Google, MS, Amazon, Meta... US Big Tech Earnings Flood In

Amid concerns of an economic downturn, major big tech companies such as Microsoft (MS), Amazon, Google Alphabet, and Meta Platforms are set to release their earnings reports one after another this week. With the U.S. Federal Reserve (Fed) continuing its interest rate hikes, and various cost-cutting restructurings centered around the tech sector since the end of last year, attention is particularly focused on the first-quarter results. In addition to tech companies, blue-chip firms like Coca-Cola, Visa, and Boeing will also disclose their earnings in large numbers.

[Image source=AP Yonhap News]

According to industry sources on the 23rd (local time), Google’s parent company Alphabet and MS are scheduled to announce their first-quarter earnings on the 25th. Meta Platforms, Facebook’s parent company, will report on the 26th, followed by Amazon on the 27th.

The market has long been concerned about the earnings of big tech companies. This is due to increased cost pressures from high interest rates amid unavoidable large-scale technology investments such as artificial intelligence (AI). Additionally, key business areas like the online advertising market and cloud market have significantly deteriorated. According to financial information company Refinitiv, the net profits of tech companies in the first quarter are estimated to have decreased by 14.4% compared to the same period last year. This is worse than the initial forecast of a 6.7% decline. Telecommunications service companies’ net profits are also expected to have fallen by 12.3%. This earnings season is the first since the March Silicon Valley Bank (SVB) bankruptcy, which fueled concerns about a banking crisis and credit tightening.

Alphabet and Google, which have recently been competing in AI chatbot technology, are expected to reaffirm their commitment to AI investment and progress during this week’s earnings announcements. Earlier, MS launched a new search engine equipped with ChatGPT, challenging Google’s near-monopoly in the search market. However, due to the deterioration in online advertising and cloud markets, these companies’ earnings are expected to fall short of previous years. It will inevitably take considerable time before the highly praised generative AI investments translate into substantial profits.

Meanwhile, Meta, which suffered three consecutive quarters of revenue decline from the second quarter of last year and recorded annual negative growth, is closely watched to see if it can return to positive territory in the first quarter. Attention is also focused on how much the cost-cutting measures, including large-scale layoffs and project suspensions implemented by major big tech companies since the second half of last year, are reflected in the first-quarter earnings. The Wall Street Journal (WSJ) reported, "Tech companies continue to lay off thousands of employees to improve profitability," adding, "The market will closely watch how much these companies have improved profitability through restructuring and their future outlook."

Tesla and Netflix already disclosed disappointing quarterly earnings last week. Tesla’s net profit, which adopted a ‘low margin, high volume’ policy, fell by a staggering 24% compared to a year ago. Apple, the world’s largest company by market capitalization, is scheduled to announce its earnings on the 4th of next month.

[Image source=AP Yonhap News]

This week is not only about big tech; it is also the so-called ‘earnings week,’ with about one-third of S&P 500-listed companies scheduled to release their earnings. On Monday the 24th, earnings from First Republic Bank and Coca-Cola, which were caught up in crisis rumors following the March SVB bankruptcy, as well as Philips, will be released. On the 25th, PepsiCo, McDonald’s, Visa, Verizon, and General Motors will report; on the 26th, Boeing and ServiceNow; on the 27th, Mastercard, T-Mobile, and Capital One; and on the 28th, ExxonMobil and Chevron will disclose their first-quarter results. According to FactSet, about 18% of S&P 500 companies had reported quarterly earnings by last week, with 76% of them exceeding expected earnings per share (EPS). However, this is slightly below the five-year average of 77%.

Ahead of the May Federal Open Market Committee (FOMC) meeting, which sets the benchmark interest rate, the March Personal Consumption Expenditures (PCE) price index, a preferred inflation gauge of the Fed, will also be released this week. Wall Street experts expect the core PCE to rise 4.5% year-over-year and 0.3% month-over-month. Anna Wong, an economist at Bloomberg Economics, said, "If core inflation remains in the 4-6% range, a 5.25% interest rate may not be sufficient," while supporting the possibility of a baby step (0.25 percentage point rate hike) in May. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market currently reflects nearly a 90% chance that the Fed will implement a baby step in May. The current U.S. benchmark interest rate is 4.75-5%.