Investors will take no heart from the quarterly reports from tech giants Alphabet and Microsoft after hours Tuesday.
Shares in both companies fell as investors gave the reports an initial thumbs down, especially Alphabet which did poorly in revenue and earnings terms, while Microsoft was marked down because of weaker than expected revenue growth from its cloud business (which still grew strongly).
Analysts said the weakness in the Alphabet (and You Tube especially) report will see a lot of investor interest Wednesday’s report from Meta Platforms (nee Facebook) which could be terrible given the warnings and cost cuts already reported from the Mark Zuckerberg company.
While other parts of Microsoft’s business showed solid growth, investors are on the lookout for bad news to focus on rather than the good like they were doing a year ago so far as the tech giants are concerned, and that’s what they focused on with growth of 35% in cloud revenues instead of a projected 37-39% growth.
That’s also why Alphabet (Google) saw its shares fall sharply – down more than 7% after hours in the wake of weaker-than-expected earnings and revenue for the third quarter, especially from You Tube which seems to have reached its peak this year so far as revenue growth is concerned.
Alphabet reported revenue of $US69.09 billion vs. $US70.58 billion expected by the market. That was up just 6% from a year ago when revenues jumped 41% from the Covid-depressed September, 2020 quarter.
Year on year growth in the third quarter was half the 13% reported for the June quarter and was the weakest for any quarter since 2013, a clear sign the slide in ad spending online is having a real impact.
YouTube advertising revenue totalled $US7.07 billion vs $US7.42 billion and was down 2% from $US7.21 billion a year ago. Analysts were expecting an increase of about 3% and a further sign that the weakness in online advertising reported late last week by Snap, isn’t confined to that company or social media platforms.
Alphabet reported a 30% plus slump in net income for the quarter to $US13.9 billion from $US18.9 billion, led by a sharp fall in profits from Google.
Alphabet reported overall advertising revenue of $54.48 billion during the quarter, up slightly from the prior year’s $US53.13 billion – the latest figure was still enormous but the growth story isn’t there.
Microsoft shares fell as much as 2% in extended trading on Tuesday after the software maker reported softer cloud revenue than expected in its fiscal first-quarter.
Here’s how the company did: revenue of $US50.12 billion, vs. $US49.61 billion as expected by analysts and up 11% year on year which was a more solid achievement that Alphabet’s effort.
Net profit though fell 14% to $US17.56 billion but the year-ago quarter saw Microsoft take $US3.3 billion tax benefit. The company’s gross margin was still an enormous at 69.2%.
Microsoft’s Intelligent Cloud business segment, which includes the Azure public cloud, as well as Windows Server, SQL Server, Nuance and Enterprise Services, generated $US20.3 billion in revenue for the three months – up 20% and slightly less than the $US20.36 billion forecast from the market.
Azure revenue grew 35% in the quarter, slightly slower than the 40% growth in June quarter and under market forecasts as well.
Analysts polled by CNBC had expected 36.4% growth, while analysts surveyed by StreetAccount had been looking for 36.9% Azure growth.
For the first time, revenue in the quarter across the Microsoft Cloud business (including Azure, commercial Office 365 subscriptions, commercial parts of LinkedIn and Dynamics 365, exceeded 50% of overall company revenue.
So Microsoft is no longer that Windows company with a handy Office and powerpoint and spreadsheets business, but a real contender in the cloud to Amazon.
Alphabet’s best story was its cloud business which saw revenue leap by more than 40% to $US6.8 billion in the quarter. Another quarter of similar growth and it will go past You Tube in revenue and soon, income.
