Big Tech earnings forecast to slow in Q3 as ad sales fall further

The largest US tech companies will be looking at their costs unknown when they report their latest earnings this week, as a sharp slowdown in earnings ends the pandemic-driven surge in digital activity of the past two years.

Analysts estimate combined revenue growth of the five largest U.S. tech companies — Alphabet, Amazon, Apple, Meta and Microsoft — will have slowed to just under 10 percent in the third quarter. That compares to a 29 percent jump for the full year from last year, when their combined sales rose to $1.4 trillion.

Revenues are being watched closely as a barometer of the broader consumer economy, with online spending and digital advertising expected to continue a sharp slowdown already seen in the first half of this year.

In a possible sign of a bigger pullback in spending, shares in Snap fell 28 percent on Friday after the social media company reported pressure on its ad revenue. Most analysts blame Snap’s own problems for the disappointment. But business leaders also pointed to growing caution among brand advertisers, who they said had continually refined their digital advertising spend in response to signs of an economic slowdown.

Meta, formerly known as Facebook, could raise concerns if, as expected, it reports its third-quarter revenue is down 5 percent. They fell 1 cent in the previous three months, the company’s first-ever sales drop. Growth has stalled after rising 37 percent in 2021, though the company, like Snap, has been hit hard by privacy changes at Apple that have reduced how accurately it can target its ads.

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Procter & Gamble, one of the largest marketers, said last week it had cut its ad spend in response to declining volumes, even as higher prices continue to boost its revenue. However, lower advertising budgets at companies like P&G are still being offset by the number of companies increasing their spending to take advantage of continued consumer demand, said Brian Wieser, president of Business Intelligence at GroupM, part of WPP.

In addition to a possible consumer slowdown, Big Tech’s latest results will be weighed down by the rising US dollar and comparisons to very strong results from a year ago. Growth at Google’s parent company, Alphabet, is expected to slow to 10 percent from 41 percent in all of 2021, although search has held up better than other forms of advertising in past economic slowdowns. Amazon, where growth fell to 7 percent in the first half of the year from 22 percent in all of 2021, is expected to recover slightly thanks to the addition of a second Prime Day in the third quarter to boost sales.

The end of Big Tech’s period of tumultuous growth has already forced some companies to trade costs and increase Wall Street’s focus on the sector’s profit margins. Meta said last month it was imposing a hiring freeze on “most jobs in the entire company,” while Google has shut down some underperforming units and slowed hiring since CEO Sundar Pichai. appealed to staff

in July to show “greater urgency, sharper focus and more hunger”.

Cost-cutting at Google is likely to lag behind the revenue slowdown, which plunged parent company Alphabet’s reported operating profit margin by more than 4 percent in the last quarter, analysts at BofA Securities wrote in a note last week.

Jacky

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