Apple, Amazon, Meta, Microsoft and Alphabet’s Earnings: 4 Things That Stood Out

All five U.S. tech giants — Alphabet (GOOGL) , Amazon.com (AMZN) , Apple (AAPL) , Meta Platforms (META) and Microsoft (MSFT) — reported earnings last week, with all of the companies except for Apple selling off post-earnings.

Here are a few things that stood out from their earnings reports and calls.

1. Amazon Seems to Be Having Retail Execution Issues Following Leadership Turnover

While Amazon Web Services’ numbers (more on them shortly) got more attention, the figures shared for Amazon’s North American and International segments (which cover the company’s retail operations) were arguably more worrisome, given that e-commerce is inherently a tougher business to profitably run at scale than a market-leading public cloud platform.

The North American segment swung from an $880 million, year-ago, GAAP operating profit to a $412 million loss, in spite of revenue rising 20% annually to $78.84 billion. And the International segment saw its operating loss nearly triple to $2.47 billion amid a 5% drop in revenue (hurt by forex swings) to $27.72 billion.

Also: On Amazon’s call, CFO Brian Olsavsky disclosed that Amazon generated more than $1 billion in retail “operations cost improvements” in Q2. That was less than the $1.5 billion the company was aiming for.

To be fair, wage inflation is a headwind for Amazon’s retail ops, as are higher energy prices (particularly in Europe) and a step-up in Prime Video spending. But still, Olsavsky’s comments and the bottom-line figures shared for North America and International point to some execution issues, particularly given that Amazon talked a lot on its April and July calls about wanting to run its retail ops more efficiently and having a lot of headroom to do so.

All of this raises the question of whether the early-2021 departure of long-time Amazon retail chief Jeff Wilke — he played a huge role in the buildout of Amazon’s fulfillment and delivery infrastructure over the prior two decades, and was widely seen as a potential successor to Jeff Bezos — is making itself felt. The June departure of Wilke’s successor, Dave Clark — he was Amazon’s SVP of worldwide operations for eight years, before taking over Wilke’s job — might not be helping either.

Amazon undoubtedly still has a lot of executive talent within its retail ops. But execution for this massive and very complex business now looks a little shakier than it has in recent years.

As an aside, it would be nice if CEO Andy Jassy appeared on Amazon’s calls to discuss matters like retail spending and execution, instead of leaving it all to Olsavsky and IR chief Dave Fildes. Just because Bezos avoided earnings calls doesn’t mean it’s a wise idea for his successor to do it, particularly when his company is dealing with a turbulent macro/demand environment.

2. Cloud Capital Spending Isn’t Letting Up In Spite of Near-Term Revenue Pressures

Though Amazon says AWS’s annual sales growth is now in the mid-20s range (down from mid-to-high 30s growth earlier this year), the company effectively hiked AWS’s 2022 capex budget on its call, stating its tech infrastructure capex is now expected to rise by about $10 billion this year from a 2021 level of roughly $24 billion.

Likewise, though Microsoft guided for its constant-currency Azure revenue growth to drop to about 37% in the December quarter (that compares with 46% in the June and March quarters), the company forecast capex would rise sequentially from a September quarter level of $6.6 billion. And though its revenue fell in Q3 and is expected to drop again in Q4, Meta (citing the need for large AI-related investments) guided for its capex to be in a range of $34 billion to $39 billion in 2023, above a 2022 guidance range of $32 billion to $33 billion and well above reported 2021 capex of $19.2 billion.

Also: Though Alphabet (as usual) didn’t give any formal capex guidance, CFO Ruth Porat did indicate on the call that the company would continue spending heavily on capex, which totaled $7.3 billion in Q3.

It’s possible Meta eventually pares back its 2023 spending plans, given that the company is now spending more on capex than AWS or Google and that its shareholders are up in arms about both the capex guide and R&D spending plans for Meta’s cash-burning Reality Labs unit. But there are reasons to think that — although it could slow for a little while in 2023 due to inventory digestion — Amazon, Microsoft and Google’s capex won’t be significantly cut anytime soon.

