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Tech giants: two disappointments, one weird strategy change and a warning

29 Oct 2021 6 month(s) ago

Some big things are happening with the world's tech oligopolies and the portents are not good.

The tech oligopolies have accounted for the bulk of investor returns in the US stock market for many years. They boast massive values and have been a go-to for world investors for a long time, including Australian super funds which have about a quarter of their assets in offshore stock markets.

Here is a list of the world's most valuable companies:

They tech giants seemed to sail through the ravages of covid, helped by the central banks’ tactics. But there are some curious things happening.

First, Amazon disappointed the market. Of course, the most profitable part of Amazon’s business is the cloud services it provides to the CIA and they will not doubt continue to be healthy, especially if the Washington Post continues to be a faithful propaganda outlet for the intelligence state.

But things are not going so well. As Zero Hedge reported:

“Not only did the company miss on the top and bottom line and operating income, but guided much lower than Wall Street expected:

  • Net Sales $110.8BN, up +15.3 Y/Y but missing estimates of $111.81B
  • EPS $6.12, down big from $12.37Y/Y and also missing estimates of $8.96
  • Operating Income $4.85BN, down 22%Y/Y missing est. $5.62B
  • AWS net sales $16.11 billion, up 39% and beating estimate $15.40 billion
  • Online stores net sales $49.94 billion, up 3.3% and missing estimates of $51.53 billion

Looking ahead, the company's guidance was unexpectedly ugly, with the high end of expectations missing sellside consensus as the company sees several billion dollars in additional costs in 4Q.

  • Q4 Net Sales $130.0BN to $140BN, missing Wall Street est. $141.62B
  • Q4 Operating income between $0 billion and $3.0 billion, also badly missing estimates of $7.44BN

Amazon's dismal forecast signaled that the pandemic’s boost to online shopping continues to fade. The company’s revenue and profit also missed projections for the third quarter and Amazon said its costs to negotiate supply chain issues and add employees to deliver goods in the holiday season would cut further into profit.

“Commenting on the quarter, Andy Jassy said that "in the fourth quarter, we expect to incur several billion dollars of additional costs in our Consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs—all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season. It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners."

Sure. And if there is a US recession, as looks increasingly likely, things will be even better.

Then Apple disappointed:

“Moments after a very ugly quarter from Amazon, which missed on the top and bottom line and guided far lower than consensus, investors held on to hope that at least the world's largest company, Apple, would somehow pull a rabbit out of its magic hat of tricks and report solid earnings pulling the Nasdaq out of its after hours slump.

“Alas, it did not and after reporting a miss on the top line (and matching the EPS), AAPL is also tumbling after hours and dragging Nasdaq futures down with it.

Here are the ugly details from the just concluded Q4:

  • Rev. $83.36B, missing est. $84.69B, this was the first revenue miss since 2017!
  • EPS $1.24, matching est. $1.24”

 

Next is the announcement that Facebook will rename itself ‘Meta’, which in Greek means ‘above’. Having, along with Google, attacked many of its customers with severe censorship – surely the strangest commercial decision of modern times – the company is now making a huge strategic shift. It is basically an advertising company. Google and Face Book’s share of global advertising has become so great it has destroyed much of the world’s conventional media.

So how will the repositioning affect its revenue from ads? Zuckerberg, fresh from donating $400 million to ‘help’ with the US election, is sounding increasingly odd:

“I’ve been thinking a lot about our identity” with this new chapter, Mr. Zuckerberg said, speaking at a virtual event to showcase Facebook’s technological bets of the future.

“Over time, I hope we’re seen as a metaverse company.” Zuckerberg first noted in July that he wanted Facebook to eventually become a "metaverse company," and last week, the company said it would hire 10,000 people across Europe specifically to build out its metaverse project.”

The business books are full of examples of strategy decisions that went wrong as companies became drunk on their own power. Think Nokia, for example, which once dominated the global mobile phone market.

“Identity”? Do advertising customers use Face Book because of its identity? No, they use it because they think they can sell stuff.

Finally, the creepy Jack Dorsey at Twitter, a company valued at $50 billion that makes losses (it has only made profits in two years), chimed in with this on his Twitter feed:

“Hyperinflation is going to change everything. It’s happening.”

Strange times indeed in the meta-universe of deluded power grabs that is the tech monopolies.

 

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