The first anniversary of the pandemic has been marked by stellar first quarter results delivered by Big Tech. In the last year, the five tech titans, Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT) and Facebook (NASDAQ: FB), had combined revenue of more than $1.2 trillion. It was a strange and amazing year for Big Tech with some companies growing faster and becoming more profitable than they have been in years.
As the world is starting to recover after being thrown into chaos by COVID-19, increased activity and monetization brought accelerating revenue and profits to Big Tech, suggesting an enduring effect of the digital way of life. Apple has so much extra cash that it’s spending an additional $90 billion to buy its own stock, nearly the equivalent of Kenya’s GDP. Amazon’s Jeff Bezos alone is worth more than Goldman Sachs Group Inc (NYSE: GS).
Q1 results
The stellar first-quarter performance is obvious across all areas, including digital advertising that jumped sharply. Google and Facebook each registered their strongest advertising growth in years, with Google’s ad revenue increasing 32 per cent and Facebook’s being ahead with 46 per cent. Consumers are now willing to lavish on gadgets as seen in a 66 per cent leap in Apple’s revenue from the sale of iPhones. Even the market for PCs, which had been in decline, saw a strong rebound, with unit sales leaping by around a third in the first quarter, fueling revenue and raising earnings at Microsoft. The rise of remote work, learning and entertainment enabled all three cloud operators, Amazon, Microsoft and Google, to maintain steady growth rates even as they continued growing and with many of their customers were heavily hit during the pandemic.
Expanding into services
Meanwhile, the tech companies have taken advantage of their deep ties with millions of users to extend their reach deeper with services delivered over their platforms. Apple’s move into services contributed to a profit jump that lifted its gross profit margin to more than 42%, jumping from about 38% it maintained throughout many quarters.
At Amazon, newer services have brought a transformation in the company’s profit profile. Company’s “other revenue” which consists mainly of ads, jumped 73% with the first quarter result being a record quarterly profit for a company once notorious for its persistent losses. To give you a better idea, Amazon’s $8.1 billion in after-tax earnings in the quarter was equivalent to the company’s net earnings in its entire first 22 years of existence.
Their success secret
Besides being the perfect model for the era of social distancing, Big Tech was the place any business that still had money to spend on would spend it on. Second, the tech giants used the pandemic to get even stronger. In some cases, that meant cutting costs on travel, entertainment and marketing with Google saving more than $1 billion a year on those types of expenses. On the other end, the tech giants spent heavily to fortify their advantage like Amazon spending $50 billion in the last year on warehouses and cloud computing hubs to increase its capacity. That’s more than double what Exxon Mobil Corporation (NYSE: XOM) spends to dig oil and gas out of the ground each year.
Lawsuits are spoiling the party
Big Tech’s success isn’t all sunshine and rainbows due to regulators. The European Commission has accused Apple with breaking antitrust law by charging high commission fees in its App Store and forbidding app developers from offering their customers other ways to pay for their product. This is only one of approximately four billion investigations of tech superpowers but these charges relate to a complaint filed two years ago by the music streaming service Spotify (NYSE: SPOT) accusing Apple of depriving users of cheaper music streaming choices and distorting competition by raising their costs, reducing their profit margins as well as their attractiveness. A similar accusation has been made by Epic Corporation (OTC: EPOR), the creator of Fortnite that was removed from the App Store due to offering other ways to subscribe to their services. Although these cases take many years through courts and any verdict is likely to be appealed against, if Apple is found to have breached EU law, it is facing a fine that could trim up to 10 per cent of its global turnover.
Success beyond the pandemic
Big Tech reported an impressive surge in growth and profits that stunned Wall Street, but more importantly, it delivered powerful evidence that the digital dependence that was forced upon a large part of the world’s population over the past year could be an enduring trend. Its increasingly outsized impact on the world of business can best be summed up by just two numbers. One is the combined revenue of Alphabet, Amazon, Apple, Facebook and Microsoft, which jumped 41% in the first three months of this year to $322 billion. The other is the even more spectacular companies’ profit growth as after-tax earnings for the five soared to $75 billion, which is 105% up from the previous year.
In a nutshell, the iPhone, Google’s search engine and Instagram became our deeply ingrained habits as screens came to play a central part in our lockdown lives. America’s five tech titans didn’t do well in the Great Recession more than a decade ago, but this time around, they were more than fine and there’s no sign of them hitting the wall yet. They showed they are invincible against COVID-19, but only time will tell if they are they winning at everyone else’s expense or benefit.
This article is not a press release and is contributed by a verified independent journalist for IAMNewswire. It should not be construed as investment advice at any time please read the full
disclosure
. IAM Newswire does not hold any position in the mentioned companies. Press Releases – If you are looking for full Press release distribution contact:
[email protected]
Contributors – IAM Newswire accepts pitches. If you’re interested in becoming an IAM journalist contact:
[email protected]