Tech giants post sluggish financial results as sector struggles continue

Google’s parent company Alphabet posted lower profits and only a small revenue increase, while Amazon also reported a fall in profits. Apple posted its first quarterly revenue drop in nearly four years.

In Apple’s case, Covid restrictions at its manufacturing factories in China hit production, which impacted sales of the iPhone during the festive period.

Meanwhile, Google’s profits were impacted by slowing digital advertising sales as advertisers cut spending because of rising inflation and costs. Alphabet posted its fourth consecutive decline in quarterly profit, with advertising revenue at YouTube dropping 7.8 per cent year-on-year to $7.96bn.

Amazon reported almost no profit in the last quarter, due in part to slowing demand for both its cloud computing and its retail offerings. Sales for its advertising unit, Amazon Ads, did grow by 19 per cent, bringing in $11.6bn.

Amazon’s latest profit drop continued a trend of slowing sales post-pandemic as people became less reliant on online shopping. Amazon, like many other online firms, saw a growth spike during the pandemic and hired more staff to handle the increased demand.

Now many of these firms have been forced to make staff cuts as that increased demand recedes and consumers are also hit by increased inflation and the rising cost of living.

Amazon – alongside Alphabet, Microsoft and Facebook parent firm Meta – are also cutting around 50,000 jobs in the sector to combat the rising costs and slowing growth.

New owner and CEO Elon Musk has also cut thousands of jobs at Twitter as part of money-saving measures since he took over the social media platform in October.

Total job losses announced at major tech firms in the last two or three months are at a six-figure number already, with IBM, Sap, Spotify and Philips also announcing significant numbers of layoffs. More job losses seem inevitable, in the current economic conditions.

The tech sector at large has been hit hard by this combination of factors, with nervous investors selling off stock as growth has slowed post-pandemic.

There were some positive signs in the latest round of results: Apple announced it now has more than two billion iPhones, iPads, Macs and other devices in active use for the first time, a milestone that is likely to help the company sell more digital subscriptions and ads, helping to fuel long-term revenue growth.

Earlier this week, Meta announced its own fourth-quarter results, in which it reported its first-ever revenue decline. Net income fell by a shocking 55 per cent to $4.65bn, although Meta still had approximately $41bn left in the bank in cash, cash equivalents and marketable securities at the end of 2022. Liquidity is not a pressing concern for the social-media-driven firm.

Despite the stunning collapse in revenue for the quarter, Meta’s share price still soared by more than 30 per cent in after-hours trading on Wednesday, given that the company had surpassed analysts’ revenue estimates for the quarter, somewhat implausibly snatching a financial victory from the jaws of defeat.

Meta’s revenue has now declined year-on-year for three consecutive quarters, obliging it to become more cost-conscious. To this end, CEO Mark Zuckerberg had previously announced that Meta was laying off 13 per cent of employees in a bid to make the company “leaner and more efficient”. Investors also responded positively to this mantra of “efficiency”.

Meta’s ad-driven business model has taken a significant hit from Apple’s AppTrackingTransparency (ATT) solution for iOS users, which enables iPhone and iPad users to easily opt-out of the type of deeply invasive behind-the-scenes tracking on which Meta has built its business.

Obliquely acknowledging the impact of Apple’s ATT implementation, Susan Li, CFO at Meta, said: “There is still certainly an absolute headwind to our revenue numbers. We are continuing to make progress and mitigating the impact from the ATT change.”

European regulators have also honed in on Meta’s prime modus operandi, ruling that the company’s tactic of using its voluminous terms of service to require users to consent to tracking for targeted advertising is illegal under GDPR.

The decision could mean Meta has to change its approach and rely on explicit consent from users as its legal basis for targeted advertising. Meta has already appealed the ruling.

“We believe that our current approach is GDPR compliant,” Li said. “We don’t expect that those decisions are going to affect our ability to provide personalised advertising in the EU.”

In an encouraging uplift for both Meta and Alphabet, the short-form video format pioneered and dominated by TikTok has enabled the two companies’ own similar offerings to gain significant traction. Meta’s Instagram has Reels, which is already generating solid user engagement and revenue for Meta, while YouTube Shorts now draw 50 billion daily views, up from 30 billion a year ago, according to Alphabet chief executive Sundar Pichai.