Big Tech feels a big drop as Google and Microsoft struggle to maintain growth
Both Google parent firm Alphabet and Microsoft posted weaker-than-expected earnings last night, as they grapple with the testing macroeconomic backdrop.
For Google, revenue growth slowed to 13 per cent in the quarter from 62 per cent a year earlier, while advertising revenue climbed a humble 12 per cent to $56.3bn.
Sales also slowed across YouTube, as budgets are tightened amid inflationary pressure.
Google Cloud shorted revenue expectations, losing $858m during the quarter.
AJ Bell analyst Russ Mould said economic growth was slowing the cloud business’ momentum. “The cloud has yet to be tested in a time of economic stress and its value is partly in the fact you can dial consumption up and down. It could be as businesses struggle, demand weakens over the year,” he said.
The silver lining from the quarterly report was that Google’s Search and other revenue was $40.69bn, up from $35.85bn.
As pointed out by Hargreaves Lansdown equity analyst Sophie Lund-Yates, “Alphabet’s unshakeable presence in our daily lives means it falls into the essentials bucket for marketing teams, which is why ad revenues are still rising despite concerns of an overly-harsh tapering of demand.
A positive reaction from the latest quarterly numbers has been incredibly hard-won given the negative market sentiment surrounding broader tech.”
Alphabet didn’t provide a revenue forecast, but said economic headwinds were likely to continue throughout 2022.
Meanwhile, Microsoft posted its slowest revenue growth since 2020, hitting 12 per cent in the quarter.
Earnings per share also fell short of Wall Street expectations for the first time in five years, with net income climbing two per cent to $16.74bn.
Quilter Cheviot equity research analyst Ben Barringer said both Microsoft and Google’s results “fall into the camp of not terrible given the current backdrop, but also not living up to recent history”.
“Given companies continue to digitise and this is a theme that is going nowhere, despite global economic troubles, these remain high quality businesses that have the potential to thrive in a multitude of environments,” he added.
Alphabet and Microsoft shares both dropped nearly three per cent in pre-market trading.