts to cut costs.

This week’s third-quarter results were released in the context of skyrocketing inflation, rising interest rates, and an impending recession. Apple defied the trend after exceeding revenue and profit estimates. The stock enjoyed its greatest day in almost two years on Friday.

On the opposite end of the spectrum was Meta, a company whose stock price plummeted in 2022. The parent company of Facebook came up short on earnings, posted its lowest average revenue per user in two years, and predicted that fourth-quarter revenues will likely decrease for a third consecutive quarter.

On Meta’s earnings conference on Wednesday, CEO Mark Zuckerberg stated, “There are a lot of things going on in the business and the globe right now, so it’s difficult to say, ‘We’re going to do this one thing, and that will fix all the problems.'”

Meta’s stock had its worst week since the company’s initial public offering in 2012, falling 24% over the past five days. Microsoft declined 2.6% for the week as a result of a 7.7% drop on Wednesday after the company issued dismal outlook for the year-end period and failed cloud sales projections.

Amazon’s stock likewise declined by 13%, indicating a negative situation. A bleak prediction for the fourth quarter and a severe slowdown in its cloud-computing division were mostly responsible for the decline.

While Amazon Web Services’ growth slowed to 27.5% from 33% in the prior period, Google’s relatively smaller cloud company accelerated to over 38% growth from approximately 36%. In the upcoming quarters, Google wants to continue investing in cloud services despite its intention to slow the overall growth of its workforce.

Ruth Porat, Alphabet’s chief financial officer, told analysts on a Tuesday conference call, “We are enthused about the prospect, given that enterprises and governments are still in the early stages of public cloud adoption, and we continue to invest accordingly.” We continue to prioritize the longer-term path to profitability.

However, the rest of Google’s parent company Alphabet produced less stellar returns. The company’s core advertising business expanded marginally, and YouTube’s advertising revenue decreased compared to the previous year. Amazon, which is playing catch-up to Google and Facebook in digital advertising, experienced the opposite situation. Amazon’s ad business revenue growth increased from 21% to 30%, above analyst expectations.

“Advertisers are seeking for efficient advertising, and our advertising is at a position where customers are willing to spend,” said the company’s chief financial officer, Brian Olsavsky. We believe that our many benefits will benefit both customers and our partners, including vendors and advertisers.

Following the report, Raymond James analyst Aaron Kessler decreased his price objective for Amazon shares from $164 to $130. However, he maintained his equivalent of a buy rating on the stock and stated that Amazon’s “vigorous advertising expansion” had the ability to help the firm increase its margin.

As investors continue to diversify away from technology, they are discovering lucrative opportunities in market sectors that traditionally lagged behind software and internet brands. The Dow Jones Industrial Average increased by 3% this week, its fourth consecutive weekly rise. Five consecutive years prior to 2021, the Dow had lagged the Nasdaq.

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