Rising inflation, concerns about the economy and increasingly budget-conscious consumers have finally caught up with Big Tech in a big way.
Google and Microsoft both disappointed on some metrics as growth in digital advertising and in cloud computing, respectively, fell short. Even Apple, the world’s most valuable company, warned investors its revenue growth would slow over the all-important holiday period.
“This week will go down in the history books of earnings seasons as one of Big Tech’s worst,” Dan Ives, an analyst with Wedbush Securities, said in a Thursday note.
For the past decade, the biggest tech companies kept getting bigger, rapidly increasing their revenue as they conquered new industries and people spent more of their time and money online. Their stock values soared, and several of them cracked the trillion-dollar mark, becoming the most valuable companies in modern history. The 401(k)s and investment portfolios of regular Americans became dominated by the tech giants.
Now, Wall Street is asking whether that era is coming to an end.
“Big Tech management teams needs to quickly adjust to a much different backdrop or risks losing its luster for investors that have bet on these tech thoroughbreds for the past decade,” Ives said.
Rising inflation has cut into the money consumers have to spend on shopping online or buying a new streaming service subscription. People have returned to physical stores and experiences after avoiding them during the height of the pandemic. The war in Ukraine is still casting a shadow over the world’s economy, with food and gas prices still high and concerns about the conflict getting worse dampening new investment.
New data released Thursday showed that the U.S. economy did grow during the third quarter, a turnaround from earlier this year, but experts warned that fractures in the economy still remain. Mortgage rates are soaring as the Federal Reserve tries to slow the economy and curb inflation.
Amazon’s stock fell more than 20 percent in after-hours trading after the company announced its quarterly results. It said it expected sales between $140 billion and $148 billion during the quarter, a slight increase from last year but falling short of analyst expectations.
On a call with media, Amazon Chief Financial Officer Brian Olsavsky said the company saw “moderating growth rates” in the second half of the third quarter, as people tightened their belts and enterprise cloud customers tried to save money.
“We are seeing signs all around that people’s budgets are tight, inflation is still high,” he said. “We are preparing for what could be a slower growth period, like most companies.”
The company is going to be “very careful” with its hiring, he said, and is pausing hiring in certain divisions. The company has already implemented a hiring freeze in its core retail business to last through the end of the year, according to media reports.
Facebook’s shares plummeted nearly 25 percent to its lowest price in eight years. The company has struggled all year as changes made by Apple to the kind of data app developers are allowed to pull from its phones have made it much harder for Facebook to sell the highly-targeted ads it built its business on.
Facebook CEO Mark Zuckerberg has pledged to move the company into a new era where it was focused on the metaverse, rather than being beholden to apps on other companies’ phones. He said Wednesday that the company would keep spending billions on building out the metaverse, a move Wall Street is deeply skeptical about.
Google’s YouTube, a key form of revenue growth for the company, saw the amount of money it made shrink from the same time last year — the first time that’s happened since Google began disclosing YouTube’s financial information in 2019. Microsoft, which has reinvented itself over the past decade as a leader in cloud storage and computing, said growth in that business slowed down over the past quarter.
Apple, which has bulldozed itself to being worth more than $2.3 trillion dollars on the strength of sales of its iPhone, missed analyst expectations for sales of those iPhones.