Big Tech shares had a brutal week as investors sold shares after a series of disappointing earnings reports that reflected economic headwinds in the third quarter.
Microsoft Corp., Alphabet Inc. and Meta Platforms Inc. lost billions of dollars in market value after posting weak earnings and dovish guidance. Amazon.com Inc. also saw its shares fall on the secondary market on Oct. 27 after reporting disappointing results for the September quarter.
With the turbulent economic environment likely to continue for the rest of this year, analysts said tech companies must step up efforts to placate spooked investors.
“In this softer macro and a recession likely just around the corner, Big Tech management teams must quickly adapt to a very different context or risk losing their luster for investors who have bet on these tech thoroughbreds for the past few years. decade,” said Dan, an analyst at Wedbush. ives.
A drop in online advertising weighed heavily on Meta and Alphabet’s third-quarter earnings.
Meta, which was already struggling to adjust to changes to Apple’s mobile ad tracking policies, saw its ad revenue fall 4% year over year in the September quarter. Meta is in the process of shifting its core focus from social media to the future metaverse, which also doesn’t sit well with investors.
“Meta results were an absolute train wreck that speaks to the widespread digital advertising doldrums ahead for Zuckerberg & Co. as they make the risky and challenging gamble on the metaverse,” Ives said. Meta is trying to transform its business model at the worst possible time, given all the economic headwinds, the analyst added.
Shares of Meta plunged nearly 25% following the earnings results, closing at $97.94 on Oct. 27, its lowest price since 2016. Year-to-date, shares of Meta had lost nearly 71% as of market close on October 27, below its Big Tech peers.
Meanwhile, Alphabet reported its worst quarterly performance since the COVID-19 pandemic, as third-quarter revenue growth slowed to 6% year-over-year due to a decline in digital ad spending.
“Google is an advertising business first, and digital ads are no longer a safe place to hide” from economic disruption, he wrote. Bernstein analysts Mark Shmulik and James McNeill in a research note. They also lowered their target price on Alphabet stock to $120 from $130 a share..
Cloud growth slows
Economic uncertainties have also begun to influence the growth of cloud computing platforms.
Cloud market leader Amazon Web Services Inc. saw revenue growth of 27.5% year over year in the September quarter, down from 39% growth a year earlier and below market expectations. analysts.
“We’re seeing signs that again people’s budgets are tight, inflation is still high, energy costs are an extra layer on top of that caused by other issues,” Amazon CFO Brian Olsavsky said. during the company’s earnings call on Oct. 27. . “We are preparing for what could be a period of slower growth, like most companies.”
Amazon shares fell about 20% in after-market trading on Oct. 27 following its earnings results.
Microsoft’s Azure cloud computing platform also saw growth slow in the September quarter to 42% in constant currency, one point below the company’s guidance. Microsoft expects cloud growth to slow further in the December quarter, to 37%.
Although Microsoft shares took a post-earnings hit like its tech peers, analysts were more optimistic about the company’s long-term growth prospects.
“We believe Microsoft can continue to leverage top-tier competitive positions and customer relationships in some of software’s largest markets to continue generating outsized returns against mega-cap/S&P 500 tech peers,” the analyst wrote. Citi Tyler Radke in an analyst note.
The cloud businesses of Amazon and Microsoft combined accounted for more than half of the total public cloud infrastructure market in 2021, according to a September report from 451 Research.
apple hold on
Apple Inc. was the outlier in Big Tech earnings for the week, reporting revenue and earnings per share above analyst expectations.
Shares of the company were up about 3.5% in morning trading on Oct. 28, despite errors in iPhone sales estimates for the September quarter.
“In a week of horror shows for Big Tech earnings, Apple was the only bright spot as iPhone demand was relatively strong despite the macro with a great iPhone 14 Pro mix in the quarter,” Ives said. of Wedbush.
Additionally, Apple’s Mac computer revenue was up 25% year over year, driving a significant decline in the overall PC and notebook market.
“Apple is likely to remain a relatively safe haven for many as the macro environment remains highly uncertain and choppy,” said Credit Suisse analyst Shannon Cross.
451 Research is part of S&P Global Market Intelligence.