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Aug 03, 2020

   

Industry News

Five takeaways from Big Tech’s blowout earnings

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Five takeaways from Big Tech’s blowout earnings
BY JUSTIN WISE – 08/03/20 09:06 AM EDT 107

The final week of July provided a striking snapshot of some of the biggest tech companies in the United States and the influence they hold in it.

A day after the heads of Google, Amazon, Apple and Facebook came under aggressive questioning from members of Congress as part of an investigation looking into their market size and power, all four posted strong earnings in the second quarter of 2020, even as the U.S. economy recorded one of its worst periods on record.

Each company beat Wall Street’s expectations, posting earnings growth that separated it from many industries harmed by the coronavirus pandemic and illustrating just how dominant the companies’ positions are in the greater economy.

Here are five takeaways from the earnings:

$250 billion added to market value

The four companies reported a combined $205 billion in revenue and $28 billion in profits in the second quarter. The earnings helped their combined market value jump by $250 billion, according to Bloomberg News.

Apple reported $59.7 billion in net sales, marking a 17 percent bump in year over year growth in what was its third fiscal quarter of the year. Facebook reported $18.7 billion in revenue, an 11 percent increase from the same time period in 2019. Amazon experienced the most seismic growth, reporting $88.9 billion in net sales, which amounted to a 40 percent year over year increase.

Alphabet, the parent company of Google, reported $38.3 billion in revenue, representing the first time since it went public that it experienced a dip in earnings. Alphabet revenue declined by 2 percent compared to the same period in 2019. Still, the figure surpassed analysts’ expectations, which predicted significant drops in advertising spending due to the health crisis.

The strong three-month performances appeared to signal how integral the services and products the four companies provide are to the public — including during a pandemic that has kept many people at home more.

Profits jump for Amazon despite COVID-19 investments

Amazon’s net income doubled to $5.2 billion between April and June, despite the company making a number of large investments associated with the coronavirus.

CEO Jeff Bezos in April warned analysts that a number of coronavirus-related expenses could hurt its overall profits in the months ahead. The company hired an additional 170,000 people to work in warehouses and had put money toward personal protective equipment for its employees and the increased cleaning of facilities. In total, Bezos said Thursday that the company spent $4 billion on coronavirus-related safety measures.

Yet those costs didn’t hurt the business’s bottom line. Amazon Web Services, its cloud computing business, earned $10.9 billion in the second quarter, a 29 percent year-over-year increase. The company also noted that its online grocery sales tripled.

More than 3 billion using Facebook

Amid the global pandemic, Facebook has experienced a marked increase in the use of its apps, which include Instagram and WhatsApp.

The company said that an average of 3.1 billion people around the world were using a Facebook-owned app in June, marking a 14 percent year-over-year increase.

Daily active users of Facebook ballooned to 1.8 billion, an increase of 12 percent from the same period in 2019. Facebook executives associated the surge with lockdown measures that confined people to their homes, though warned that the rate of user growth was stabilizing due to the relaxing of health restrictions in parts of the world.

The higher engagement helped the company counterbalance a drop in its advertising revenue growth rate, which it acknowledged was due to factors including the coronavirus and the “Stop Hate For Profit” campaign demanding businesses boycott the platform.

As for Apple, sales of Mac computers and the iPad also surged as people were forced to work from home and interact with friends and family virtually. A surge in online sales offset the forced closure of many of Apple’s retail stores.

“In uncertain times, this performance is a testament to the important role our products play in our customers’ lives and to Apple’s relentless innovation,” Apple CEO Tim Cook said in a statement.

Facebook ad boycott makes little financial impact

While more than 1,000 companies pulled their advertising on Facebook as part of a campaign demanding better content moderation policies, the company appeared to fend off any significant financial harm from it.

Facebook said that its ad revenue grew at an 10 percent rate between April and June and that the pace remained roughly the same in the first three weeks of July.

Facebook executives addressed the boycott during an earnings call, stressing that the platform does not make a profit off of hate speech. But CEO Mark Zuckerberg suggested that the efforts seemed to “wrongly assume that our business is dependent on a few large advertisers.”

“While we value every single one of the businesses that use our platforms, the biggest part of our business is serving small businesses,” Zuckerberg said.

The Stop Hate For Profit campaign called on advertisers to commit to boycotting the platform throughout July. Now that the month has passed, some businesses have indicated that they would begin advertising on the platform again. Other companies, including Coca-Cola and Ben Jerry’s, have said that they will continue to take part in the campaign.

Rashad Robinson, president of Color of Change, one of the groups leading the ad boycott, said that Facebook’s healthy earnings shouldn’t come as a shock.

“Facebook’s market dominance means they don’t need to be accountable to users or advertisers,” he said in a tweet. “Until Congress acts to limit Facebook’s power, there will be no limit to the damage Facebook wreaks on our democracy.”

Earnings could intensify scrutiny

Alphabet CEO Sundar Pichai acknowledged during a call with analysts that scrutiny from regulators isn’t going away anytime soon.

“I think the scrutiny is going to be here for a while. And so we are committed to working through it,” Pichai said, adding that the company has faced this type of attention from regulators for some time now.

For some, the earnings from Apple, Google, Amazon and Facebook seemed to bolster the case that the tech giants are too big and that Congress should confront their enormous size.

Barry Lynn of The Open Markets Institute, a liberal think tank championing calls for strong antitrust action, said in a statement that the numbers reinforced that the companies “are based on dangerous predatory actions and must be fundamentally altered.”

In their testimonies, Zuckerberg, Bezos, Pichai and Cook argued that competition is thriving in their industries and that the services they offer is providing valuable assistance to smaller businesses.

Bezos argued that Amazon was just a small part of a “strikingly large” global retail market. Zuckerberg claimed on Thursday’s call that regulating Facebook’s targeted advertising model could ultimately harm small businesses, asking, “Is that really what policymakers want in the middle of a pandemic and recession?”

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But documents released by the House Judiciary antitrust subcommittee showed that the businesses have operated in anti-competitive ways, Democrats argued.

Rep. David Cicilline (D-R.I.), the panel’s chairman, said that a report on the panel’s investigation would likely be ready by September. While Congress does not have the authority to break up companies, the probe could pave the way for efforts to rewrite antitrust law. It could also aid investigations currently being undertaken by the Justice Department, Federal Trade Commission and state attorneys general.

The same week as the hearing, Reuters reported that European regulators were readying a full-scale investigation into Google’s acquisition of Fitbit, illustrating the scrutiny the companies are facing in the U.S. and abroad