Big Tech Companies Reap Gains as Covid-19 Fuels Shift in Demand

Big Tech reported robust earnings in the latest quarter.
(Koshiro K)
(Koshiro K)
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It was a big quarter for Big Tech, WSJ reports. Let’s dive in on earnings:

Amazon’s revenue increased 37% to a record $96.2 billion. The e-commerce giant’s profit almost tripled, reaching $6.3 billion.

  • Driving Factors: E-commerce has boomed since the pandemic hit in March. Strong online sales, digital advertising and a growing cloud-computing business drove Amazon’s recent quarterly success.
  • Stepping Back: Amazon remains undeterred in its growth prospects, even with its physical grocery business, Whole Foods, reporting a 10% decrease in sales and Prime Day shifting from July to October. The company projects between $112 billion and $121 billion in sales during Q4.

Alphabet’s Googleblasted through the coronavirus pandemic with gangbuster earnings,” reporting a third-quarter profit of $11.2 billion. The company’s digital advertising revenue improved to $37.1 billion compared to last year.

  • Driving Factors: With the pandemic “buoying online commerce” and keeping people online and mobile devices more often, Alphabet had gains across the board. YouTube earned more than $5 billion in advertising, a 32% improvement over last year. Google Cloud revenue rose 44% and surpassed $3 billion in the quarter. Google’s “Other Bets,” which, according to WSJ, includes “areas such as self-driving cars and internet hot-air balloons,” also posted improved numbers.
  • Bonus: It’s important to note Google does have its hands full right now, making the positive quarter all the more critical. The Justice Department recently launched an antitrust suit against the company, and CEO Sundar Pichai appeared before the Senate earlier this week to field questions on Section 230 and content moderation practices.

Facebook’s revenue hit a record $21.47 billion in Q3, a 22% increase. The company forecasts even faster growth in Q4 as “the holiday season bolsters ad spending.”

  • Driving Factors: Robust digital-ad spending “outweighed a high-profile ad boycott, data-gathering restrictions and continued fallout from the coronavirus pandemic.”
  • Looking Ahead: While the shift to online commerce will benefit Facebook in the long-term, CFO David Wehner said the company faces “substantial regulatory threats” along the way. He cited an order from European regulators prohibiting the transfer of European users’ data back to the U.S., which the company is appealing. Facebook is also dealing with antitrust and content moderation scrutiny.

Apple’s total revenue improved slightly by 1%. iPhone revenue dropped 21%, but revenue excluding sales iPhone sales increased by 25%, with Mac computers drawing in $9 billion. Apple’s profit fell to $12.7 billion.

  • Driving Factors: An surge in laptop and iPad sales due to the pandemic buoyed Apple even as iPhone sales fell, and the company had to delay the latest release of its flagship smartphone.
  • What Else: Apple has its own issues to contend with — a House subcommittee is accusing it of asserting monopolistic power over the mobile device market with its App Store. It’s also very much tangled in Google’s antitrust issues.

Twitter pulled in $808 million in ad revenue, a 15% improvement from the same period last year.

  • Driving Factors: With the social media company’s ad business “driven largely by promotions around current events like sports and product launches,” the return of professional sports this summer provided a “nice tailwind.”
  • Bigger Picture: Longer-term user growth is a concern. Twitter did add 29% more users this time around than Q3 of last year. But it only added around 1 million following Q2 of 2020.

Microsoft reported earnings earlier this week.

Justin Oh:

I’m still hugely bullish on Amazon (even at 22x forward EBITDA). This is an eat-the-world company, with slight antitrust risks that might disallow them to favor their own products on the platform.

I’ve upgraded Facebook ($FB) on the compounder list on how strong the business is looking from their earnings call and because of their stock drop today. They are now trading at under 14x forward EBITDA with great growth and profitability. 

Alphabet ($GOOG) is up today and trading at a juicy 13.3x forward EBITDA, but I’ve moved it down on the compounder list because I am now more spooked by how big an antitrust smackdown would affect its search volumes.

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