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Opinion: Big Tech looks good growing up, as growth slowdown leads to stock gains while smaller rivals only suffer

Opinion: Big Tech looks good growing up, as growth slowdown leads to stock gains while smaller rivals only suffer
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After supercharged, double-digit growth during the pandemic, results from the five biggest US tech giants this week showed a slowdown as they battled inflation, a deepening recession and an overall sluggish economy, but they were rewarded by Wall Street as their size showed their strength.

Last week, all the big tech reported second-quarter earnings, and the results were mixed, with Meta Platforms Inc. a big miss.
target,
-1.01%

marring the combined results. But even with strong results from Apple Inc.
AAPL,
+3.28%
,
Alphabet Inc.
GOOG,
+1.79%

GOOGLE,
+1.84%
,
Amazon.com Inc.
AMZN,
+10.36%
,
and Microsoft Corporation
MSFT,
+1.57%
,
Total combined revenue was $354.5 billion, before traffic acquisition costs at Alphabet, showing a combined growth rate of 6.91%, up from $331.64 billion in the June quarter a year ago.

Each giant had lower revenue growth rates and Its first revenue target is falling. and-when Analysts cite Apple’s iPhone as “resilient” amid much economic uncertainty, its June quarter revenue growth was anemic at 2%. Its June quarter to year-over-year revenue rose 36%. Alphabet, which reported a 62% increase in total revenue in the June quarter a year ago, posted a 13% increase in revenue. or 16% in constant currency, as digital ad spend declined. Amazon saw slightly better-than-expected revenue growth of 7%, compared to a 27% revenue increase in the second quarter a year ago. But CEO Andy Jassy made an upbeat statement, saying he sees accelerating revenue, which has helped.

Even worse were gains. Amazon reported another net loss due to its Rivian Automotive
RIWN,
+1.34%

Investments & Meta is reporting a massive 36% drop in net income, with the Big Five totaling $56.9 billion, down 24% from a year-ago net income of $74.9 billion, as higher costs pinched their bottom lines. Low revenue growth.

After a 101% increase in net income in the second quarter a year ago, Meta’s big drop in net income was particularly steep, as the company lavishly spent on the unproven vision of Metaverse CEO Mark Zuckerberg. Its Reality Labs, the business unit focused on virtual and augmented reality, posted a loss of $2.8 billion on revenue of $452 million. Ad revenue hasn’t been able to fully compensate, and has declined slightly, amid Zuckerberg’s comments that the situation was worse than a quarter ago.

Yet Mater stocks will end July essentially as a break-even month, up less than 1%, and the worst performance of the Big Five. Apple stock rose more than 19% in July, Amazon more than 28%, Microsoft 9% and Alphabet nearly 7%, with all but Meta gaining after their earnings reports.

Facebook’s parent was spared a slew of other digital-advertising-based businesses like Snap Inc.
Snap
+2.17%
,
Its stock ended July down nearly 25%, continuing a steep decline that included a 50% plunge in May. After executives warned of a major advertising slowdown that is also affecting Google and Facebook.

This divide between dominant big tech platforms and smaller companies trying to compete is likely to continue. While they all see slow growth and bleak prospects for the immediate future, the sheer size and billions of dollars in Big Tech’s revenue and earnings will keep these giants largely out of the kind of pain Wall Street is suffering. Snap, Roku Inc.
ROKU,
-23.07%

and others.

For more: Read about Roku’s ‘Frankly Terrible’ Earnings

It is worth remembering that for the entire year 2021, THe reported 27% annual revenue growth for the Big Five and 55% net income growth. As they collectively topped $1.4 trillion in revenue for the year. At the time, MarketWatch noted that this was not a normal increase, and in fact, this may have been the year the technology jumped the shark.

While the resounding themes of most of the conference calls were reining in, cost-cutting, hiring slowdowns or job cuts, and macroeconomic uncertainty, investors for the most part seemed happy to avoid worse-than-expected results for Big Tech. For the rest of tech, though, there are more questions ahead as we head into earnings season with more reports.

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