Updated:
Hot off Wednesdays congressional grilling of their chief executives on whether theyre too big, three internet giants today reported a total of almost $146 billion in second-quarter revenue even after the impacts of the coronavirus pandemic and with Apple Inc. thrown in, the haul topped $205 billion.
Amazon.com Inc. appeared to see a big benefit as the go-to shopping site during the ongoing pandemic. The e-commerce and cloud computing giant reported a profit of $5.2 billion, or $10.30 a share, double a year ago. Revenue jumped 40%, to $88.9 billion, a huge acceleration from its 20% increase a year ago.
Google LLC owner Alphabet Inc. and Facebook Inc., however, saw a big hit from the advertising slowdown during the pandemic, since they both make the vast majority of revenue from selling ads. Alphabets revenue actually fell slightly from a year ago, to $38.3 billion, while Facebooks revenue grew only 10%, to $18.7 billion.
The varying results reflected the shifting impacts of COVID-19, though the bottom line was that the impact wasnt nearly as bad as some might have expected. That showed both the resilience of their business models but also their dominance, which helped prompt the congressional antitrust probe that thrust all three of the firms CEOs before withering congressional criticism from both sides of the aisle.
Investors seemed at least sanguine about the results of each company, with after-hours trading all positive: Facebook up almost 7%, Amazon up about 5% and Alphabet up as much as 1%. The stock of yet another tech giant, Apple, also rose on better-than-expected results. Update: On Friday, investors turned sour on Alphabet, whose shares were falling more than 4% in early trading, while Facebooks stock was rising more than 7% and Amazon was up 4%. Apple shares were up nearly 6%.
Still, the overall outlook remains uncertain. As Alphabet Chief Financial Officer Ruth Porat summed it up in a conference call, despite improvements in the past month or so, it is premature to gauge the sustainability of recent trends.
Here are the details on each of the three internet giants:
Googles parent company reported its worst quarter since it went public 15 years ago. Its profit fell from $9.9 billion a year ago to $6.96 billion, or $10.13 a share, in this years second quarter, on a 2% revenue decline, to $38.3 billion. Thats a stark reversal of last years second-quarter revenue increase of 19%. But it still beat analysts forecasts of an $8.27-a-share profit on revenue of $37.3 billion.
The revenue decline was a reflection of a broad-based decline in advertising, with companies pausing marketing in key areas such as travel. Still, it could have been worse. Google ad revenues were down for the quarter, but all three parts of Googles ad business outperformed our expectations for Q2, including a substantial beat for search revenues (down 10%) compared to our expectations of a 17% decline, saideMarketer principal analyst Nicole Perrin. We expected April to be the bottom of the digital ad market, with a return to growth in May and June, and these results suggest that acceleration was stronger than expected.
Still, Google may need to make changes on the ad front going forward, said Nucleus Research analyst Daniel Elman. As companies look to adapt and recoup missed revenues from earlier in the year, its not likely that companies will return to their digital ad spends in the near term, instead theyll look to strategically deploy marketing dollars on more targeted campaigns that reach fewer, but better qualified leads, he said. Google will need to find a new model or ad channel to leverage in order to make up for this changing customer behavior, or it will suffer continued revenue misses.
There were some bright spots, such as Google Play apps and media, and in particular Google Cloud, where revenue jumped 43%, to $3.01 billion. As people increasingly turn to online services, our platforms from Cloud to Google Play to YouTube are helping our partners provide important services and support their businesses, CEO Sundar Pichai said in prepared remarks.
Were pleased with the traction of wins from large customers in Google Cloud, Porat said. Cloud has maintained its strength consistently. She added that Google Cloud Platform is growing significantly faster than G Suite.
Google Cloudhas announced a number of new products and partnerships that show its roadmap is on track, said Elman. As another long-term play, Alphabet would like to see this area grow into a significant revenue channel similar to how AWS is to Amazon.
The e-commerce and cloud computing giant reported a profit of $5.2 billion, or $10.30 a share, double a year ago. Revenue jumped 40%, to $88.9 billion, a huge acceleration from its 20% increase a year ago as Amazon became a go-to shopping source during the pandemic. Analysts had forecast a $1.72-a-share profit on a 28% jump in revenue.
As an online retailer, it was the primary shopping choice for millions of people when physical locations were closed, said Nucleus Elman. Its been able to tighten up the slow shipping hiccups that occurred earlier in the shutdown and seems to have the distribution channels accommodated to the increased volume.
The profit was so high that on Amazons conference call, RBC Capital analyst Mark Mahaney joked, Does Jeff know about that? Amazon CEO Jeff Bezos is well-known for spending much of Amazons profits on expansion.
Last quarter, Bezos said the company would likely spend all the $4 billion in operating profit it expected to make in the second quarter on COVID-19-related expenses to protect employees and provide higher pay, and he confirmed in prepared remarks that Amazon did spend that much. That may provide a soft benefit, coming a day after Bezos and his CEO counterparts at Alphabet, Facebook and Apple endured hours of congressional questioning on whether theyre monopolies.
Amazon is the main beneficiary of ecommerces massive pandemic-driven tailwind, but sales gains come with higher costs for labor and logistics and a shift towards a less profitable category mix of lower-margin grocery and household essentials, said eMarketer principal analyst Andrew Lipsman. Despite the near-term profit hit, Amazon has strengthened its future position in key growth areas like grocery, health and advertising.
As usual, though, Amazon Web Services provided the lions share of profit, though its revenue growth slowed. AWS reported operating income of $3.36 billion, up from $2.12 billion a year ago, on a 30% rise in revenue, to $10.8 billion. That rate was a bit less than the 33% growth clip in the first quarter. Analysts on average were expecting AWS revenue of $11.02 billion.
