The real world affects the business of tech giants

From San Francisco to Seattle, US tech companies are troubling the market with underwhelming growth and poor forecasts, a sign that even ‘big technology’ suffer from the fragility of the economy and competition from new actors. “This week will go down in financial history as one of the worst for ‘Big Tech,’ including a milestone,” said Wedbush Securities analyst Dan Ives.

Alphabet, Google’s parent company, was registered in the third semester the lowest income growth since 2013, with the exception of the pandemic period. Cloud computing-led Microsoft reported strong quarterly results on Tuesday, but issued a warning about the growth of its Azure platform for the sector.

Meanwhile, Meta (Facebook, Instagram, WhatsApp, Oculus) was a “disaster,” according to Ives. Its bonds fell nearly 25% when it reported quarterly results that halved profits ($4.4 billion, -52%) compared to the same quarter in 2021.

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Massive mobilization of resources to build a parallel universe – “metaverse” -, which is available through augmented and virtual reality, is generating growing skepticism among company watchers at a time when inflation and rising interest rates to curb it are increasingly eroding corporate margins.

“There is no information about the potential in terms of revenue that Meta could get from the metaverse. Nobody knows,” said Debra Aho Williamson, an analyst at Insider Intelligence. “Google is more likely to recover quickly because its search engine has been a mainstay of the Internet for decades, both for consumers and businesses. Its economic model is not broken,” he added.

Faced with the world’s economic difficulties, many advertisers have reduced theirs marketing budgets and this affects companies that derive most of their income from online advertising. Snapchat suffers from this in particular: although the number of users is growing, the application is considered an experimental communication channel.

Meta sold, however 17% more advertising space in the third quarter. However, the average price fell by 18% compared to the same period last year. “We knew global ad spending would fall. But I think the worst is over,” said Tejas Dessai, analyst at Global X ETFs.

“Terrible competitor”

ON Silicon Valley it also suffers from the effect of comparison with 2021, when the pandemic favored online business. But one of the factors hitting the big platforms the hardest won’t go away easily: the ultra-popular TikTok is taking up more and more space. In 2021, this entertainment platform surpassed Google as the most popular website in the world, according to Cloudflare.

Google and Meta copied the TikTok video format from “short pants” and “reels”, but so far they have not been able to turn their investments in this segment into profits. “More than 140 million ‘reels’ spin on Facebook and Instagram every day, 50% more than six months ago,” said Mark Zuckerberg, Facebook’s number one. “And we believe that in the past we have gained market share (relative to apps) from competitors like TikTok,” he added.

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“TikTok is a feared competitor, but in terms of ad revenue there is no comparison,” said Debra Aho Williamson. Industry veterans “are still way ahead.” In the field of e-commerce, US giant Amazon saw a 9% contraction in its net profit in the third quarter compared to the same period last year, as well as lower than expected traffic in the market, according to data its results released on Thursday.

The stock market reacted very poorly to these numbers, with Amazon shares down more than 19% in after-hours trading. In turn, Apple exceeded market expectations with $90 billion in revenue and $20.7 billion in net profit in the third quarter. Sales of the iPhone, its flagship product, were disappointing.

In the fourth quarter of its fiscal year, the third of the year, the California group sold smartphones for $42.6 billion, below the $43 billion expected by analysts. Its shares fell slightly in after-hours electronic trading on Wall Street, closing at $143.60, close to the day’s close.

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