All the big tech companies have reported strong quarterly results. The covid19 pandemic has boosted some aspects of their business while some aspects have been affected negatively.
People shopped more online (on Amazon) and students and workers went online to study and work. More sales of Apple devices (iPads and Macs) ensued. People spent their leisure time at home helping the bottom lines of Google/Alphabet and Facebook as they get the bulk of online advertising. Microsoft is into cloud services, games and Office software. It also benefited on all fronts.
As the economy makes a slow and uncertain recovery, the tech giants’ fortunes will only keep improving. As European nations go for lockdowns again and Covid19 numbers spike in America, tech giants are well-placed to weather any storms and come out stronger.
Summary of Quarterly Results
In the quarter that ended on September 30th, Amazon reported record sales and its profits rose almost 200 per cent in the midst of the Covid19 pandemic. The pandemic gave a boost to online shopping in general.
Alphabet/Google’s quarterly net profits rose almost 60 per cent as more advertisements flowed to Google and YouTube. Apple recorded historic highs in sales of its iPads and Mac sales grew as well. Alphabet and Apple benefited from more students and workers than ever before taking online classes and working from home.
Amazon and Microsoft are big players in cloud services and both benefited as more businesses used more cloud services. People playing more games added to Microsoft’s bottom line through its Xbox services.
Only Momentum, No Headwinds
People spent more time on social media while being stuck at home. So, Facebook did well in online advertising even as it stayed in the eye of a storm with some calling for an advertising boycott of the platform. These quarterly result portend good tidings.
These tech juggernauts are set to keep rolling as they face little challenge. Antitrust regulators in some countries are weary about some aspects of their business but legal issues linger for years.
Better Quarter Ahead
The final quarter of this calendar year will be better than the third quarter as the holiday shopping season kicks into full gear in November and December. People will be buying the latest range of iPhones and ordering gifts through Amazon. Advertisers will seek to advertise products online through Google and Facebook.
Amazon’s Quarterly Results
Amazon’s sales were $96.1 billion – up 37 per cent from the same quarter of 2019. Profits in the third calendar quarter were $6.3 billion.
Amazon’s Web Services (AWS) division has been a profit driver for long and it was it grew by 29 per cent in the quarter thanks to more remote work caused by Covid19.
The Amazon juggernaut is not slowing down – it is gaining momentum. Amazon expects sales of $121 billion in the fourth calendar quarter with Prime Day + holiday shopping. With the second wave of the Covid19 pandemic raging, more people will be buying online on Amazon.
Amazon expanded its fulfilment infrastructure by more than 50 per cent. It also added about a quarter of a million employees in the quarter. The total number of employees of Amazon now exceeds more than a million employees.
Jeff Bezos’ journey has been quite extraordinary since the founding of Amazon 25 years ago. Even in the last decade, Bezos has made quite a leap. Amazon will likely cruise ahead under either a re-elected President Trump or a newly elected President Biden.
Apple’s 4Q2020 Results
Apple’s final quarterly results were buoyed by strong demand for iPads and Macs. At the same time, the iPhone 12 launch got delayed and that meant a major decline in iPhone revenue.
Those are the summaries of Apple’s fourth quarter results.
Apple iPad sales grew 46 per cent and Mac sales increased 29 per cent. No doubt, this is a result of the Covid19-caused shift to remote work and online schooling.
The wearables segment grew by 21 per cent but iPhone sales dropped 20 per cent.
Apple’s services segment revenue which includes Apple Music, App Store, etc. grew 16 per cent to $14.5 billion.
But overall profits fell 7 per cent to $12.7 billion on total sales of $64.7 billion.
However, nobody will deny that Tim Cook has ably led Apple since being chosen as the Apple CEO by Steve Jobs. This was a superb choice indeed. There is strong demand already for the iPhone 12. Apple will forge ahead irrespective of who wins the presidential contest.
Alphabet’s 3Q2020 Results
Google’s cloud computing services grew by 45 per cent. In contrast, Google’s online advertising incomes took a hit earlier in the year as the economy slowed down and advertises cut back on online advertising.
But things have bounced back now.
Alphabet’s net profit was $11.25 billion – its highest-ever profit. Revenue rose by 14 per cent to $46.1 billion.
It’s interesting how cloud services are growing across the board. Amazon’s AWS and Microsoft’s Azure have reported solid growth as well.
Google is in the line of fire of the US Justice Department over antitrust law violations. The Department has filed a suit against Google but the outcome of that suit is uncertain and court hearings will only commence next year.
Sundar Pichai’s tenure as CEO of Google and Alphabet has seen Google enjoy a sunny growth phase. Pichai has done well over the past decade and Google’s founders have managed to free themselves from the role of CEO to focus on other things.
