Key Points:

• Big Tech Quartet- Apple, Alphabet, Amazon, and Facebook reported their third-quarter earnings en masse last week.
• The tech giants exceeded Wall Street estimates maintaining the momentum from the previous quarter shows how the pandemic has driven online business.
• Their earnings soar despite antitrust issues and seemingly endless coronavirus pandemic.
• Google and Amazon enjoyed a strong third quarter whereas Facebook and Apple just managed to beat the estimates.
• The combined profit of the tech giants totaled $38.08 billion compared to $29 billion last quarter.

The Big Tech giants are just getting bigger amidst a global pandemic, economic malaise, and anti-trust scrutiny. Alphabet, Apple, Amazon, and Facebook collectively exceeded Wall Street expectations reporting a combined quarterly net profit of $38.08 billion. The tech companies are under unprecedented scrutiny from US lawmakers on their dominant positions in the marketplace. The four companies’ combined worth is about $5.3 trillion.

Apart from the growing profit and revenue, the stocks of three of the companies had mixed performance after trading hours as the forecast issues didn’t go well with the investors: Facebook’s edgy outlook, Apple’s no forecast, and Amazon’s huge Covid-19 spending projections. Google crushed market expectations but didn’t provide forecasts after tremendous gains.

Here’s A Quick Glance At The Tech Giants’ Earnings:

 

1. The Next Big Thing For Apple Is iPhone 12

 

Apple narrowly exceeded market expectations despite the later-than-usual launch of its iPhones. The net sales grew by 1% Y-o-Y in its fiscal fourth quarter. The increase mainly reflected strong growth in Mac- up by 29% and iPad – up by 46% as millions of people were remote working and schooling during the pandemic.

Apple is the bellwether for the smartphone business but iPhone sales slumped 21%  as the tech giant delayed the launch of iPhone 12 from late September to October which means the result of the new iPhone will be seen in the company’s January report. Apple also witnessed a 28% decline in revenue in China because of the lack of a new iPhone launch. This resulted in a 7% drop in net income to below $13 billion. The company also did not offer revenue guidance for the current quarter that disappointed the investors. However, CEO Tim Cook tried to paint a positive picture in a statement,

“Despite the ongoing impacts of COVID-19, Apple is in the midst of our most prolific product introduction period ever, and the early response to all our new products, led by our first 5G-enabled iPhone lineup, has been tremendously positive.”

Key Numbers (Analyst estimates are based on Bloomberg Consensus data)

• Revenue:  $64.7 billion compared to $63.48 billion expected.
• iPhone Revenue: $26.4 billion compared to $27.06 billion expected. The Q4 2019 iPhone revenue was $33.36 billion.
• Services revenue: $14.5 billion compared to $13.87 billion expected.
• Wearables revenue: $7.8 billion compared to $7.35 billion

2. Alphabet Sales Surges On Resurgence Of Ad Sales

Google’s parent company Alphabet topped Wall Street expectations revealing a mammoth 14% revenue jump. The growth is led by Google’s search business, an increase in advertising spend on Google and Youtube as well as continued strength in Google Cloud and Play. The company will be more transparent about its Google Cloud business and break out the operating income beginning next quarter. This will give an insight into its profitability of online advertising operations, which accounts for the lion’s share of Google’s revenue.

CEO Sundar Pichai described Q3 as “a strong quarter, consistent with the broader online environment.”

“It’s also a testament to the deep investments we’ve made in AI and other technologies, to deliver services that people turn to for help, in moments big and small.”

 He also addressed the antitrust suit  by the Justice Department and said,

“We believe that our products are creating significant consumer benefits, and we’ll confidently make our case.”

Key Numbers (Analyst estimates are based on Bloomberg Consensus data)

• Revenue: $38.01 billion (minus traffic acquisition cost) compared to $35.3 billion expected.
• Google Cloud revenue: $3.44 billion compared to $3.31 billion expected.
• YouTube Ad Revenue: $5.04 billion compared to $4.52 billion expected

 

3. The Most Profitable Year For Amazon

The pandemic boosted online shopping that pushed Amazon to a record for sales and profit this quarter. It blew past Wall Street expectation as the sales grew 37% and net profit roughly tripled to $6.33 billion. The lucrative Amazon Web Services sales up by 29% Y-o-Y as the company continue their shift to cloud computing.

Amid the pandemic surge, Amazon has already surpassed 2019 annual profit of $11.59 billion ahead of the fourth quarter with the holiday yet to come. CEO Jeff Bezos said, 

“We’re seeing more customers than ever shopping early for than ever shopping early for their holiday gifts, which is just one of the signs that this is going to be an unprecedented holiday season.”

The eCommerce giant expanded its fulfillment infrastructure by 50 percent and pushed its workforce to more than 1 million mark this year. Amazon saw higher Prime membership renewals and Prime member growth rate and streaming Prime video content rose more than 80% annually in Q3. The online grocery sales growth also accelerated in Q3 with no delivery charges for Prime members. Other revenue which is mostly ad-related is up 49% from the same period last year to $5.4 billion.

However, growth has not come without cost. The company has spent billions during the pandemic in areas like social distancing, the addition of new facilities, new hires, cleaning, supplies, and testing. It expects the cost to rise to $4 billion next quarter and it will not recur once the pandemic ends.

Key Numbers (Analyst estimates are based on Bloomberg Consensus data)

• Revenue: $96.1 billion compared to $92.7 billion expected
• Amazon Web Services Revenue: $11.6 billion up from $9 billion a year ago.

 

4. Undaunted Ad-Revenues And E-commerce Boom For Facebook 

 

Facebook earnings were better than expected despite a torrent of criticism that included a summer boycott by many large advertisers in July. The revenue jumped 22% to $21.47 billion from $17.65 billion a year ago. Facebook witnessed strong revenue and user growth, The revenues grew with new advertisers coming on board in search of new ways to reach customers.

Monthly Active Users is a key barometer to advertisers and the owner of Whatsapp and Instagram reported a whopping 2.74 billion MAU’s, up by 12% Y-o-Y. However, the company reported a rare decline in monthly and daily users in the U.S and Canada, down to 196 million from 198 million in the previous quarter. But the social media giant saw an increase in revenue- per-user for the region. More than 2.54 billion people daily use at least one of Facebook’s family of apps — Instagram, WhatsApp, Messenger, or Facebook — up 15 % Y-o-Y.

The social media platform plans to integrate all its family app messaging services and make it “one connected interoperable system” that will particularly be helpful in the U.S. The tech giant is hoping that the use of interoperability will lead its messaging platforms to interact with businesses. CEO Mark Zuckerberg noting the recently launched Facebook Shops said,

“I think the goal is to build out a commerce platform around messaging.”

“We’re building out a number of tools around business messaging, so that way people can follow up and complete transactions and get support through messaging, and then [for] payments so that people can complete transactions, too.”

It also believes that the Virtual Reality (VR) business is “self-sustaining” as the user base will be huge and economical for developers. They can prepare content for Facebook’s Oculus platform over alternative gaming platforms.

Key Numbers (Analyst estimates are based on Bloomberg Consensus data)

• Revenue: $21.47 billion compared to $19.84 expected.
• Daily active users (DAUs): 1.82 billion compared to 1.78 billion expectation
• Monthly active users (MAUs): 2.74 billion compared to 2.7 billion expectations.

 

The numbers of tech giants show how resilient these companies are and their services and products are in demand during the pandemic. Even though the investors are wary of the forecast numbers but with record profits and sales in the past three months, these heavyweights are unstoppable.

Go Deeper: Everything the Q2 2020 Financial Results of Tech Giants Have to Say