Though AWS’s revenue growth was “just” 27% in Q3, its contract backlog was up 57% to $104.3 billion. And thanks in large part to long-term Azure deals, Microsoft’s commercial contract backlog rose 31% (34% in constant currency) to $180 billion.

Those kinds of long-term commitments help explain why Amazon and Microsoft remain comfortable investing a ton in their cloud infrastructures, even as some big clients look to (as Amazon/Microsoft describe it) “optimize” their cloud spend in their current environment. And when it comes to the giant internal workloads of Internet/cloud giants, investments related to training and running increasingly large AI models are a capex tailwind, as are things such as rising video consumption and the growing complexity of search, feed and advertising algorithms.

All of that, in turn, is a positive for chip and hardware suppliers with strong cloud exposure, such as Advanced Micro Devices  (AMD) , Nvidia (NVDA) , Marvell (MRVL) , Broadcom (AVGO) and Arista Networks (ANET) .

3. Mobile Developers — and the App Stores They Depend On — Are Generally Having a Tough Time

There are two main ways that developers of popular mobile apps make money: sell ads and conduct in-app transactions for things like content subscriptions, virtual currency and game features. Both types of revenue streams appear to be on the skids right now.

A slew of major online ad players, including Alphabet, Meta and Snap (SNAP) , have shared soft Q3 ad-sales figures and/or issued light Q4 guidance. Weaker advertiser demand — particularly from brand advertisers and companies in impacted verticals, such as financial services — is a headwind, as is the continued impact of Apple user-tracking policy changes on ad targeting and measurement.

Separately, Alphabet and Apple both disclosed their app-store transaction revenue is under pressure.

Porat said Google Play revenue fell annually in Q3, due to lower mobile gaming activity levels (following a 2020/2021 surge) and other factors, and indicated Play revenue would be soft in Q4 as well. She also pointed out that lower app-promotion spend from mobile developers is weighing on Google’s ad sales across various platforms.

Apple’s Services segment revenue rose just 5% annually in the company’s September quarter, after having grown 12% in the June quarter and 17% in the March quarter. CFO Luca Maestri noted forex was a headwind, but added Apple has also seen softness in advertising and gaming, and that these pressures are also expected to weigh on December quarter Services revenue.

Over the long run, digital ad sales should continue trekking higher, as online/mobile ad platforms keep taking share from offline channels such as print, radio and linear TV. And (though it’s possible Apple and Google see their take rates drop) app-store transaction activity will likely keep growing as well. But in the short-term, companies depending on such revenue streams are often in a tough spot.

4. The iPhone and Mac Keep Taking Market Share

Research firm IDC estimates global smartphone shipments fell 9.7% annually in Q3, and that global PC shipments fell 15%. And some estimates from other research firms are even worse. Nonetheless, Apple reported its iPhone revenue rose 10% annually in the company’s September quarter to $42.63 billion, and that its Mac revenue rose 25% to $11.51 billion — and that’s with forex acting as a major headwind.

To be fair, Mac sales benefited from channel fill and catch-up spend related to the easing of component shortages, and Maestri forecast — with Apple facing a tough annual comp and reportedly not launching new MacBook Pros until early 2023 — that Mac sales would “decline substantially year-over-year” in the December quarter. But overall, it’s fair to say that the Mac (aided by the superb performance and power efficiency of Apple’s M-series processors) is taking meaningful PC market share.

Likewise, though iPhone sales growth is expected by analysts polled by FactSet to slow to a low-single-digit clip in the December quarter, Apple (likely benefiting from the camera improvements delivered by newer iPhones, as well as the attention to detail it shows towards creating end-to-end user experiences) is clearly taking smartphone share right now. Tim Cook said on Apple’s call that the company saw a double-digit annual increase in the number of consumers switching from Android phones to iPhones, and based on the top-line numbers that Apple shared, there’s little reason to doubt that claim.

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