Microsoft’s Quarterly Results
Microsoft had its most profitable quarter ever as the Covid19 pandemic accelerated the shift of work and education online.
This resulted in sales in the September quarter rising to $37.2 billion, up 12 per cent from a year earlier. Microsoft’s profit rose 30 per cent to $13.9 billion. Typically Microsoft’s largest quarters tend to be those that end in December in June. Microsoft’s enterprise customers are showing full faith in Microsoft and more.
Expectations Beaten. Not Cloudy.
The results beat analyst expectations. Microsoft’s market cap has surpassed $1.6 trillion – making it one more company in the ‘trillion-dollar company’ category.
Revenue from Microsoft’s core cloud computing platform, Azure, grew 48 percent this quarter. Microsoft’s enterprise customers and other organizations accelerated their commitments to buy more cloud services with bookings up 18 percent, excluding currency fluctuations.
People stuck at home have been naturally playing more video games. Microsoft’s Xbox services revenue is up 30 per cent. Microsoft’s next generation of the Xbox console will be out in November. The company predicts sales of its gaming hardware would increase by 40 per cent next quarter. Demand is such that Microsoft doesn’t have enough devices to keep up with it.
On the PC front, sales of personal computers have also grown during the Covid19 pandemic thanks to more people working remotely and education shifting online. Subscriptions to Microsoft’s online Office suite have grown.
Microsoft estimates sales would grow to between $39.5 billion and $40.4 billion in the next quarter.
It’s interesting to look at the top ten public companies in terms of market capitalization and how that ranking has changed over the years.
Look at how things have been at the end of the three quarters of this year.
Facebook’s Quarterly Results
Its dominance in social networking has made Facebook a target of possible antitrust lawsuits by the Federal Trade Commission (FTC). In the meanwhile, Facebook’s revenues and profits are rising and beating analyst estimates.
Facebook’s revenue in the third quarter (Q3) was $21.5 billion, up 22 per cent from Q3 of last year. Facebook’s profit rose 29 per cent to $7.84 billion.
- Facebook daily active users (DAUs) – 1.82 billion
- Monthly active users (MAUs) – 2.74 billion
- Family daily active people (DAP) – 2.54 billion
- Family monthly active people (MAP) – 3.21 billion
- Capital expenditures — $3.88 billion for Q32020
Surprisingly, Facebook DAUs and MAUs in the US and Canada declined slightly in the third quarter compared to the second quarter. FB expects this trend to continue. So, fourth quarter DAUs and MAUs will be flat or slightly down in the final quarter of 2020 compared to the third quarter.
Facebook expects higher growth rates for ad revenue in the fourth quarter than its reported growth rate in the third quarter.
The shift in commerce from offline to online has benefited Facebook as demand for online advertising has grown.
Among headwinds in 2021, Facebook mentions platform changes such as on Apple iOS 14 and the evolving regulatory landscape.
Facebook’s 2020 total expenses are going to be in the range of $53 to $55 billion. Its preliminary estimates of total expenses for 2021 are in the range of $68 to $73 billion.
Facebook reported a headcount of 56,653 as of September 30, 2020, an increase of almost one-third year-over-year.
Facebook expects its 2020 capital expenditures to be around $16 billion and 2021 capital expenditures to be in the range of 21 to 23 billion dollars. These expenditures will be driven by investments in data centers, servers, network infrastructure, and office facilities.
Growth Through Acquisitions – A Common Thread
With the kind of deep pockets enjoyed by these tech giants, there is very little competition from start-ups. These companies have often acquired new, innovative companies.
The list of Apple’s acquisitions is large – Siri, Beats, Shazam are just a few prominent ones. And Apple also acquires numerous companies for their intellectual property, e.g. the acquisition of Intel’s smartphone modem business.
Meanwhile, in little over two decades, Google has acquired hundreds of companies – most will remember the high profile acquisitions such as YouTube and Android. On the other hand, Motorola Mobility was an expensive purchase which Google later sold off to Lenovo at an 80 per cent discount. DeepMind was another high profile acquisition.
Amazon has mostly acquired niche technology start-ups to help its Amazon Web Services (AWS) division grow in cloud services. Junglee was an early Amazon acquisition. Goodreads and IMDb are some Amazon properties. The acquisitions in the 2010 – 2020 decade have been related to AWS. Amazon acquired Kiva Robotics for its robotics technologies. Annapurna Labs and Elemental Technologies were two more acquisitions related to AWS.
Microsoft’s acquisitions have been eclectic. The acquisition of Hotmail was a big one for $500 million back in 1997. The most recent big multi-billion dollar acquisitions have been LinkedIn, GitHub, and Skype. Nokia’s mobile phones unit was an odd acquisition for Microsoft.
Facebook has sought to acquire key talent through acquisitions. Major company acquisitions by Facebook are WhatsApp, Oculus VR, and Instagram.