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Opinion: Big Tech shows that it’s good to be big, as slowing growth drives stocks higher while smaller rivals only find pain.

Opinion: Big Tech shows that it's good to be big, as slowing growth drives stocks higher while smaller rivals only find pain.
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After supercharged, double-digit growth during the pandemic, results for the five biggest U.S. tech giants this week showed a slowdown as they grappled with inflation, a looming recession and a generally slowing economy, but they were largely rewarded by Wall Street because their size shows their strength.

Last week, all of Big Tech reported second-quarter earnings, and the results were mixed with a big loss at Meta Platforms Inc.
PURPOSE,
-1.01%

distorts the combined results. But despite Apple Inc.’s stronger results.
AAPL,
+3.28%
,
Alphabet Inc.
GOOG,
+1.79%

GOOGLE,
+1.84%
,
Amazon.com Inc.
AMZN,
+10.36%
,
and Microsoft Corp.
MSFT,
+1.57%
,
Alphabet’s total consolidated revenue before traffic acquisition costs was $354.5 billion, a 6.91% overall growth rate from consolidated revenue of $331.64 billion in the June quarter a year ago.

Each giant’s revenue growth was slower and For the first time in Meta’s history, revenue has declined. And for a while Analysts rated Apple’s iPhone as “sustainable” amid great economic uncertainty., its June quarter revenue growth was anemic at 2%. In the June quarter of a year ago, the revenue increased by 36% on the contrary. Alphabet, whose total revenue growth before TAC was up 62% in the June quarter last year, saw revenue rise 13%, or 16% in constant currency as digital ad spending declined. Amazon saw slightly better-than-expected revenue growth of 7%, compared to 27% revenue growth in the second quarter a year ago. But CEO Andy Jassy made an encouraging statement, saying he’s seeing revenues accelerate and that’s helping.

Profits were even worse. Amazon reported another net loss due to Rivian Automotive
RIVN,
+1.34%

investment and Meta reported a 36% drop in net income, with net income for the Big Five coming in at $56.9 billion, down 24% from net income of $74.9 billion a year earlier, as higher costs weighed on their bottom lines. was squeezing the lines. less revenue growth.

The big drop in Meta’s net income, after second-quarter net income rose 101% a year ago, was particularly rapid as the company spent on CEO Mark Zuckerberg’s unproven vision for Metaverse. Reality Labs, its business unit focused on virtual and augmented reality, posted a loss of $2.8 billion on revenue of $452 million. Ad revenue didn’t quite make up for it and fell slightly amid Zuckerberg’s comments that the situation was worse than it looked a quarter ago.

However, Meta’s shares will end July as a largely unbeaten month, down less than 1%, the worst performance of the Big Five. In July, Apple shares rose more than 19%, Amazon more than 28%, Microsoft 9% and Alphabet nearly 7%, all but Meta gained gains after earnings reports.

Facebook parent Snap Inc. has survived the carnage of other digital ad-based businesses.
SNAP,
+2.17%
,
shares will continue their rapid decline, including a 50% drop in May, down nearly 25% in July. after executives warned of a major advertising slowdown that also affected Google and Facebook.

Fragmentation will continue among smaller companies trying to compete with the dominant Big Tech platforms. While they’ve all seen slow growth and uncertain prospects for the foreseeable future, Big Tech’s sheer size and billions of dollars in revenue and earnings will continue to insulate these giants from the kind of pain Wall Street is suffering. Snap, Roku Inc.
ROKU,
-23.07%

and others.

More: Read about Roku’s ‘frankly terrible’ earnings

It should be remembered that for 2021 tBig Five reported year-over-year revenue growth of 27% and net income up 55%, because together they generated 1.4 trillion dollars in revenue during the year. At the time, MarketWatch pointed out that this was not normal growth and that this may indeed be the year technology jumps the shark.

The buzz on most conference calls revolved around curbs, cost-cutting, slowing hiring or job cuts and macroeconomic uncertainty, with investors largely happy to avoid a worse-than-expected outcome for Big Tech. For the rest of tech, there are more questions ahead as we move into earnings season with plenty of reports yet to come.

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