Big tech smashes forecasts in second quarter
The US technology-led Nasdaq index was given another huge lift at the end of last week as four of the world’s big five tech companies posted huge profits just days after a marathon five-hour grilling from Congress over their scale and power.
Google-owner Alphabet, Amazon, Apple and Facebook, worth a combined $5.15 trillion (£3.95 trillion), smashed second quarter expectations, with Amazon, Apple and Facebook booking record profits.
Nasdaq closed on 3 August at a new record high of 10,902.80.
The largest US technology companies are thriving in a pandemic that has increased dependence on their products and services, while hammering much of the rest of the economy.
Together, the quartet reported revenue of $206 billion and net income of $29 billion in the three months to 30 June 2020, showing that the industry is capitalising on the crisis as locked-down consumers use tech gadgets and the internet for entertainment, social connection, shopping, learning and work.
Amazon posted a 45% jump in earnings per share to $10.30, pulverising a consensus estimate of $1.50 as operating margins expanded, ‘despite spending $4 billion on incremental Covid-19 initiatives in the quarter to help keep employees safe and deliver products to customers in this time of high demand,’ pointed out analysts at broker Killik.
Demand soared for gaming and entertainment apps as millions stayed home, with streaming services like YouTube posting strong growth for Alphabet, although ad revenues took an expected hit, while Facebook’s monthly active users (MAUs) passed the three billion mark for the first time.
Working from home trends also saw shoppers swoop for updated devices, with Apple reporting strong growth in Mac and iPad, while the launch of the low-cost iPhone SE saw growth in iPhone revenue.
Cloud adoption was also a huge theme as businesses across the globe raced to embrace solutions to keep operations going while offices stayed empty. Google Cloud revenues jumped 43% in the quarter, and even though growth slowed for public cloud leader Amazon Web Services, it still posted 29% higher sales.
‘The penetration of e-commerce is accelerating,’ said Hari Srinivasan, a senior analyst with Neuberger Berman. While a strong second quarter had been widely anticipated for big tech, the scale of outperformance underlines why some technology experts believe platform businesses such as these, and others, will continue to command valuations at a premium to the rest of the market.