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CNN Business
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After months of layoffs, hiring freezes and other cost-cutting measures, Big tech companies are set to offer their most detailed look yet at how bad things are in their businesses amid fears of a looming recession.
The parent company of Snapchat, which hurt much of the tech sector in May with a warning of a deteriorating economy, is set to report third-quarter earnings Thursday. Apple (AAPL), Amazon (AMZN), Facebook (FB)-parent Meta, Microsoft (MSFT), Twitter (TWTR), and Google’s Alphabet (GOOGL) will report earnings results in the following week.
“People are likely to prepare for these findings,” said Scott Kessler, global head of technology at research firm Third Bridge Group.
For years, the Silicon Valley giants seemed almost immune to the vagaries of the global economy. Even in the midst of a pandemic, trade war, and other geopolitical uncertainty, the biggest names in technology seem to be getting bigger and richer. But like other sectors in recent months, they have faced a variety of new challenges.
Rampant inflation wipes out consumers’ salaries and reduces their ability to spend freely on technical products and services. Increased costs and fears of an economic recession have reduced the demand for online advertising and enterprise technology services. Analysts say other macroeconomic issues, such as the continued faltering of the supply chain and high interest rates, are holding back growth.
To make matters worse, tech companies also have to contend with the growing strength of the US dollar, which is currently trading at its highest level in two decades. That could mean sales made overseas aren’t worth their while, according to Angelo Zino, senior industry analyst at CFRA Research. A strong US dollar could also make hardware products from companies like Apple less expensive for foreign consumers, which, Zino notes, is a problem given that “most of these companies generate more than half of their revenue outside the US.”
In a stunning turnaround, most major tech companies are now expected to report slowing earnings and revenue growth, or even annual declines, for the three months ending in September, according to analyst estimates.
Amazon (AMZN), which is expected to be in the best condition, is expected to post essentially flat sales from the previous year. Meta revenue is expected to decline 5% year over year, marking the second consecutive quarterly revenue decline. Net income for Meta, Amazon (AMZN), Google, and Snap is also expected to decline from the previous year.
This stark forecast comes after several tech companies already showed signs of weakness in the previous quarter. Meta in July posted its first quarterly year-over-year decline since it went public in 2012 due in large part to lower demand in the online advertising market that fuels its core business. Twitter (TWTR), Snap, Google, Apple and Microsoft also reported that shrinking ad budgets impacted June quarter earnings.
“We compare investor negative sentiment about technology today with what we’ve seen only two other times in our decades of covering tech stocks: 2008 and 2001,” Wedbush analyst Dan Ives said in a note to investors this week, referring to two previous recessions.
Many of the issues currently burdening tech companies are unlikely to stop any time soon, which is why industry watchers will be paying close attention to the guidance these companies provide for the rest of 2022.
“More than anything, people really want a good understanding of what to expect” from the last three months of this year, which was “historically the most important quarter for these companies,” Kessler said. Investors will likely want to know, for example, whether the online advertising market has begun to stabilize before the crucial holiday season.
Negative results or future prospects may increase pressure on tech companies to focus on and downsize their core business The big bets are not expected to return quickly. Some of this is already going on.
In recent weeks, Google announced it was shutting down its Stadia gaming service, Amazon said it would stop testing a home delivery bot and Meta shut down its news product Bulletin.
You may be dead in a uniquely difficult situation. Last October, Facebook rebranded it as Meta and ramped up investments to build a future version of the internet called the metaverse, which isn’t expected to fully materialize for years, if ever. But the Wall Street Journal reported last month that the company had quietly cut staff — and some analysts expect more cuts in the future.
“I think you’ll see them announce cost cuts. I think they’re going to reduce the workforce,” said Zeno. “Meta is really trapped in a corner here. Their core business is located in an environment where they will never see significant growth…and they do not have any major revenue position outside of advertising.”
What a difference the year makes.
Originally published at San Jose News Bulletin
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