So far this earnings season, the Big Tech giants have had a rough time, and Thursday’s earnings reports are expected to be no different.
After years of strong profits fueled by demand for technology products and services during the pandemic, the industry has started to struggle in recent months.
High inflation and interest rates, increased competition, and a decline in demand in the consumer and digital ad markets are just a few of the factors that have combined to put pressure on the tech giants.
As a result, technology companies face a challenging business environment that impacts their financial performance.
Alphabet, Amazon and Apple are all scheduled to report their crucial December quarter results on Thursday, and the results will be watched closely by investors and analysts. Expectations are not particularly high for Wall Street as the industry continues to face headwinds.
The current earnings season has prompted concerns about the sustainability of the tech sector’s growth, which has been one of the key drivers of the broader stock market in recent years.
Thursday’s earnings reports from Alphabet, Amazon and Apple will help us better understand how the industry is progressing and whether it can continue to perform at current levels.
Earnings from the Same Period
Apple, one of the most resilient tech giants in recent years, reported its first quarterly revenue decline since 2019 and is expected to decline 2% from the same period last year.
This could be because of a combination of factors, including increased competition, declining demand for tech gadgets, and high inflation and interest rates.
Alphabet, on the other hand, is expected to report flat revenue compared to last year, and Amazon’s sales are predicted to grow just shy of 6% year-over-year.
Despite the modest growth, Amazon’s profits are expected to fall by a significant 40.6% from the year-ago quarter, which could be a sign of declining demand for its products and services.
These earnings reports are likely to be another indicator that tech giants are no longer as immune to economic changes as they have been in the past.
Market analyst Joshua Warner at investment firm StoneX commented that “Apple proved more resilient than its Big Tech peers in the last quarter, but this earnings season could be tougher.”
He added that most of Amazon’s businesses are finding it harder to grow in the current economic environment, and the company has already warned of slower revenue growth during the holiday shopping season.
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Alphabet, Amazon, and Apple are set to release their financial results for the final quarter of 2022, following the footsteps of Microsoft, Snap, and Meta. Microsoft reported weaker-than-expected revenue and a 12% decline in profits, compared to the year-ago quarter.
However, the cloud computing division saw a growth of 22% from the previous year, providing a glimmer of hope for investors. On the other hand, Snap faced a stall in revenue growth and a large net loss in the same period.
Meta, on the other hand, experienced its third straight quarterly decline in revenue and a drop in profits. Despite this, the company outperformed analysts’ sales expectations and reassured investors by focusing on efficiency rather than heavy investments.
This led to a surge in its stock price by nearly 20% in after-hours trading. The company also lowered its forecast for capital expenditures and increased its stock repurchase plan by $40 billion.
The announcement that Facebook reached 2 billion daily active users was another positive highlight from Meta’s report.
The guidance provided by these companies on the future outlook will be crucial in determining if the challenges of 2022 will continue into the new year. Despite some positive signs, it seems that the companies’ struggles are not yet over.
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Everything Seems to Fall
After the company disclosed that it has already experienced an approximately 7% revenue decline in the first quarter compared to the prior year, Snap’s stock fell more than 14% on Wednesday.
It predicts that sales will decrease between 2% and 10% in the first three months of 2023 compared to the same period last year.
The outlook for Meta was a little brighter; the social media juggernaut predicted first-quarter revenue between $26 billion and $28.5 billion, with the upper end of that range representing a slight increase over the corresponding quarter last year and ending Meta’s streak of consecutive quarterly revenue declines.
In recent months, a number of significant tech companies, including Microsoft, Google, Meta, and Amazon, have announced intentions to fire tens of thousands of employees. (Apple is now the only significant exception to this trend.)
Amazon and Alphabet shareholders should be able to see from Thursday’s announcements how quickly the tech titans will profit from those expense reductions and whether they’ll be sufficient to weather the upcoming uncertain period.
The Fed did moderate the rate of its increases, and policymakers made it apparent that they are making progress in their ferocious fight against inflation. Nevertheless, because they reduce corporate profits, rate increases are often bad news for traders.
However, investors generally applauded the Fed’s most recent actions on Wednesday. The S&P 500 gained 1.1%, the Dow finished the day up about 10 points, and the Nasdaq Composite gained 2%.