Get set for the year of efficiency
After a big spending couple of years, Meta CEO, Mark Zuckerberg, last week declared 2023 would be a “year of efficiency.” Zuckerberg’s statement sent Meta’s share price soaring. And his objective of delivering a leaner organisation in the face of a slowing economy is shared by many U.S. companies now reporting full-year 2022 results. Efficiency, it seems, will be one of the key themes this reporting season.
After a decade of uninterrupted prosperity, it seems the biggest technology companies are not immune to the slowing economy amid rate rises in the U.S. and globally. Last week’s megacap tech companies confirmed they’re still making bucketloads of money but the decelerating economy is biting, revealing a variety of responses (read, layoffs) to a reversal in the spending surge that accompanied the pandemic and its subsequent reopening.
Apple (NASDAQ: AAPL)
Thursday last week Apple missed expectations for sales and earnings for its first quarter ending December 25, 2022. A strong U.S. dollar (which is temporary) and COVID-related pressures on Chinese manufacturing of the iPhone 14 Pro and iPhone 14 Pro Max crimped performance. As an aside, of Apple’s US$394.3 billion in revenue in fiscal 2022 US$205.5 billion, or 52 per cent, is generated through iPhone sales, so interruptions have a leveraged effect on earnings, which declined 11 per cent to $30 billion or US$1.88 per share. That was well short of consensus analyst estimates of US$1.94. Despite this Apple is the only major tech company to dodge headline-grabbing layoffs, having not aggressively hired ahead of the pandemic’s reopening.
Alphabet (NASDAQ: GOOGL)
Meanwhile, Google parent Alphabet also reported financial results Thursday, also disappointing investors with lower YouTube ad spending, which was down more than seven per cent in the quarter versus the previous corresponding period. The quarterly dip caused Alphabet’s overall revenue growth to slow to just one per cent year-on-year. Alphabet has announced it is laying off 12,000 people of six per cent of its workforce.
Amazon (NASDAQ: AMZN)
Amazon beat the market’s expectations for revenue, but lower-than-expected revenue from its AWS cloud computing unit frightened investors. Amazon warned cloud growth will slow and quarterly company operating profits in the current quarter could be anywhere from $0 to $4 billion. Analysts had expected operating profits near the high end of that range. Amazon has also announced it is laying off 8,000 employees, or two per cent of its workforce.
Microsoft reported its slowest quarterly sales growth in several years. After a boom in PC sales during the pandemic, which brought forward sales, the market has rapidly cooled, resulting in net income of US$16.4 billion, a decrease of 12 per cent for the second quarter ending December 31, 2022 over the prior corresponding period. Microsoft is letting 10,000 employees go, equivalent to five per cent of its workforce.
Meta (NASDAQ: META)
Finally, Facebook parent Meta bucked the trend, reporting strong results and a positive outlook. This was despite the tougher economy and online ad slowdown. Meta also noted expenses for the full year will be lower than previously anticipated. In his earning call with investors and analysts, CEO Mark Zuckerberg talked of further efficiencies and cost-cutting measures, with a hint of future layoffs. Meta’s stock surged more than 23 per cent in response on Thursday. Meta shares are up as much as 112 per cent since their November lows.
We are still in the early days of reporting season and further themes are sure to emerge. Stay tuned.
The Polen Capital Global Growth Fund owns shares in Microsoft and Alphabet. This article was prepared 07 February 2022 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade these companies you should seek financial advice.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
