The U.S. economy’s free fall may be nauseating for some sectors, but for the four tech giants that posted earnings results on Thursday, the past three months have been more like a thrill ride.
The day after taking tough questions from the House Judiciary Committee on whether they’ve become too powerful, chief executive officers from Google-parent Alphabet, Amazon, Apple and Facebook revealed that their influence is only growing.
These captains of tech industry posted a collective $28 billion in profits and added $214 billion in market value, a gobsmacking set of figures even in the best of times. But it stands out against a doom-filled backdrop of a U.S. economy that shrank 33 percent, while fears stretch worldwide across other businesses — from Main Street mom-and-pops to the arbiters of global luxury — that are dancing on the knife’s edge of real or potential extinction.
That may be stunning, but it’s not a complete shock. Expectations were high that the coronavirus was treating the technology sector very well, as Rep. David Cicilline (D-R.I.) noted in his opening remarks on Wednesday.
Now the irrefutable proof is in.
In a note to investors, D.A. Davidson & Co. analyst Tom Forte wrote that the coronavirus “has injected Amazon with a growth hormone.”
Although the same infection rates that bolstered Amazon’s online sales stymied physical Apple Stores, which temporarily shuttered and sometimes re-shuttered in the past few months, it also fed people’s digital habits: Apple saw global product sales grow 11 percent to $59.7 billion, pumping $11.25 billion in profit — a growth of 12 percent — to the Cupertino, Calif., hardware and software company.
“Overall, the pandemic seems to be having a limited impact on Apple,” said analyst Harsh Kumar of Piper Sandler, in a note to clients. “In fact, one can make the case that the Mac and iPad are actually benefiting nicely due to the work from home- and distance-learning trends.”
Meanwhile, users unable to connect with people in person flocked to Facebook’s family of apps, igniting a 98 percent jump in profits. And although the infamous advertising boycott waged against the social company did have an effect on business, it wound up being pretty minimal. Wedbush analysts don’t expect it to create any lasting damage.
The firm told investors that it expects roughly $100 million of “near-term brand revenue is at risk, representing less than 1 percent of [year-over-year] growth in Q3.”
Alphabet looks like the outlier, with revenue dropping for the first time ever.
Gross revenue shaved off 2 percent, while adjusted earnings fell 29 percent year-over-year. But that still puts gross revenue at $38.297 billion and net earnings at $10.13 a share, beating estimates of $37.34 billion and $8.22 per share. And while its cloud business showed a decline in growth, so did Amazon and Microsoft, which reported earnings last week.
Despite more industries depending on cloud services, all three top cloud providers noted slowing revenue growth, mostly due to clients trimming expenses and optimizing for efficiencies. Likewise, Google went from 52 percent growth in the quarter ending March to 43 percent in the second quarter ending in June. It’s a downturn, but still enough to show that Google Cloud remains strong and, in fact, it put $3 billion into the company’s deep coffers.
Google Properties revenue, which covers advertising and services such as search, Gmail, Google Play and YouTube, also fell, dropping 8 percent. But once again, the $25.13 billion in revenue beat estimates of $24.98 billion.
Across most of these tech giants, Wall Street sent shares up, especially for Apple, whose stock rose by as much as 10.25 percent, as of press time on Friday. On the other end of the spectrum, Alphabet shares remained down 3.7 percent, as of this writing.
Google/Alphabet doesn’t offer guidance, but that might have helped, as its peers face an even brighter second half of the year.
Amazon’s top-selling event, Prime Day, will be held in the fourth quarter. And despite admitting a delay of a “few weeks” for the availability of its iPhone, the device still marks Apple’s biggest sales opportunity. The extended timeline might even magnify demand for the gadgets.
As for Facebook, it has shown remarkable resilience. After its core advertising business was dogged by well-publicized boycotts by some of the world’s largest brands, ad revenue did admittedly slow. But it hasn’t suffered as much as some feared, casting the company as nearly bulletproof. Most analysts believe that the credit goes to Instagram, which has become a critical chunk of the business.
Facebook doesn’t disclose separate revenue for the photo-sharing and budding social commerce platform, but according to some estimates, it accounts for more than a quarter of its parent company’s sales.
That would all change, though, should regulators decide to break up the company.
If the House committee was worried before about the power these giants hold in their grip, these numbers don’t exactly mitigate those concerns.