Tag Archive: Alphabet

  1. Are Big Tech’s Q2 results too good?

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    Across the world, national economies are in deep recession, businesses are folding and unemployment has soared. The coronavirus pandemic has wreaked havoc for so many, yet there is a subset of the global economy which demonstrates extraordinary resilience.  

    The tech giants release their Q2 2020 results

    On Thursday last week, amid much anticipation, the Big Tech big four released their second-quarter results. They would have been impressive in the pre-Covid world, but in the current context they were nothing short of astonishing. Facebook reported an 11% growth in revenue year on year, to $18.7 billion, and its profit doubled to $5.18 billion; its number of monthly active users (MAU) rose 12% to 2.7 billion. Amazon posted a record profit of $5.2billion, with sales rising 40% to $88.9 billion, while Apple’s profit rose 12% to $11.25 billion, and its revenue by 10% to $59.69 billion, thanks partly to a 1% increase in iPhone sales. Alphabet, Google’s parent company, reported a profit of $7 billion, which was down on the year, but still above the share price expected by Wall Street ($10.13 a share vs $8.21).  

    A great quarter for Facebook

    Despite the negative publicity that Facebook suffered following the #StopHateForProfit campaign and subsequent boycott of the platform by some of the world’s largest advertisers, the second quarter of 2020 was a great one for the social media giant, from a financial perspective. Revenue growth slowed, but it was still far greater than what analysts on Wall Street predicted. The financial success and growth in both monthly and daily active users signal that people and businesses used Facebook to stay in touch with loved ones and customers in the spring, when much of the world was in lockdown because of the pandemic. Facebook states that 180 million businesses use their tools, and it has 9 million active advertisers; this well-established longtail of smaller advertisers goes a long way to explaining why the July boycott wasn’t financially damaging to the platform, although it was very challenging from a PR perspective. Facebook is strengthening its relationship with its small business advertisers with the launch of two new initiatives, Facebook Shops and in-messenger commerce. 

    Strong performances from Apple, Amazon and Alphabet

    The other three components of the Big Four also enjoyed remarkable success in Q2. While Alphabet’s ad revenue was down, many analysts believe that this was largely because it came from a much larger base than Facebook’s, for example. YouTube’s ad revenue increased by 5.8% to $3.8 billion, which was much slower than its Q1 performance but still impressive given the context, namely many advertisers halting their ad spend. 

    Amazon, possibly unsurprisingly with so many people stuck at home, had a strong second quarterwith a record profit of $5.2 billion and growth of more than 40% in its division that is largely comprised of its ad sales business. The retail giant brought in revenue of more than $7 billion more than expected, despite initially being caught off guard by a sudden spike in demand during the pandemic, as more people chose to shop from the safety of their homes. It says it is currently expanding its fulfilment centres as it prepares for the peak holiday shopping season at the end of the year. 

    Despite store closures and operations disrupted by the pandemic, Apple’s revenue was the highest the company has ever reported in its second quarter, up 11% year on year. This rise is due largely to a 1% increase in iPhone sales, helped by the launch of the lower-cost iPhone SE. 

    Results that good don’t look good

    The tech giants and investors will undoubtedly be pleased with their performance in the second quarter, particularly given the economic context, but there is a fly in the ointment. Results this great, when so much of the world is in a downward spiral, are difficult to justify, and do nothing to quell suspicions that the Big Four are far too powerful, with too large a monopoly on the marketplace. Just the day before the Q2 results were released, the CEOs of Apple, Facebook, Alphabet and Amazon appeared before the US Congress’ antitrust hearing, as a culmination of 13 months of investigation by lawmakers into the market power of Big Tech. The key criticism against the four companies is that they have engaged in anti-competitive behaviour, using their power to choke the ability of their smaller rivals to compete with them. The investigation will produce a report after the hearing, which will be released towards the end of the year and will form the basis of new laws to regulate Silicon Valley 

    Each of the CEOs – Tim Cook, Mark Zuckerberg, Sundar Pichai and Jeff Bezos – tried to downplay the scale of their market leadership to Congress on July 29th. But their efforts were undermined by their huge earnings released just the next day, which not only underscore how reliant people became on Big Tech during the pandemic, but also symbolise how powerful these companies are and their ability to see off smaller competitors.  

    An awareness of perception issues

    Each company was acutely aware of the optics of their Q2 results. Amazon’s press release went out of its way to detail the ways in which it contributes to communities and its employees. Tim Cook said that Apple was conscious that its results contrasted sharply with the fortunes of so many others over the last few months, and that the company doesn’t have a zero-sum approach to prosperity, while Mark Zuckerberg highlighted his belief that Facebook’s products have changed the world for the better and improved people’s lives. Whether these statements will have any bearing on Congress’ conclusions remains to be seen. 

    Is Big Tech on notice?

