Opinion: Big Tech shows it’s good to be big, as slowing growth leads to equity gains while smaller rivals only experience pain

After super-powerful, doubly-digital growth during the pandemic, the results of the top five U.S. tech giants slowed this week as they grapple with inflation, a looming recession and an overall slowing economy, but were largely rewarded by Wall Street as their size shows their strength.

Over the past week, all of Big Tech reported second-quarter earnings, and the results were mixed, with a big miss at Meta Platforms Inc. META,
-1.01%
mar the combined results. But even with the stronger results of Apple Inc. AAPL,
+3.28%,
Alphabet Inc. GOOG,
+1.79%
GOOGL,
+1.84%,
Amazon.com Inc. AMZN,
+10.36%,
and Microsoft Corp. MSFT,
+1.57%,
total combined revenue was $354.5 billion, before traffic acquisition costs at Alphabet, with a combined growth rate of 6.91%, up from $331.64 billion in combined revenue in the June quarter of a year ago.

Each giant had slower sales growth and Meta its first ever sales decline. And while analysts touted Apple’s iPhone as “resilient” amid much economic uncertainty, June revenue growth was moderate in the quarter at 2%. In contrast, sales in the June quarter of a year ago grew by 36%. Alphabet, which saw overall revenue growth before TAC grew 62% in the June quarter of a year ago, saw revenue growth of 13%, or 16% in constant currency, while digital advertising spend fell. Amazon saw a slightly better-than-expected revenue increase of 7%, compared to 27% revenue growth in the second quarter a year ago. But CEO Andy Jassy made a hopeful statement, saying he saw sales accelerate, which also helped.

Even worse were the profits. With Amazon reporting another net loss due to its Rivian Automotive RIVN,
+1.34%
investments and Meta reported a whopping 36% decline in net income, net income for the Big Five totaled $56.9 billion, a 24% drop compared to net income of $74.9 billion a years ago, as higher costs weighed on their profits, along with less revenue growth.

Meta’s big drop in net income, following a 101% increase in net income in the second quarter of a year ago, has been particularly abrupt as the company spends gleefully on CEO Mark Zuckerberg’s unproven view of the Metaverse. Reality Labs, the business unit focused on virtual and augmented reality, had a loss of $2.8 billion and revenue of $452 million. Ad revenue couldn’t fully compensate and fell slightly, amid comments from Zuckerberg saying the situation was worse than it seemed a quarter ago.

Still, Meta’s stock will end July as a near breakeven month, down less than 1%, less than 1%, which is the worst performance of the Big Five. Apple shares are up more than 19% in July, Amazon is up more than 28%, Microsoft is up 9% and Alphabet is up nearly 7%, all gains after their earnings reports except Meta.

Facebook’s parent was spared the slaughter of other digital ad-based companies, such as Snap Inc. snap,
+2.17%,
whose stock is set to fall nearly 25% in July, continuing a rapid decline with a 50% plunge in May after executives warned of the major ad slowdown also hitting Google and Facebook.

That split between the dominant Big Tech platforms and the smaller companies trying to compete is likely to continue. While they are all seeing slow growth and unclear prospects for the foreseeable future, the sheer size and the billions of dollars generated by Big Tech in revenue and revenue will largely continue to isolate these giants from the kind of pain Wall Street inflicts on Snap, Roku Inc. ROKU,
-23.07%
and others.

For More: Read About Roku’s ‘Honestly Terrible’ Earnings

It’s worth remembering that for the full year 2021, the Big Five reported annual revenue growth of 27% and a massive 55% net income growth, as they collectively reached $1.4 trillion in revenue for the year. At the time, MarketWatch pointed out that this was not normal growth, and indeed, that may have been the year technology jumped the shark.

With the themes resounding on most conference calls about reining in, cutting costs, staff slowdowns or job losses, and macroeconomic uncertainty, for the most part, investors seemed eager to avoid worse-than-expected results for Big Tech. However, for the rest of the technology, there are many more questions ahead as we move into the earnings season with many more reports to go.

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