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Opinion - Google and Microsoft Earnings Show The Bar Has Been Lowered For Big Tech - MarketWatch
Opinion - Google and Microsoft Earnings Show The Bar Has Been Lowered For Big Tech - MarketWatch
By
Therese Poletti Follow
Both companies reported some worrisome results, but stocks rise as Wall Street was afraid of much,
much worse
Wall Street was scared about what was to come from Big Tech’s earnings, but the lack of a negative reaction from
Google and Microsoft earnings Tuesday show that those fears managed to lower the bar.
AFP VIA GETTY IMAGES
MSFT -2.68% GOOGL -2.32% GOOG -2.56% META -4.50% SNAP -3.22%
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Alphabet Inc. and Microsoft Corp. both reported results that missed Wall Street’s expectations Tuesday,
but not only did investors not melt down, both actually saw their stocks rise in after-hours trading.
Amid troubling economic signs, tech stocks have been battered so far this year, and fears about a
slowdown among Big Tech names had Wall Street on edge heading into this week. But the reactions to
earnings misses Tuesday afternoon show that the fears and declines so far this year have resulted in a
lowered bar for even the biggest of the Big Tech names.
Microsoft MSFT,
-2.68%
missed on both revenue and profit expectations, and forecast that its cloud
business, Azure, will grow about 43% in the September quarter, amid fears of slowing cloud growth.
While the four-percentage-point deceleration from the previous quarter’s growth rate may have led to
sharp declines in the past, Microsoft stock jumped as soon as the forecast was provided.
“In context of the weakening macro backdrop, Alphabet’s Q2 results were decent, with close to in-line
revenues across all key business segments,” wrote Colin Sebastian, an analyst with Baird Equity
Research, in a note to clients, summing up the general view on Wall Street that things were not yet as
bad as feared.
Much like the relief rally seen by Meta Platforms Inc. META,
-4.50%
shares three months ago, however,
this is a case of numbers that, while good enough to avoid tanking their stocks, still shouldn’t actually be
seen as “good.” Both companies warned about the macroeconomy, and clearly each company has
businesses that are slowing sharply right now.
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In Alphabet’s case, revenue at YouTube, a recent star, grew a scant 3% in the second quarter, compared
with 14.3% growth in the first quarter, due to overall advertiser pullbacks in spending and more
competition from TikTok. Microsoft saw its PC business soften, as the big PC boom of the pandemic is
over. The advertising slowdown is also affecting its LinkedIn business, while the Xbox business is slowing
rapidly as the pandemic-fueled surge in videogames wears off.
But those stocks are not facing the wrath reserved for some smaller competitors. Last week, social-
media company Snap Inc. SNAP,
-3.22%
raised more fears among investors about internet ad spending,
and its stock plunged as the overall economy battles with inflation, changing consumer patterns and
higher interest rates.
Microsoft and Google were able to avoid the same fate, though it’s possible that it will just take longer
for the slowdown to actually affect companies so large, and with dominant positions in important
industries. But make no mistake, there is a slowdown, and it is affecting Big Tech, just maybe not to the
degree that it will result in big chunks taken out of their gargantuan market caps — yet.
Big Tech earnings are about to determine the direction of the market
Therese Poletti
Therese Poletti writes the "Tech Tales" column for MarketWatch. Follow her on Twitter
@tpoletti.