<p><em><strong>By Tae Kim</strong></em><br /><br />For a second straight quarter, Big Tech displayed its unparalleled ability to generate impressive profits during a global pandemic. Investors shouldn’t get too complacent, though. The industry’s sizable share-price gains this year, along with embedded high expectations, make betting on a “three-peat” a riskier proposition. Even the tech giants may be vulnerable in a Covid-19 winter.<br /><br />Late Thursday, Apple Inc., Amazon.com Inc., Facebook Inc., Google parent Alphabet Inc. and Twitter Inc. all reported better-than-expected financial results. As with many companies, they benefited from a rebound in economic activity following government stimulus programs and a general lifting of shelter-in-place restrictions around the world. But unlike many other businesses, the tech giants were able to make money even during worst the parts of the earlier lockdowns thanks to their dominant business models and market positions.<br /><br /><strong>Also Read | <a href="https://www.deccanherald.com/business/business-news/big-tech-and-antitrust-where-things-stand-904805.html" target="_blank">Big Tech and antitrust: Where things stand</a></strong></p>.<p>The latest quarter continued that trend, with Apple beating Wall Street estimates on strong sales of its iPads and Mac laptops and Amazon surging on the back of soaring e-commerce sales and demand for its cloud-computing services. Meanwhile, the big players in digital advertising — Facebook, Google and Twitter — all handily beat sales estimates as marketers opened up their ad budgets amid the improving economic environment.</p>.<p>As good as earnings were on an absolute level, they are still backward-looking. The market may quickly move beyond these numbers toward prospects for the important holiday quarter. And that’s where things are a bit more uncertain. We have already seen a flurry of corporate job-cut announcements lately, including from Walt Disney Co., Boeing Co. and Exxon Mobil Corp. If more companies lay off employees, that may spook investor sentiment on the sustainability of the recovery and dampen consumer spending. Then there is the recent surge in Covid-19 cases around the world. On Wednesday, Germany and France announced new lockdown measures, which could presage similar moves in other countries this winter. Finally, all the technology companies are facing increasing levels of regulatory scrutiny like they never have before.<br /> <br />Beyond the economic backdrop, each company faces a different sets of risks. Apple investors are betting the new 5G-enabled iPhone will be a huge success, with its shares of trading at about 31 times next four quarters’ earnings, roughly double its historical five-year average. But as I wrote earlier this month, the new smartphones may meet tepid demand when consumers realize the current state of high-speed wireless networks are lackluster at best. Facebook and Google could feel the pinch if marketers cut ad spending if further Covid-related restrictions lead to a worsening economic environment. As for Twitter, it’s falling behind on innovation and needs to move faster to match the competition’s ad-platform technologies.<br /> <br />The one exception out of the group may be Amazon, which has a pretty clear runway for further gains. Consumers are still increasingly shifting spending online as more physical stores shutter. And the rising demand for digital internet services such as remote-working software and video streaming continues to boost demand for Amazon Web Services. Both trends are likely to continue for the foreseeable future.<br /><br />While the technology sector has been resilient and a good place to hide for investors during the worst of the Covid crisis, valuations now leave little room for error. In fact, with the exception of Alphabet, the rest of the group’s stocks fell markedly in after-hours trading following the earnings reports, a sign of how much investors expect from these companies. Simply beating expectations isn’t enough. And what if the economic situation worsens? Consumers could delay purchases or lower their spending for the holidays. Then not even Big Tech will be immune.</p>
<p><em><strong>By Tae Kim</strong></em><br /><br />For a second straight quarter, Big Tech displayed its unparalleled ability to generate impressive profits during a global pandemic. Investors shouldn’t get too complacent, though. The industry’s sizable share-price gains this year, along with embedded high expectations, make betting on a “three-peat” a riskier proposition. Even the tech giants may be vulnerable in a Covid-19 winter.<br /><br />Late Thursday, Apple Inc., Amazon.com Inc., Facebook Inc., Google parent Alphabet Inc. and Twitter Inc. all reported better-than-expected financial results. As with many companies, they benefited from a rebound in economic activity following government stimulus programs and a general lifting of shelter-in-place restrictions around the world. But unlike many other businesses, the tech giants were able to make money even during worst the parts of the earlier lockdowns thanks to their dominant business models and market positions.<br /><br /><strong>Also Read | <a href="https://www.deccanherald.com/business/business-news/big-tech-and-antitrust-where-things-stand-904805.html" target="_blank">Big Tech and antitrust: Where things stand</a></strong></p>.<p>The latest quarter continued that trend, with Apple beating Wall Street estimates on strong sales of its iPads and Mac laptops and Amazon surging on the back of soaring e-commerce sales and demand for its cloud-computing services. Meanwhile, the big players in digital advertising — Facebook, Google and Twitter — all handily beat sales estimates as marketers opened up their ad budgets amid the improving economic environment.</p>.<p>As good as earnings were on an absolute level, they are still backward-looking. The market may quickly move beyond these numbers toward prospects for the important holiday quarter. And that’s where things are a bit more uncertain. We have already seen a flurry of corporate job-cut announcements lately, including from Walt Disney Co., Boeing Co. and Exxon Mobil Corp. If more companies lay off employees, that may spook investor sentiment on the sustainability of the recovery and dampen consumer spending. Then there is the recent surge in Covid-19 cases around the world. On Wednesday, Germany and France announced new lockdown measures, which could presage similar moves in other countries this winter. Finally, all the technology companies are facing increasing levels of regulatory scrutiny like they never have before.<br /> <br />Beyond the economic backdrop, each company faces a different sets of risks. Apple investors are betting the new 5G-enabled iPhone will be a huge success, with its shares of trading at about 31 times next four quarters’ earnings, roughly double its historical five-year average. But as I wrote earlier this month, the new smartphones may meet tepid demand when consumers realize the current state of high-speed wireless networks are lackluster at best. Facebook and Google could feel the pinch if marketers cut ad spending if further Covid-related restrictions lead to a worsening economic environment. As for Twitter, it’s falling behind on innovation and needs to move faster to match the competition’s ad-platform technologies.<br /> <br />The one exception out of the group may be Amazon, which has a pretty clear runway for further gains. Consumers are still increasingly shifting spending online as more physical stores shutter. And the rising demand for digital internet services such as remote-working software and video streaming continues to boost demand for Amazon Web Services. Both trends are likely to continue for the foreseeable future.<br /><br />While the technology sector has been resilient and a good place to hide for investors during the worst of the Covid crisis, valuations now leave little room for error. In fact, with the exception of Alphabet, the rest of the group’s stocks fell markedly in after-hours trading following the earnings reports, a sign of how much investors expect from these companies. Simply beating expectations isn’t enough. And what if the economic situation worsens? Consumers could delay purchases or lower their spending for the holidays. Then not even Big Tech will be immune.</p>