    It’s very likely that the Big Four’s remarkable Q2 results will feed into Congress’ belief that they are too powerful; indeed, they – along with Microsoft – currently represent more than a fifth of the S&P 500, the first time since the 1980s that the five largest companies have had such a large share of the index. Congress lawmakers will inevitably seek to curtail that power to an extent, as it is in direct contrast with American antitrust laws. It will be fascinating to see what the implications for the Big Four, the tech sector and advertisers will be. 

    Image: Hand Robot / Shutterstock

  2. Why can Google do no wrong?

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    While fellow tech companies showed signs of wear and tear in second quarter reports, Google is going from strength to strength. Why?

    A sector under scrutiny

    As technology becomes more and more integral to our everyday lives, and we rely on it for everything from keeping in touch with friends and consuming news to running our businesses and monitoring our health, so we have started to question the tech companies more – as consumers and as brands. How they handle data has become of particular concern, leading the European Union to implement the infamous GDPR legislation. Many have come under fire, both in the courts of law and in the court of public opinion: the financial ramifications were evident in Facebook’s second quarter reports, and Snapchat and Twitter suffered too. All three social networks lost users in the wake of GDPR, while the Cambridge Analytica scandal was particularly painful for Facebook.

    Google is thriving

    So where’s Google in all of this? More than 86% of internet searches are carried out on Google and it handles a vast quantity of consumer data, so it would be unsurprising if they too had been affected by negative sentiment and distrust. However, if parent company Alphabet’s second quarter reports are anything to go by, they have not just weathered the storm, they are positively thriving. Thanks to better-than-expected earnings ($11.75 per share versus the $9.59 projected by analysts) and revenue ($32.66 billion versus the $32.17 billion estimate), Alphabet’s share price soared by 5% in after-hours trading, settling at an increase of 3.2%.

    A bleak future for TV?

    Indeed, you could be forgiven for believing that the growth of mobile means a bleak future for linear TV. The young, mobile generation are increasingly tending to stream video content instead of watching traditional linear TV, and often do so on a mobile device. Many tech companies have noted this and are acting upon it: in June, CBS announced that it will be streaming NFL games on mobile devices from this autumn, while, shortly after closing their acquisition of Time Warner, AT&T announced the launch of their new mobile streaming service, Watch TV. These services will no doubt be popular, thanks in part to the smaller ad load for content streamed on a mobile.

    This remarkable success was in spite of the issues surrounding GDPR in the European Union, YouTube’s brand safety scandals, a $5 billion fine from the EU for competition abuses and condemnation following reports that Google will in effect be supporting state sponsorship by launching a mobile search app in China that will allow blacklisted content to be blocked. So how is Google doing it?

    Resilience lies in diversity

    Resilience often lies in diversity and, as we mentioned in our blog about Facebook’s woes a few weeks ago, Alphabet’s revenue is less heavily reliant on advertising

    than its competitors’. While a massive $28 billion of its second quarter revenue was from Google’s advertising business, that wasn’t the only revenue source. Google’s other revenues, such as its cloud services, hardware and app sales grew by 37% to $4.4 billion. By contrast, 98% of Facebook’s Q2 revenue was from advertising, and this will become increasingly difficult to grow as it reaches saturation in many mature markets in North America and Europe. Furthermore, Google has an impressive seven billion-user products – Search, Gmail, Chrome, Maps, YouTube, Google Play Store and Android; YouTube in particular has enjoyed strong growth recently, meaning that Google doesn’t rely solely on Search for ad revenues. That said, it should be noted that YouTube (and other video ads) are still under scrutiny for shortcomings in terms of measurement – a mere just one second of viewing is defined as ‘seen’ – and in terms of the quality of material the ads are shown in. What’s more, brands and agencies still need to work out a creative format for video success: currently, many video ads are simply replicas of TV ads and not optimised for the channel, meaning they are not as efficient as they could be. The search business, by contrast, is much more stable, comparable as it is to the telephone books of yesteryear: if your business isn’t there, it may as well not exist.

    Looking towards the future with ‘Other Bets’

    While Google will without doubt remain a highly profitable business for Alphabet, Alphabet isn’t putting all its eggs in one basket. The new corporate structure has separated the core Google business from the more experimental companies, known collectively as ‘Other Bets’, which collectively brought in $145 million in revenue in quarter 2. These include healthcare projects, venture capital, internet providers, a think tank, driverless cars and an AI research lab, among others. While they represent a small percentage of Alphabet’s huge turnover and are currently loss-making, only one or two need to make it big to make Alphabet’s success even more stratospheric. The favourite for huge potential is Waymo, a self-driving car business which plans to launch a commercial ride-hailing service by the end of this year. In June Morgan Stanley estimated that Waymo could be worth $175 billion in the next few decades.

    The very existence of this ‘Other Bets’ strategy is a demonstration of Alphabet’s commitment to diversifying their offering and their investment in the future – and we believe that it is this approach, this mindset, that will continue to make them an attractive partner for brands and a safe bet for investors for years to come. And that is why they’re rapidly approaching the trillion dollar mark.

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