Big Tech earnings set to slow in third quarter as ad sales continue to decline

America’s biggest tech companies are set to face an unfamiliar scrutiny of their costs when they report their latest results this week, as a sharp slowdown in revenue ends the surge in digital activity fueled by the pandemic over the past few months. last two years.

Combined revenue growth for the five largest U.S. tech companies – Alphabet, Amazon, Apple, Meta and Microsoft – is expected to have slowed to just under 10% in the third quarter, analysts estimate. That compares to a 29% jump for all of last year, when their combined sales soared to $1.4 billion.

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

In a potential sign of a broader pullback in spending, Snap shares fell 28% on Friday after the social media company reported pressure on advertising revenue. Most analysts blamed the disappointment on Snap’s own issues. But company executives also pointed to growing caution among brand advertisers, who they said were constantly adjusting their digital ad spend in response to signs of an economic downturn.

Meta, formerly known as Facebook, could add to concerns if, as expected, it reports that its revenue fell 5% in the third quarter. They fell 1 cent in the previous three months, the company’s turnover first drop in income. Growth came to a halt after jumping 37% in 2021, although like Snap, the company has been hit hard by privacy changes at Apple that have reduced the precision with which it can target its advertising.

Procter & Gamble, one of the world’s biggest marketers, said last week it had cut ad spend in response to declining volumes, even as rising prices continue to boost its revenue. However, declining 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, which makes part of WPP.

Along with a potential slowdown in consumption, Big Tech’s latest results are expected to be weighed down by soaring american dollar and comparisons with very solid results recorded a year ago. Growth at Google parent Alphabet is expected to slow to 10% from 41% for all of 2021, although search business has held up better than other forms of advertising during previous economic downturns. Amazon, where growth fell to 7% in the first half of the year from 22% in all of 2021, is expected to rebound slightly thanks to the addition of a second Prime Day in the third quarter to boost sales.

The end of Big Tech’s runaway growth streak has already forced some companies to act on spending and heightened Wall Street’s focus on the sector’s profit margins. Meta said last month that it was imposing a hiring freeze for “most jobs in the company”, while Google closed some underperforming units and slowed hiring since CEO Sundar Pichai calls on the staff in July to show “greater urgency, sharper focus and more hunger”.

Cost cutting at Google is expected to delay its revenue slowdown, pushing parent Alphabet’s reported operating profit margin down more than 4% in the latest quarter, BofA Securities analysts wrote in a note. last week.

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