As Meta had its worst week ever, Big Tech falters on Q3 2022 results
After making unsettling predictions for the third quarter and the rest of the year, Alphabet, Amazon, Meta, and Microsoft collectively had their market caps decline by roughly $350 billion. After a decade of unrestricted expansion, the tech giants have found themselves in an unexpected situation due to slowed revenue growth—or decreases, in the case of Meta—and efforts to cut costs.
This week’s third-quarter results were released in the context of skyrocketing inflation, rising interest rates, and an impending recession. After exceeding revenue and profit projections, Apple defied the trend. The stock enjoyed its greatest day on Friday in more than two years.
Meta, whose stock price fell in 2022, was at the other extreme of the spectrum. The parent company of Facebook reported lower-than-expected earnings, recorded its lowest average revenue per user in two years, and predicted that revenues will likely decrease for a third straight year in the fourth quarter.
The CEO of Meta, Mark Zuckerberg, noted during the company’s earnings call on Wednesday that “there are a lot of things going on right now in the business and in the globe, so it’s impossible to have a straightforward ‘We’re going to do this one thing, and that’s going to address all the concerns “
Since the company’s IPO in 2012, Meta’s stock has experienced the worst week, falling 24% in the last five days. After providing a dismal forecast for the year-end quarter and missing estimates for cloud revenue, Microsoft’s share price dropped 2.6% for the week, accounting for a 7.7% drop on Wednesday.
Amazon’s stock plummeted 13%, adding to the general gloom. The sell-off was mostly caused by a bleak fourth-quarter projection and a sharp slowdown in its cloud computing segment.
While growth at Amazon Web Services slowed to 27.5% from 33% in the previous quarter, it accelerated at Google’s cloud division, which is substantially smaller, to almost 38% growth from about 36%. In the upcoming quarters, Google wants to slow the increase of its staff overall while maintaining its cloud spending.
In a conference call with analysts on Tuesday, Alphabet CFO Ruth Porat stated, “We are pleased about the prospect given that enterprises and governments are still in the early stages of adopting public cloud. We continue to invest accordingly.” We continue to be committed to finding a longer-term route to profitability.
Results from Google parent company Alphabet’s other divisions, though, were less noteworthy. The company’s primary source of revenue, advertising, increased just a little, and YouTube’s ad sales decreased from the previous year. Amazon, which is lagging behind Google and Facebook in digital advertising, experienced the opposite. Revenue growth in Amazon’s advertising division jumped to 30% from 21%, exceeding analysts’ projections.
According to the company’s finance director, Brian Olsavsky, “Advertisers are seeking successful advertising, and our advertising is at the point where customers are ready to spend.” We believe that we have many advantages that will benefit both consumers and our partners, such as retailers and advertisers.
After the report, Raymond James analyst Aaron Kessler reduced his price estimate for Amazon stock from $164 to $130. However, he kept what would be a buy rating on the stock and stated that the company’s “strong advertising growth” might be able to help Amazon increase its margin.
Investors are now turning their attention away from technology and onto other sectors of the market that had previously lagged behind software and internet names. The Dow Jones Industrial Average increased by 3% this week, marking the index’s fourth straight weekly rise. The Dow had lagged behind the Nasdaq for five years prior to 2021.