Pandemic pays for big tech as Alphabet, Apple and Microsoft beat high expectations

Tech giants Microsoft, Apple and Google parent Alphabet were confirmed as big pandemic winners with results after hours that beat even analysts heightened expectations.

Google parent Alphabet delivered market-beating quarterly revenue powered by a surge in advertising spending amid more consumers shopping online.

The digital ad market is booming, with consumers shifting to shopping largely online due to the pandemic, leading companies to rely on data gathered from customers’ orders and online activity to launch new products as well as know their market better.

Alphabet said revenue from Google advertising rose nearly 70 per cent to $50.44 billion, while that from YouTube jumped 83.7 per cent to $7 billion in the second quarter to June 30th.

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Revenue of the internet’s biggest supplier of search and video ads rose 61.6 per cent to $61.88 billion, well above Wall Street estimates of $56.16 billion, according to Ibes data from Refinitiv.

Microsoft also beat Wall Street expectations for quarterly revenue on Tuesday, on the back of soaring demand for the software giant’s cloud-based services with more people working and learning remotely.

The pandemic-driven shift to remote work has boosted consumer appetite for cloud-based computing, helping companies including Microsoft, Amazon and Alphabet's Google Cloud.

Cloud computing

Microsoft said revenue in its Intelligent Cloud segment rose 30 per cent to $17.4 billion, with a 51 per cent growth in its Azure cloud-computing business. Analysts had expected a 43.1 per cent growth in Azure, according to consensus data from Visible Alpha.

Revenue from its personal computing division, which includes Windows software and Xbox gaming consoles, rose 9 per cent to $14.1 billion.

The company’s revenue rose 21 per cent to $46.2 billion in its fourth quarter to the end of June, beating analysts’ consensus estimate of $44.24 billion.

Apple completed a good evening for big tech, with quarterly sales and profits ahead of expectations as consumers bought premium versions of its 5G iPhones and signed up for the company’s subscription services.

Driven by better-than-expected iPhone sales, total revenue hit $81.43 billion, which was above analyst expectations of $73.30 billion, according to Ibes data from Refinitiv. Earnings were $1.30 per share, above estimates of $1.01 per share, according to Refinitiv.

Apple's strongest sales growth came from China, where chief executive Tim Cook said customers were buying up accessories such as the Apple Watch to pair with their iPhones. China sales grew 58 per cent to $14.76 billion in the fiscal third quarter ended June 26th.

“It wasn’t just iPhone. We set a new quarterly record for Mac, for wearables, home and accessories, and for services” in China, Mr Cook said. “It was our strongest geography.”

Apple also appears so far to have avoided a major hit from a global chip shortage. The chief executive said the hit to the company was “lower than the low end” of Apple’s previous estimates of $3 billion-$4 billion. However, Mr Cook said supply constraints had “tempered” growth in iPad and Mac sales.

Positive storm

The three companies had been expected to report record-breaking quarterly sales and profits as they continue to benefit from a pandemic that has created a “perfect positive storm” for big tech.

But the looming figures had weighed all day on US markets, where they are three of the four largest companies by market capitalisation, dragging the Nasdaq down as much as 2.1 per cent at one point. With Amazon and Facebook, both of which report on Thursday, their market value is worth more than a third of the entire S&P 500 index of America's 500 largest traded companies.

Thomas Philippon, an economist and professor of finance at New York University, said big tech firms have been the biggest economic winners from the pandemic as global lockdowns have pushed more businesses and consumers to use their services.

“They were already on the rise and had been for the best part of a decade, and the pandemic was unique,” Prof Philippon said. “For them it was a perfect positive storm.”