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In the past two weeks, the world’s largest technology companies have released their quarterly results. And although they showed signs of pain as the coronavirus pandemic took hold in most of the world in March, investors still rewarded them for their resilience in the current economic downturn.
Facebook stocks jumped up to 10% after their earnings report last week. Google’s parent company Alphabet grew 7%. Netflix reported nearly double the number of new subscribers it had planned for the quarter. Apple made up for the loss of iPhone sales with digital services like App Store sales and subscriptions.
The only sour point in Big Tech’s revenue came from Amazon, which made less profit than expected as it continues to spend a lot to combat the effects of the pandemic on its transportation and logistics network.
So-called FAANG stocks (Facebook, Apple, Amazon, Netflix and Google / Alphabet) have proven to be much stronger than other sectors ravaged by the pandemic. Home orders around the world are making people use technology to work remotely more than ever, which gives them more boost and optimism around technology.
And don’t sleep on Microsoft, which is often left out of the Big Tech conversation. It recorded a 15% increase in sales in the last quarter and is now the most valuable listed company in the world.
Compare that to the various other industries that have been destroyed by the coronavirus. Over the weekend, Warren Buffett announced, for example, that he had sold the shares of Berkshire Hathaway in the top four airlines. Retailers like Macy’s and JCPenney, who were fighting before the pandemic, knock on the door of death.
But Big Tech, which has gone beyond manufacturing gadgets and popular gadgets to build the digital infrastructure the world needs to weather an unprecedented economic downturn, seems stronger than ever.
Here is what we have learned.
Optimism in April
Facebook, Google and Apple all reported lower sales for March, but the three companies said the first weeks of April were showing signs of “stability” and possible recovery. In the digital advertising world, Facebook and Google both said that sales fell sharply in mid-March, but started to stabilize in April. These comments enthusiastic investors, raising the shares even higher.
Apple also said that April was getting better. Sales took a hit earlier than Facebook and Google due to Apple’s exposure to China, which was blocked months before the United States and the rest of the world. But CEO Tim Cook told CNBC on Thursday that things were starting to change.
“There was a big and very steep fall in February. It started to recover in March, and we saw an additional recovery in April. So that leaves room for optimism, “Cook said in an interview with Josh from CNBC. Lipton last week.
Prepare for an advertising crisis
Even though industries such as travel are drastically reducing advertising, technology platforms that rely on digital advertising have found a new bright spot: Direct Response (DR) ads that drive people to buy or download an app . Facebook, Google and Snap have all pointed to DR ads as a positive in the midst of a larger drop in ad spending. Snap in particular seems to be well placed to take advantage of the trend, and its title has increased by 36% the day after the publication of its results.
But that was another story for Twitter, which has struggled to build the technological infrastructure it needs for DR ads. Twitter also didn’t show the same signs of recovery in April as Facebook and Google, which punished the headline last week.
More engagement, more guesswork
You don’t see the term “guessing” too often in revenue reports, but that’s exactly what we heard from Netflix when it released revenue earlier in April. Netflix attributed the unexpected surge in new subscribers to people staying at home under local shelter orders, but noted that it would be difficult to determine if this growth will continue as the economy begins to reopen and people will come out more.
This theme has also been taken up by Google and Facebook. The coronavirus had people glued to their feeds more than usual, but it is impossible for these companies to determine whether this increased commitment will continue throughout the year. And because advertisers are withdrawing, more engagement doesn’t necessarily translate into more money.
Share buybacks continue despite criticism
Google and Apple continue to buy billions of dollars worth of shares every quarter, although criticism is mounting. Apple alone has said it will buy more than $ 50 billion from its stock.
But unlike companies in other industries that have spent the past few years buying massive amounts of stocks instead of saving that money for a downturn, Google and Apple still have a lot of money to justify their buyback programs. In addition, they do not lay off or lay off their employees and do not request loans from the government. It is difficult to argue against the Google and Apple takeovers, given the position they still occupy to overcome the coronavirus pandemic.
Apple stands firm in China
Apple was the first large tech company to issue a formal revenue warning because of the coronavirus pandemic, which shut down most of China earlier this year. In its revised forecast for February, Apple said it has seen a drop in demand and bottlenecks in its supply chain.
But despite a 7.5% drop in revenue from China in the last quarter, Apple said it was able to compensate for this with higher sales of digital services like Apple Music subscriptions and sales on the Internet. ‘App Store.
Apple has massive exposure in China, counting on the country to manufacture its product and increase sales. The company spent the past year changing the reconstruction of its operations in China, and was able to avoid a major slowdown despite the effects of the pandemic. Meanwhile, Apple stores in China are already reopening, and the country will likely serve as a model for Apple when reopening stores in the United States and beyond.
Always “Day One” for Amazon
Amazon is famous for reinvesting profits in the business, but in recent years has demonstrated its ability to regularly post solid quarterly profits through its cloud division, Amazon Web Services (AWS), which has recorded more than $ 10 billion. dollars in quarterly income for the first time.
But Amazon sees the pandemic as an opportunity, not a time to retreat.
Amazon warned in its release of results last week that it plans to reinvest an expected profit of $ 4 billion this quarter in its Covid-19 response, which includes strengthening its delivery network to bring it back to normal and provide Covid-19 tests to employees so they can safely return to work. In fact, Amazon has said it plans to spend at least $ 1 billion this year just on testing.
Don’t take this as a sign that Amazon is in trouble. The company is following its old rulebook, seizing the opportunity to invest billions more in the business to get out of the other side of the pandemic stronger than ever.
So what makes Big Tech so tough against Covid-19?
As technology has taken over the media, shipping and retail, it has built a critical digital infrastructure over an aging system. Video chat services, new devices, cloud computing and more have literally kept the hum of our devastated economy in a way that would have been almost impossible during the last financial crisis.
Despite all the antitrust heat and other criticism that has plagued the industry in recent years, it is in a better position than any other to emerge from the other side of the pandemic that is bigger, stronger and more important to our way of life.