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Opinion: Big Tech shows that it’s good to be big as a growth slowdown translates into stock gains while smaller peers are in pain

Opinion: Big Tech shows that it's good to be big as a growth slowdown translates into stock gains while smaller peers are in pain
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After supercharged, doubly digital growth during the pandemic, results for the five largest US tech giants this week showed a slowdown as they struggled with inflation, a looming recession and an overall slowing economy, but they were bailed out by Wall Street because of their size shows their strength.

Last week, Big Tech reported all of its second quarter earnings and the results were mixed, with a big miss at Meta Platforms Inc.
TARGET,
-1.01%

affect the combined results. But even with the stronger results from Apple Inc.
AAPL,
+3.28%
,
alphabet inc
WELL,
+1.79%

GOOGLE,
+1.84%
,
Amazon.com Inc.
AMZN,
+10.36%
,
and Microsoft Corp.
MSFT,
+1.57%
,
Total combined revenue was $354.5 billion before traffic acquisition costs at Alphabet, a 6.91% combined growth rate, compared to $331.64 billion in combined revenue in the June quarter a year ago.

Each giant had slower revenue growth and Meta its first sales decline ever. And while Analysts touted Apple’s iPhone as “resilient” amid major economic uncertainty, its sales growth in the June quarter was sluggish at 2%. In contrast, sales rose 36% in the June quarter a year ago. Alphabet, which reported pre-TAC revenue growth of 62% in the prior-year June quarter, reported revenue growth of 13%, or 16% at constant currency as digital ad spend fell. Amazon posted a slightly better-than-expected 7% increase in sales, compared to 27% revenue growth in the second quarter a year ago. But CEO Andy Jassy issued a hopeful statement, saying he’s seeing sales up, which also helps.

The profits were even worse. As Amazon reports another net loss on Rivian Automotive
RIVN,
+1.34%

Investment and Meta reported a whopping 36% drop in net income, the Big Five’s net income totaled $56.9 billion, down 24% from last year’s net income of $74.9 billion, as higher costs pushed their bottom line down less revenue growth.

Meta’s big drop in net income, after a 101% year-over-year increase in net income in the second quarter, was particularly steep as the company blithely billed as CEO Mark Zuckerberg’s unproven vision of the Metaverse. Its Reality Labs, the business unit focused on virtual and augmented reality, posted a $2.8 billion loss on sales of $452 million. Ad revenue couldn’t fully compensate, falling slightly as Zuckerberg said the situation was worse than a quarter ago.

Still, Meta stock will end July as a basically even month, down less than 1%, down less than 1%, the worst performance of the Big Five. Apple stock is up more than 19% in July, Amazon is up more than 28%, Microsoft is up 9% and Alphabet is up almost 7%, all but Meta are up on their earnings reports.

Facebook’s parent company has been spared from the slaughter of other digital advertising-based companies like Snap Inc.
SNAP,
+2.17%
,
whose shares are set to fall nearly 25% at the end of July and continue a rapid decline that includes a 50% plunge in May, after executives warned of the big advertising slowdown also affecting Google and Facebook.

This split between the dominant big tech platforms and the smaller companies trying to compete is likely to continue. While they all see slow growth and unclear prospects for the immediate future, the sheer size and billions of dollars in revenue and revenue generated by Big Tech will continue to largely insulate these behemoths from the kind of pain the Wall Street hands out Snap, Roku Inc.
ROKU,
-23.07%

and other.

For more: Read More Roku’s “frankly terrible” earnings

It is worth remembering that for the full year 2021 tThe Big Five reported annual sales growth of 27% and a whopping 55% growth in net income. as they collectively generated over $1.4 trillion in annual sales. At the time, MarketWatch pointed out that this wasn’t normal growth, and in fact, this may have been the year technology skipped the shark.

With most of the conference calls centered on the hot topics of containment, cutting costs, slower hiring or downsizing, and macro uncertainty, investors seemed mostly happy to avoid worse-than-expected results for big tech. For the rest of the tech, however, there are many more questions ahead as we head into earnings season with many more reports.

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