"All of these companies have just returned an absolute killer of a quarter," said Youssef Squali, an internet analyst at Truist. "The recovery curve is just a lot sharper than any of us expected. Online is taking a tonne of market share from offline."
Big Tech's boost comes at a time of increasing worries among politicians and regulators about their growing economic and social power. A landmark US antitrust suit against Google, a contentious hearing in Congress over allegations of online censorship, and a US presidential election that has shone a spotlight on online misinformation, have combined to make this a challenging time for the tech groups in Washington.
Not surprisingly, the companies seemed keen on Thursday to play down any suggestion that they were winning a disproportionate share of the economic pie during the Covid-19 crisis. Sundar Pichai, chief executive of Google's parent, Alphabet, said his company was only enjoying the same jump in business that was being felt across the rest of the digital sector. But the scale of the big tech groups — Google has added more than $100bn of stock market value — makes their success hard to ignore.
"The current juggernauts are really hard to stop," said Kevin Landis, chief investment officer at Firsthand Capital Management. Their markets are still far from maturity, he said, leaving plenty of room for them to keep growing: "We don't know how big and powerful they will become."
For the latest quarter, it was Google that stole the show. After plunging 10 per cent in the preceding three months in its first ever contraction, its search advertising revenue rebounded 6 per cent in the latest quarter.
Facebook also registered a stronger-than-expected advertising rebound, with revenue up 22 per cent. Its ads business got a boost from "an acceleration in the shift of commerce from offline to online", the company said, as well as rising user numbers during national lockdowns.
The rising demand meant the company was able to shrug off a boycott of its platform by 1,000 brands — including Ford, Coca-Cola and Verizon — in July over concerns that it was not adequately policing its content. Twitter also reported a 14 per cent rebound in revenue, but its share price tumbled nearly 18 per cent as its user growth came up short.
Amazon, meanwhile, continued to ride the ecommerce wave that has made it one of the biggest winners during the pandemic, with growth of 37 per cent, only slightly down from the preceding quarter.
Amazon was also buoyed by the jump in online advertising, as its "other revenue" — mostly ad sales — grew by 51 per cent. For the past two quarters, advertising has been bigger in revenue terms than its physical store segment, which includes Whole Foods.
"With ecommerce growing [at] outsized rates right now, digital advertising aligns with that," said Andrew Lipsman, an analyst at eMarketer. After pulling back in the second quarter as fears about the pandemic took hold, advertisers returned quickly when conditions changed, he said. "Once they felt the water was warm, they decided to dip their toe back in."
Amazon does not break out details on the segment's expenses. But the high-margin ads business contributed to the company's strong bottom line in the quarter. Its $6.3bn profit — three times the level of the year before — came despite the increasing cost of delivering goods, and $2.5bn of spending on Covid-19 measures.
Other signs of how the pandemic had lifted the tech groups were evident in heightened consumer spending across the digital landscape, from the Apple and Google mobile app stores to subscriptions on YouTube TV and buoyant demand for Apple's iPads and Macs, sales of which increased 46 per cent and 29 per cent, respectively.
This softened the blow to Apple's results from the delayed launch of the iPhone 12, which has been postponed because of Covid-19 related supply chain disruptions. Sales of the handset slipped 21 per cent, while revenue from greater China crumbled nearly 29 per cent.
Coming after a year in which the leading tech companies have led the entire stock market higher, the immediate share price reaction was mixed. Google, whose shares had missed out on some of the Big Tech rally, soared as much as 9 per cent in after market trading.
But Amazon fell nearly 2 per cent after it said it expected to report operating income in the current quarter of between $1bn-$4.5bn. That is well below the $5.8bn Wall Street had pencilled in, as Amazon pours money into new facilities to keep up with demand.
"Amazon, not surprisingly, is going through one of their biggest investment cycles to keep up," said Mr Squali at Truist. Periodic spending binges like this have often worried Wall Street, only for the concerns to dissipate as revenues rise to match the higher cost base, he said.
Apple's shares, up 54 per cent so far this year, fell 5 per cent in after-hours trading, reflecting disappointment that the company did not release holiday quarter revenue guidance. Luca Maestri, its finance chief, however said he expected revenues to rise from the record $91.8bn posted last year.
Politics, for once, took a back seat — though Mark Zuckerberg could not escape.
Scolded by both Republicans and Democrats in a bruising hearing on Wednesday, he reassured analysts that Facebook was committed to "free expression" but also prepared to protect users from "physical harm" ahead of next week's presidential election. But he sounded an ominous warning ahead of what could become a defining week in the life of his company.
"I'm worried that with our nation so divided and the election result potentially taking days or weeks to be finalised, there is a risk of civil unrest across the country," he said. "And given this, companies like ours need to go well beyond what we've done before."
© Financial Times
