Opinion: Big Tech is still heading for its biggest year ever, but Apple and Amazon could cut profits

Big Tech is still on track for its biggest sales year by far, but vacation problems at Apple Inc. and Amazon.com Inc. could mean lower profits.

The fourth quarter is certainly going to be lighter than Wall Street expected, due to the constraints that Apple AAPL,
-1.82%
and Amazon AMZN,
-2.15%
discussed Thursday in the global supply chain, which affect their ability to meet high consumer demand for their products.

While revenues for the full year and the fourth quarter of 2021 are expected to experience strong double-digit growth again, net income is going to take a huge hit for the year and quarter, depending on the money. that Amazon will end up spending.

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But two more members of the five-headed Big Tech monster are set to surpass previous expectations. Alphabet Inc. GOOG,
+1.47%

GOOGL,
+ 1.51%
Now expected to experience the strongest sales growth – Wall Street predicts that Alphabet’s total revenue will grow by around 26% to around $ 71.8 billion, before traffic acquisition costs are deducted (TAC ), during the December quarter. Google’s advertising activity has generally not been deterred by changes to Apple’s privacy settings for the iPhone that have affected other internet companies.

“With many investors looking outside the US internet, given the plethora of potential headwinds (IDFA, supply chain) and negative headlines in the media, Google has stayed the course and made it happen. that had to be done, “said Mark Shmulik, analyst at Bernstein Research, in a note to clients. . “The 3Q impression isn’t the massive explosion that many of you may have grown accustomed to in recent quarters, but it wasn’t a dud either.”

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This compares to projected fourth quarter earnings growth rates among teens for Amazon (10%), Facebook Inc. FB,
+ 2.10%
(19%) and Microsoft Corp. MSFT,
+ 2.24%
(17.5%). All of these growth rates except Amazon are still better than the S&P 500 SPX,
+ 0.19%
Expected revenue growth of 11.65% for the fourth quarter. Together, the fourth calendar quarter revenue of these five companies is expected to be $ 412.2 billion, up 16.2% from $ 354.5 billion a year ago.

Net income, however, will be reduced to single-digit growth, thanks to Amazon’s heavy spending on product execution, including big employee hires. The Big Five’s combined net profit for the fourth quarter is projected at $ 79.9 billion, an increase of just 2.7% from $ 77.8 billion in the previous year quarter. S&P 500 to experience better distant earnings growth of 21.15%

And if there is an overall shortfall, we could see a decline over the year. Net income is expected to increase only marginally right now, just over 1% to $ 228.3 billion, from $ 224.8 billion in calendar year 2020. This is also much lower than the previous year. mid-year projections, net income of around $ 300 billion, and could even fall flat, based on Amazon’s forecast of potential decline and any other surprise issues that arise for others in the the Big 5.

For the full year 2021, including recent changes to estimates after Thursday’s deficits, the combined revenues of Alphabet, Amazon, Apple, Facebook and Microsoft are now expected to reach around $ 1.398 billion, on the basis of Factset estimates. That will still put 2021 on track to be Big Tech’s biggest year, growing 26.9% from $ 1.102 trillion in 2020.

Investors may have already had the best times in tech this year, and until the problems in the global supply chain are resolved, consumer-centric businesses are likely to be too volatile to really be able to. depend on it. Tech is a diverse industry, however, and the color of last week’s earnings announcements suggests companies are still spending and should support corporate tech names in the rough waters of the fourth quarter.

MarketWatch editor Emily Bary contributed to this report.


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