A shelter-in-place order officially remains in effect for tech investors.
Wall Street is once again battening down the hatches after a string of unsettling earnings reports from four Big Tech titans Tuesday—results that rained on tenuous hopes of a bounce-back across the industry.
Alphabet, Microsoft, Spotify, and South Korean semiconductor giant SK Hynix all underwhelmed in the latest quarter, setting the stage for a wrenched remainder of the incipient earnings season. The quartet reported a combination of slow-growing revenue, declining profits, out-of-balance expenses, unfriendly foreign exchange rates, and warnings of continued pain into the fourth quarter.
A brief survey of Tuesday’s carnage:
—Google parent Alphabet fell short of analysts’ earnings and revenue forecasts, with companywide growth dipping to its lowest point since 2013 (excluding one early-pandemic quarter). Alphabet’s advertising revenue, the vast majority of which derives from Google Search and YouTube, grew just 3% year over year, as companies trimmed their marketing budgets. Alphabet shares slid 8% in midday trading Wednesday.
—Microsoft nudged past analysts’ fiscal first-quarter expectations, but company officials offered disappointing current-quarter guidance that sent shares down 6% in midday trading Wednesday. Executives warned that sluggish personal computer sales will continue to weigh heavily on Windows operating system sales, while growth in its cloud computing division likely will slow.
—Spotify topped revenue forecasts but posted operating losses of $227 million, well above analyst projections of about $168 million, as expansion costs ballooned at the Swedish audio company. CEO Daniel Ek responded in part by telling the Wall Street Journal that U.S. subscribers, who account for roughly one-quarter of the company’s subscriber base, could expect to see a price increase next year. Spotify shares tumbled 12% in midday trading Wednesday.
—SK Hynix, the world’s second-largest memory chipmaker, announced plans to cut its 2023 capital investments in half after third-quarter profit plunged 60% year over year. In an earnings call, SK Hynix’s chief marketing officer called an ongoing downturn in semiconductor demand “very severe” and “unprecedented.”
Most concerningly, the four companies lamented issues that spread across various subsectors of the industry, suggesting a wide range of other tech giants will struggle to meet investors’ expectations over the coming weeks.
Google’s weaker-than-expected ad revenues, combined with similarly soft sales reported last week from Snapchat parent Snap, bode poorly for companies heavily dependent on digital marketing. Meta announces its earnings after Wednesday’s closing bell, with Pinterest set to follow Thursday.
Microsoft’s warning about slowing cloud computing growth also dragged down its chief rival in the sector, Amazon, which saw its shares sink 4% in midday trading. (The Nasdaq Composite was down 1%.)
Meanwhile, Microsoft’s report of grim Windows trends reinforced widespread accounts of tanking PC sales, which have already sent shares of Dell and HP tumbling over the past two months. The same principle applies to the semiconductor business, with SK Hynix’s results stiffening fears of a prolonged chip winter that could extend deep into 2023 and beyond.
For companies still set to unveil earnings, sporadic glimmers of hope remain. Apple, scheduled to report results on Thursday, could show stronger-than-expected iPhone 14 sales (though reports on this possibility are mixed). Companies dependent on discretionary consumer spending—such as Amazon, Uber, and Airbnb—also might surprise after Netflix and Spotify posted steady subscription revenue growth.
Until such good omens arrive, though, expect investors to continue hunkering down.
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Shifting into high gear. Shares of Intel spinoff Mobileye surged on the company’s first day of public trading, rising about 30% above its IPO price in midday trading Wednesday. Mobileye, a self-driving technology unit of Intel, priced its initial offering at $21 per share at a valuation of roughly $17 billion, well short of the chipmaker’s hopes just a year ago of garnering a $50 billion valuation. Mobileye’s value has been battered by the global economic slowdown and growing investor skepticism around the future of autonomous vehicle technology, among other factors.
