Big Tech results: Alphabet & Microsoft win
And also: The chip shortage continues, and impacts car manufacturers' results. Apple & Amazon suffer under the supply chain crisis. Facebook prioritizes the Metaverse. Google's success and regulation
Diverging paths in Big Tech: Google & Microsoft win, while Amazon and Apple decelerate
The 5 Big Tech companies (plus Tesla, which this week surpassed Facebook in size) presented their 3Q21 results this week. Expectations were high, especially for the advertising giants (Facebook and Google), after the comments made by Snap last week about how Apple’s privacy policies were impacting programmatic advertising
The results have shown diverging paths for Big Tech firms:
Alphabet / Google and Microsoft have been the big winners among the 5 “incumbents”, with the best position to benefit from current trends in digital advertising (Google) and cloud computing (Microsoft). Microsoft surpassed Apple as the most valuable company in the world
Facebook was hurt by the “Apple effect” on targeted ads, even if the impact was not so deep as for Snap, and this calmed down the markets a bit. The company also triggered some momentum with their new focus on the “Metaverse”, including the new corporate brand
Apple and Amazon disappointed investors, and together they lost around $200bn in value. Both seem to be hurt by supply chain issues. And on top of these, Amazon is suffering from labor shortages in this last phase of the pandemic, and the distance in cloud between them and Microsoft is reducing
The week
1. Consumers and businesses, after COVID
What is happening
Consumer trends
Amazon’s results, and in particular the company’s sales forecast for 4Q21 suggest that the “pandemic e-commerce boom” is over (Bloomberg)
Emerging risks
A cyberattack on Tesco paralyzes their online operations and highlights the risks of our massive migration to digital channels (Bloomberg)
More effects of the supply chain crisis
The 3Q21 results of some of the largest car manufacturers (Volkswagen, GM, Ford) are (negatively) shaped by chip shortages (FT)(WSJ)
Apparently, it will take a long time to solve the chip shortage problem. Companies are currently waiting months to receive some components (WSJ)
Supply chain issues may be reducing brands’ appetite to advertise (as ads won’t leadto sales if the products are not in stock) (WSJ)
What it means
All traditional car vendors are feeling the pain from the current chip supply chain crisis. Interestingly, Tesla was an exception, even if Elon Musk had insisted (even after the company’s results and the share price rally that came afterwards) that their challenge is much more in supply than in demand
For the future, we should expect more emphasis from all car companies in securing the supply chains of their most strategic components. Chips will of course be part of that, but the same has started to happen with batteries. Similar moves are expected in other industries, too
The interpretation of the weak Amazon guidance for 4Q21 in terms of an “end of the pandemic boom” is still not clear, as supply chain issues are clearly part of that too
2. Platforms and digital enablers
What is happening
Alphabet and Microsoft emerge as the big winners of this 3Q21 results’ week for the Big Tech platforms
Together, they posted a quarterly revenue of more than $110bn (more than $25bn in new revenues vs. 3Q20) (FT)
Unlike Snap and Facebook, Google is accelerating its advertising growth (more than 2x vs. Facebook).(WSJ)
Microsoft’s cloud business generated more than $20bn revenues in 3Q21, with anannual growth of +50% (WSJ)
Facebook missed revenue expectations, hurt by Apple’s privacy moves, but their growth in active app users beat consensus (WSJ)(Bloomberg)
The company may need of a “reboot”, after the recent PR crisis. The brand change is seen as an attempt to solve this (FT)
Apple and Amazon have both been hurt by the “shortage economy”, including supply chain issues and a “labor crunch” (WSJ)
Connectivity:
Satellite broadband makes progress in Western (Spain, Portugal) and emerging (Philippines) markets (Bloomberg1)(Bloomberg2)
In the US, Dish is partnering with Helium, a crypto-based ”social broadband” startup, to support their plans for 5G go to market (Bloomberg)
What it means
Somewhat unexpectedly, Google has revealed to be the big winner in the ”online advertising earthquake” that we described last week. The reason seems to be the Search ads are a “safe haven” for advertisers that are seeing how the ads in Facebook or other apps are becoming less effective due to Apple’s privacy controls. Also, Google’s control of the e2e ad value chain (including Android too) leaves them in a better position vs. Facebook or Snap
Microsoft keeps catching up with AWS in the cloud. Yes, cloud services were the “silver lining” in Amazon’s relatively poor results. But Microsoft’s cloud unit is growing faster than Amazon’s, and investors appreciate this
Apple’s problems with the supply chain are a clear threat to the company, as we enter the Holiday season (key for selling the iPhone13)
3. Financing digital innovation
What is happening
Financial waters are calming down in China, as the government gives signs of commitment with the capitalist system, and expectations improve for local Big Tech firms, like Alibaba (WSJ)(TaschaLabs)(WSJ2).
