Big Tech Rides a Wave of Good News, With One Exception

There was much to celebrate for Big Tech this earnings season — with one notable exception. Meta, Amazon, Apple, and Google all saw impressive revenue growth and bumper profits, buoyed by the ongoing pandemic recovery and strong consumer spending. But the good times may not last, as inflation persists and the Federal Reserve moves to curb it by raising interest rates.

The Season for Meta, With a Catch Meta, the new moniker for Facebook's parent company, enjoyed a stellar season. It posted its largest revenue increase in a decade, with ad revenue notably up 38% year over year. The social media giant also boasted its largest quarterly increase in users since 2016. The uptick was driven by increases in its Instagram and Facebook platforms, notably in the lucrative ad market of North America. Critical to this success was the return of advertisers after they pulled back during the pandemic. Zynga, a company that tracks ad spending, noted a 10% increase in Q1, higher than most previous years. Meta predicts this trend will continue, with CEO Mark Zuckerberg declaring the company is "back to pre-pandemic levels."

But the good news is tempered by an ongoing crisis of trust. Meta, along with other tech giants, is grappling with concerns over privacy, the collection of personal data, and the spread of misinformation. In a telling moment, Zuckerberg apologized in a congressional hearing this week to relatives of victims abused through platforms like Instagram. The chorus of critics is getting louder, with increasing demands for regulatory action. Some lawmakers suggest breaking up these companies, and the EU is enforcing stringent content rules that could impact revenue.

Amazon Advances, but Some are Feeling the Chill Amazon's results were equally buoyant. It posted a doubling of profit to $14 billion, the highest in company history. This was driven by that familiar powerhouse, Amazon Web Services, and the company's advertising business, which posted a double-digit increase in revenue. Many retailers were forced to step up their online offerings during the pandemic and are now loyal AWS customers. However, there was one notable setback linked to economic concerns: slower growth in Amazon's core shopping business. Analysts attributed this to rising costs, including fuel and labor, and the company's response was to hike shopping fees for Prime members. It suggests that Amazon, along with other Big Tech players, is not immune to the rising cost of living and potential consumer shift to cheaper options.

Apple Eats the Rotten Fruit Apple also unveiled a blowout quarter, including its highest profit ever: $2 billion in profit over three months. This was fueled by robust sales of iPhones, Macs, and iPads, alongside a significant jump in revenue from its services, which climbed to $19.6 billion. The company also announced a massive share buyback, a billion dollars of which is earmarked for investment in its own stock. This impressive earnings report follows a troubled year for the company, notably including a failing attempt to penetrate the Meta-dominated world of social networking with its TikTok clone, Lasso. The stellar results, along with increased dividend and the share buyback, suggest that Apple is confident it can weather any downturn while remaining focused on its long-term vision.

Google Beats Expectations, but There's a Cost Google's parent, Alphabet, also reported healthy figures, with profit up nearly 40% year over year. This was fueled by a continuing rebound in advertising, with Google Search and YouTube posting robust gains. The company raised its sales outlook for the second quarter, encouraged by what it calls "strong secular growth trends." It, too, acknowledged headwinds, noting the impact of the war in Ukraine and macro economic trends. A trend among the Big Tech giants is to hire aggressively while absorbing rising costs, indicating confidence in their ability to maintain growth. However, an analyst noted the potential for future caution: in an environment of rising interest rates and narrowing margins, there could be a pullback on hiring and investment.

The Exception That Could Spell Trouble for All One company missed the positive beat: Netflix. The streaming giant reported its first drop in subscribers in a decade, igniting fears of a sinking ship. The company is contending with increased competition from streaming rivals and the impact of slowing broadband growth. It has responded by exploring new revenue streams, such as a cheaper, ad-supported tier. However, this could be a double-edged sword, as it also intends to raise fees for its premium plan to offset the impact of these new initiatives. Given the current economic climate, it could risk scaring away potential adopters. The company is confident it can win back subscribers through new content, such as the highly anticipated Harry and Meghan documentary series.