Daily Management Review

Big Tech Struggles With Gloomy Q4 Earnings And Projections— Amazon Drops 13%, And Meta Has Its Worst Week Ever


Big Tech Struggles With Gloomy Q4 Earnings And Projections— Amazon Drops 13%, And Meta Has Its Worst Week Ever
It was a terrible earnings week (Oct. 23-29) for Big Tech, aside from Apple.
After making unsettling predictions for the third quarter and the rest of the year, Alphabet, Amazon, Meta, and Microsoft collectively saw their market caps decline by over $350 billion. After a decade of unrestricted growth, the tech giants have found themselves in an unfamiliar situation due to slowing revenue growth—or declines, in the case of Meta—and efforts to control costs.
This week's third-quarter results were released in the context of skyrocketing inflation, rising interest rates, and an impending recession. After exceeding revenue and profit projections, Apple defied the trend. The stock had its best day on Friday in more than two years.
Meta, whose stock price fell in 2022, was at the other extreme of the spectrum. The parent company of Facebook reported lower-than-expected earnings, recorded its lowest average revenue per user in two years, and predicted that sales will likely decline for a third straight quarter in the fourth quarter.
“There are a lot of things going on right now in the business and in the world, and so it’s hard to have a simple ‘We’re going to do this one thing, and that’s going to solve all the issues,’” Meta CEO Mark Zuckerberg said on the company’s earnings call on Wednesday.
Since the company's IPO in 2012, Meta's stock has had the worst week, falling 24% in the last five days. After providing weak guidance for the year-end period and missing estimates for cloud revenue, Microsoft's share price dropped 2.6% for the week, accounting for a 7.7% drop on Wednesday.
Amazon's stock dropped 13%, adding to the general gloom. The sell-off was primarily caused by a bleak fourth-quarter forecast and a sharp slowdown in its cloud computing unit.
While growth at Amazon Web Services slowed to 27.5% from 33% in the previous quarter, it accelerated at Google's cloud division, which is significantly smaller, to almost 38% growth from about 36%. In the upcoming quarters, Google wants to slow the growth of its headcount overall while maintaining its cloud spending.
“We are excited about the opportunity, given that businesses and governments are still in the early days of public cloud adoption, and we continue to invest accordingly,” Ruth Porat, Alphabet CFO, said on a conference call with analysts on Tuesday. “We remain focused on the longer-term path to profitability.”
Results from Google parent company Alphabet's other divisions, however, were less noteworthy. The company's primary source of revenue, advertising, increased only marginally, and YouTube's ad sales decreased from the previous year. Amazon, which is lagging behind Google and Facebook in digital advertising, experienced the opposite. Revenue growth in Amazon's advertising division accelerated to 30% from 21%, exceeding analysts' projections.
“Advertisers are looking for effective advertising, and our advertising is at the point where consumers are ready to spend,” said Brian Olsavsky, the company’s finance chief. “We have a lot of advantages that we feel that will help both consumers and also our partners like sellers and advertisers.”
After the results, Raymond James analyst Aaron Kessler reduced his price target for the Amazon stock from $164 to $130. However, he kept what would be a buy rating on the stock and stated that the company's "robust advertising growth" might be able to help Amazon increase its margin.
Investors are now turning their attention away from technology and toward other sectors of the market that had previously lagged behind software and internet names. The Dow Jones Industrial Average increased by 3% this week, marking the index's fourth straight weekly gain. The Dow had underperformed the Nasdaq for five years prior to 2021.