Customer usage remains strong, Amazon CFO Brian Olsavsky said on a conference call, though he added that growth varies across industries depending on the impact of COVID-19.
For AWS, as businesses were forced to accelerate their digital initiatives, particularly cloud migrations and application modernizations, it was perfectly positioned to onboard and serve these customers, said Elman. Expect the growth in the AWS area to be impressive and continue for the foreseeable future.
Martin Garner, a research director at CCS Insight, said that a lot of AWS customers are looking to save money, including spending less with AWS, and AWS says it is helping them do that. That is offset by new customers shifting their work more quickly to the cloud as a way of reducing costs.
And the decline in AWS growth rate may not be that meaningful. Its important to note that it grew more in one quarter, $2.4 billion, larger than the entire annual revenue of many cloud plays, said Patrick Moorhead, president and principal analyst at Moor Insights & Strategy. AWS is well on its way to creating an annualized $40 billion revenue company. This makes AWS larger than Salesforce.com and SAP.
Still, AWS advantages in the cloud overall dont extend to the productivity applications that are driving Microsoft Corp.s and Googles clouds as more people work from home during the pandemic. AWS revenue growth is less predictable in the pandemic, noted Martin Garner, chief operating officer at CCS Insight. Instead, AWS supports the operations of large numbers of companies, which themselves have been hit by the pandemic. Some of these will see increased cloud usage, such as other retailers accelerating their ecommerce strategy, but others will see reductions.
Overall, Amazon forecast a wide revenue range of $87 billion to $93 billion in the third quarter, or up 24% to 33%. Operating income is forecast at an even wider range of $2 billion to $5 billion, from $3.2 billion in last years third quarter. It assume $2 billion in costs related to COVID-19.
The social networking conglomerate reported a profit of $5.18 billion, or $1.80 a share, almost double a year ago. Revenue rose just 10%, to $18.7 billion, a huge slowdown from its 28% jump in the year-ago quarter. Still, both were better than forecasts. Analysts had expected a $1.37-a-share profit on revenue of $17.4 billion.
Our business has been impacted by the COVID-19 pandemic and, like all companies, we are facing a period of unprecedented uncertainty in our business outlook, the company said in prepared remarks. We expect our business performance will be impacted by issues beyond our control, including the duration and efficacy of shelter-in-place orders, the effectiveness of economic stimuli around the world, and the fluctuations of currencies relative to the U.S. dollar.
Although there was a drumbeat of marketers pausing or boycotting Facebook over its various misinformation issues, that didnt really start until after the quarter closed. The effects of that will not be felt until Q3 earnings come out, said eMarketer principal analyst Debra Aho Williamson.
Indeed, Facebook acknowledged the impact of the boycott, adding in its guidance that the impacts of that and other factors were likely to continue: In the first three weeks of July, our year-over-year ad revenue growth rate was approximately in-line with our second quarter 2020 year-over-year ad revenue growth rate of 10%. We expect our full quarter year-over-year ad revenue growth rate for the third quarter of 2020 will be roughly similar to this July performance.
Still, the strength of Facebook advertising from small and medium-sized businesses, a source of stability until recently, could be having an outsized impact as those companies suffer the most from pandemic shutdowns.
Not surprisingly, Facebooks ad business was negatively affected by the global pandemic, but the impact was much less than many had expected, said Williamson. Facebook has successfully attracted digital-native businesses to its platform, especially those market products or services that can be used or consumed by people staying at home.
That had a lot to do with Instagram, she added. Although Facebook doesnt release details about Instagrams revenue, we believe that Instagram has been a rapidly growing contributor to the companys total revenue, and that its success is helping to buoy Facebook as a whole, she said.Looking ahead to Q3 2020, the revenue growth rate guidance Facebook has provided is sobering, but again, reflective of the uncertain state of the worlds economy.
Others were a bit more positive. No other platform can offer brands and advertisers the reach and scale that Facebook can offer, said Yuval Ben-Itzhak, CEO of the social marketing firm Socialbakers. As long as Facebook and its family of applications continues to attract users, their advertising business is likely to remain strong. With both daily active user and monthly active users up, Facebook is still attractive to new audiences and advertisers need to be where the users are.
Facebook didnt provide profit guidance for the third quarter and full year, but said revenue is likely to be roughly similar for both periods to the 10% uptick it saw in the first few weeks of July. It did provide a somewhat narrower range of total expenses for the full year, $52 billion to $55 billion, and capital spending of $16 billion, at the high end of its previous range of $14 billion to $16 billion. But it said a great deal of uncertainty remains in our outlook.
Show your support for our mission with our one-click subscription to our YouTube channel (below). The more subscribers we have, the more YouTube will suggest relevant enterprise and emerging technology content to you. Thanks!
Support our mission: >>>>>> SUBSCRIBE NOW >>>>>> to our YouTube channel.
Wed also like to tell you about our mission and how you can help us fulfill it. SiliconANGLE Media Inc.s business model is based on the intrinsic value of the content, not advertising. Unlike many online publications, we dont have a paywall or run banner advertising, because we want to keep our journalism open, without influence or the need to chase traffic.The journalism, reporting and commentary onSiliconANGLE along with live, unscripted video from our Silicon Valley studio and globe-trotting video teams attheCUBE take a lot of hard work, time and money. Keeping the quality high requires the support of sponsors who are aligned with our vision of ad-free journalism content.
If you like the reporting, video interviews and other ad-free content here,please take a moment to check out a sample of the video content supported by our sponsors,tweet your support, and keep coming back toSiliconANGLE.
Link:
Cloud and COVID boost Amazon but ad swoon hits Alphabet and Facebook - SiliconANGLE