Big Tech’s earnings boom stretched into the third quarter, with the pandemic surge in cloud computing, and a strong rebound in digital advertising, all but confirming 2021 will be a banner year for the sector.
Quarterly revenues of the technology giants Microsoft and Google parent Alphabet soared beyond Wall Street’s expectations, according to figures published on Tuesday.
Together, the duo posted revenue of $110.4bn — a combined growth of 33 per cent on last year’s third quarter.
The gains were built on sustained demand for cloud computing, in part thanks to the shift to remote working, while advertising sales have strengthened at Google thanks to travel and retail trends picking up globally.
“Both of these stocks have just been massive outperformers,” said Brent Thill, an analyst with Jefferies.
He pointed out their respective gains this year — 42 per cent for Microsoft and 62 per cent for Alphabet — had “walloped” the performance of the wider markets.
Apple and Amazon, which report their earnings on Thursday, are predicted to continue the positive trend — though Amazon has cautioned it will be difficult to match its performance in the third quarter of 2020, when more people shopped from home.
At 22 per cent, Microsoft’s quarterly revenue growth was at its highest level since 2014, spurred on by the success of its cloud division, which grew by 36 per cent.
“I don’t know how much better it can get from Microsoft,” Thill added. “To grow at that rate, at their size, is insane. I have no other way to put it.”
While still trailing Amazon’s cloud offering, AWS, analysts see Microsoft’s relationships with businesses, such as those using services such as Office 365, as providing ample opportunity to acquire more customers.
“With workforces expected to have a heavy remote focus, we believe the cloud shift is just beginning to take its next stage of growth globally,” said Dan Ives of Wedbush. At Microsoft’s Azure cloud computing arm, “momentum is still in its early days of playing out”, he said.
At Google, cloud computing missed lofty analysts consensus estimates, but at $5bn still represented year-on-year growth of 45 per cent.
“What Google has been doing, in terms of focusing on and offering products around analytics and [artificial intelligence] and [machine learning], that was really a differentiator for them,” said Scott Kessler, an analyst with Third Bridge.
For its search business, Alphabet executives pointed to the reopening of shopping and travel as a driver of rebounding ad sales. In particular, trends for searches such as “open now near me” were four times higher than the same period last year, said chief business officer Philipp Schindler.
He cautioned, however, that results were geographically uneven. “Some economies have restarted and reaccelerated — albeit at different speeds,” he told investors. “Other countries, depending on local regulations and vaccines, have been slower to rebound. It’s clear that uncertainty is the new normal. The world is in flux.”
The better than expected performance of Alphabet’s advertising business will paint an optimistic picture that recent changes to Apple’s privacy policies — which make it harder for advertisers to gather personal data to target — will not be a significant drag on the company’s core business.
Indeed, several analysts suspect Google may pick up market share due to the changes, with advertisers shifting to advertising through Google’s services due to its own vast trove of personal data. Alphabet’s chief executive Sundar Pichai said the company had not yet seen significant evidence of this.
Ruth Porat, Alphabet’s chief financial officer, said there had been only a “modest” impact on YouTube’s advertising revenue due to Apple’s move. At $7.2bn, YouTube’s advertising revenue was up 40 per cent year-on-year.
That sentiment was mirrored at the social media site Twitter, where revenues rose 37 per cent on year to $1.28bn, with Apple’s changes also being described as having an “ongoing modest impact”.
Twitter posted a net loss of $537m after paying to settle a shareholder class-action lawsuit and ramping up investment on its new product development plan.
On Monday Facebook struck a slightly more cautious note on the impact of Apple’s changes, saying it expected “continued headwinds” for the rest of the year. The leading social network posted a 35 per cent year-on-year revenue increase, despite being the focus of a torrent of negative press and swirling regulatory pressure.
Additional reporting by Hannah Murphy in San Francisco