Even more angry at Apple. Facebook and Instagram parent Meta condemned Apple’s latest App Store policy change, which states that the iPhone maker will now take a cut of revenues from some advertising purchases made within social media apps, Bloomberg reported Tuesday. Meta officials said Apple is “undercutting others in the digital economy” by siphoning off up to 30% of revenues from in-app purchases of ads displayed within those respective apps. Some small-business owners and influencers buy or pay to “boost” their ads within the Facebook and Instagram apps, though Meta hasn’t said how much revenue it earns from those purchases.
Sex sells, news doesn’t. Frequent Twitter users are losing interest in topics valued by advertisers, a trend that prospective owner Elon Musk will inherit if his drawn-out purchase of the social media company closes, Reuters reported Tuesday. Citing newly obtained internal research, Reuters reported that Twitter devotees are posting less about news and sports, while some users are decamping to Instagram and TikTok to follow fashion and celebrity accounts. Interest in cryptocurrency and pornography are on the rise, though Twitter’s advertising clients are less interested in being associated with those topics.
A crypto bull gets gored. The flagship cryptocurrency fund operated by venture capital titan Andreessen Horowitz has lost about 40% of its value this year, the Wall Street Journal reported Wednesday, citing sources familiar with the matter. The firm emerged in recent years as one of the industry’s biggest crypto bulls, plunging billions of dollars into the sector, but it is slowing the pace of its investments amid a sharp downturn in digital asset values. Crypto fund investors told the Journal that Andreessen Horowitz’s losses as a percentage of investment are likely two to four times as large as those of other venture funds.
FOOD FOR THOUGHT
Falling back to the pack. Three tech industry mainstays on Fortune’s 100 Fastest Growing Companies list have lost their places. Meta, Amazon, and Netflix are no longer among the crowd of ascendant outfits, owing largely to the industrywide slowdown in tech finances. With Silicon Valley down in the dumps, energy companies surged in the annual rankings, and the finance sector maintained the most spots on the list. Tech companies still scored 21 slots, second-most of any industry, with AMD, Zoom Video Communications, and Nvidia securing positions in the top 20.
From the article:
Those three tech giants were hardly alone: Plummeting share prices and rising costs shook up the entire list this year, with only 24 companies from 2021 returning to the top 100. That’s a 76% turnover rate—the highest since Fortune began tracking that statistic in 2000.
Our annual list, now in its 37th year, ranks companies based on growth in revenue, profits, and stock returns, over the three-year period through June 30, 2022. Those metrics have been great lately for the energy sector, which has rallied on the strength of rebounding demand as COVID-related restrictions eased. In 2021, there were no energy companies on our fastest-growers list; this year, there are five.
IN CASE YOU MISSED IT
Elon Musk isn’t even done buying Twitter, but he’s already picking a fight with Apple over Spotify and payment guidelines, by Chris Morris
Uber whistleblower says company used ‘unlimited finance’ to silence drivers who complained, by Alice Hearing
In corporate A.I., a gap is emerging between the haves and the have-nots, by Kevin Kelleher
Here’s what a tech startup adviser says founders must do to survive the downturn, by Kylie Robison
What Matt Levine’s crypto opus means for the industry, by Jeff John Roberts
How digital twin technology can bridge America’s chip manufacturing gap, by Chris Rust
BEFORE YOU GO
Getting feisty over football. Amazon is sending a rare blitz at one of the television ad industry’s heavyweights. The Associated Press reported Wednesday that the tech conglomerate and Nielsen, best known for issuing television viewership figures, are squabbling over how many people are watching Amazon’s Thursday Night Football broadcast this year. Amazon, the first company to sign a multiyear deal to exclusively stream National Football League games on a subscription-based platform, says its precise tracking technology puts the average number of viewers at about 12 million per game. Nielsen, which produces viewership estimates based on a sampling of households tracked by the company, puts the number at a shade over 10 million per game. Television executives, whose ad revenues are often closely tied to viewership estimates, have long grumbled about imprecise approximations produced by Nielsen—but few have taken their gripes as publicly as Amazon has. Game on.
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