28th October 2022
POV: Q3 2022 Earnings
Background:
Alphabet, Amazon, Apple and Meta announced their earnings this week and Elon Musk closed the Twitter deal. Here are the highlights.
Details and Implications:
Alphabet: The company reported Q3 revenues of $69bn which was up 6% YoY, but it was below analysts’ expectations. YouTube growth slowed again amid tough competition from TikTok and others. Alphabet’s overall advertising revenue was $54.5bn for the quarter up slightly from $53.1bn last year, but YouTube’s ad revenue of $7.07bn was down from $7.21bn a year ago. Google Cloud beat analyst expectations with $6.9bn revenue for the quarter. In order to manage costs, the company said it would significantly decrease headcount growth.
Amazon: Post pandemic shopping habits and inflation hit Amazon this quarter. The company’s revenues grew 15% to $127.1bn but that was slightly short of analyst projections. The AWS cloud services division reported revenues of $20.5bn vs $21bn expected, its slowest revenue growth since 2014, however it is still the company’s profit centre, generating operating income of $5.4bn. Amazon’s advertising business did better than its peers who are more impacted by the economic environment and Apple’s iOS privacy changes, with ad revenues increasing 25% to $9.55bn for the quarter. Amazon provided guidance for Q4 of between $140 billion and $144 billion instead of the expected $155 billion.
Apple: It was Apple’s fiscal fourth quarter results this week and revenues were up 8.1% to $90.1bn beating Wall Street expectations. iPhone revenue increased 9% YoY to $42.63bn but this was below analyst estimates of $43.21bn. Its services business also slightly missed estimates. Services revenues grew just under 5% to $19.9bn vs $20.1bn expected but this was a slower rate of growth than the last two years. Apple has been aggressively trying to diversify its business away from a reliance on just hardware launches and towards more constant revenue sources such as advertising, AppleCare, digital content, payments, cloud and other services, which is all bundled under ‘Services’, so missing expectations on this was unexpected.
Meta: The Facebook parent’s revenues slipped 4% YoY to $27.7bn. Profit was down 52% to $4.4bn, due to rising costs and expenses exacerbated by the company’s investments in the metaverse. Meta’s Reality Labs unit which is responsible for developing VR and AR technology lost $3.67bn this quarter. The company said that it expects that Reality Lab’s operating losses in 2023 will grow significantly YoY and that hiring will slow next year. One bright spot was an update on Reels, with Meta stating that there are now more than 140 billion Reels plays across Facebook and Instagram – a 50% increase on six months ago.
Twitter: There were no results from Twitter this week, but last night the world’s richest man Elon Musk completed his $44bn takeover of the company after much controversy. All eyes will now be on Twitter in the coming weeks to see what changes are ahead for the social platform.
Summary:
These results show that neither Amazon nor Apple are completely immune to the multiple and significant headwinds facing all of the big tech players. Amazon, which is arguably better insulated due to its diverse business model covering commerce, cloud and advertising may still face challenges in Q4 given its guidance. It was a mixed bag of results for Apple with the big question around iPhone 14 sales in the key holiday seasons period still to be answered. Meta is facing several challenges, from the economy to effects of Apple’s iOS privacy update, but it believes the experimental bets like the metaverse will pay off eventually.