Also, Andreessen Horowitz is making a strong bet for cryptomarkets, including active lobbying in Washington (NYTimes)
Emerging themes for investors:
Next computing platform: Facebook talked about their corporate brand change to “Meta” and about the “Metaverse”, seen as a challenging, uncertain field, where they will also find lots of competitors. One of the first products will be a digital watch, that will interact with other elements (WSJ)WSJ2)(Bloomberg)
Electric cars: Tesla presented results, announced a large deal with Hertz, and crossed the $1trn threshold in valuation (surpassing Facebook). They’re seen as clear leaders, and analysts are still hesitant with both incumbents (e.g.: GM) and alternative startups (WSJ)(FT)(WSJ2)(WSJ3)
Batteries: Tesla keeps making progress (WSJ). Also, startups looking for disruptive designs receive exuberant valuations (Bloomberg)
Energy: More news about investors’ excitement with nuclear fusion (FT)
What it means
Facebook confirmed their plan to prioritize the development of their “Metaverse” vision in the next few years. Obviously, this is a way to pivot away from the current business model, now under massive political and social pressure. But it is also consistent with the company’s feeling that what happened in the transition from web to mobile (which left them offside for a time) can’t happen again. The plan seems to be to control a few critical components within an open architecture (i.e.: what the App Stores are for smartphones)
However, many uncertainties remain. The problem for Facebook may be that (as the brand change also shows) they don’t seem to have many alternatives
Tesla’s results increase the temperature around electric vehicle stocks. Analysts are right to ask for cautiousness
4. Building new rules for the (digital) game
What is happening
Customer protection: privacy & safety:
Facebook remains at the center of the debate (Bloomberg). The whistleblower talked to European policymakers and asked for new laws (WSJ). Some people argue that the company’s self-control (through the Oversight Board) is making progress (Bloomberg)
Meanwhile, YouTube and TikTok talk about their plans to protect kids’ privacy (Bloomberg)
Antitrust:
Pressure on Google continues, especially after their ”show of strength” in the 3Q21 results (FT).
France wants the EU to be tougher with Big Tech (FT)
Tech geo-strategy:
Space technology enters the Second Cold War, after the Chinese announcement of a hypersonic missile, that Americans see as a “new Sputnik moment” (WSJ)(FT)
The US just denied permission for China Telecom to operate in the country (Bloomberg)
Telstra acquires DigiCel operations in APAC, to remove them from Chinese influence (FT)(WSJ)
The pain continues for Huawei (WSJ)
What it means
As usual, the counterpart to good financial results that make investors happy is an increased regulatory pressure. This week’s excellent numbers from Google have already triggered reactions calling for antitrust regulators to act urgently and arguing that the company is “devouring the advertising industry”
However, industry experts have said that the current tailwinds for Google’s advertisingbusiness, amid the challenges that competitors like Facebook and Snap are finding, are not sustainable. Maybe the (very intense) competition between different tech companies will be more effective than any regulatory action
Like back in the 60s, geo-strategic priorities are becoming a driver for a new space race. Hypersonic weapons are probably only a first example