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10 takeaways from Big Tech's big earnings

What Apple, Facebook, Alphabet, Microsoft and Amazon earnings say about the state of tech.

Money

It's good to be Big Tech.

Image: Neon Brand / Unsplash

Another quarter, another set of blockbuster earnings from the five most important companies in tech. Alphabet, Facebook, Apple, Microsoft and Amazon have all benefited hugely from the pandemic, seeing their platforms grow and ad revenues spike as billions of people all over the world turned to the internet for every aspect of their life.

The numbers just keep getting more ridiculous: Between them, the five companies brought in $321.3 billion in the last three months, a whopping 41% increase over the same period a year ago. Every quarter it seems like Big Tech can't get any bigger, and every quarter the FAAAM companies smash through the ceiling again.

All five companies face real threats, of course, from the U.S. Congress, the EU and from a growing list of competitors. (Shopify and TikTok are coming hard and fast.) But for now, as long as you're not having to prepare for yet another Senate Judiciary hearing, it continues to be good to be Big Tech.

Here are 10 things you should take away from this quarter's earnings bonanza:

The ad business is no longer a two-company race. Google made just shy of $44.7 billion in ad revenue for the quarter, and Facebook reported a little over $25.4 billion. But Amazon's "Other" category, which is mostly made up of advertising revenue, was up 77% year-over-year and brought in $6.9 billion in the last quarter. Meanwhile, between LinkedIn and Bing, Microsoft has a booming ad offering as well. Two companies still rule, but they're not the only big players anymore.

There will be lots of winners in the cloud wars. Microsoft is officially an Azure Company, AWS continues to explode and Google Cloud continues to absolutely bleed money but is trending fast in the right direction. They will obviously continue to fight brutally over every customer and deal, but as digital transformation continues to sweep every industry there's going to be plenty of business to go around. And there's no evidence the pace of growth will slow down anytime soon.

YouTube is a streaming giant. Its revenue grew almost 50% over last year, bringing in $6 billion for the quarter. (For comparison, Netflix reported $7.16 billion in the most recent quarter.) Netflix's subscription base gives it a certain stability, but YouTube's advantage is its ubiquity: A Pew study found that 81% of U.S. adults have used the service in 2021, which makes it the most popular social platform by a mile.

LinkedIn is a true force in social. Microsoft said the platform has more than 750 million users and brought in more than $3 billion in revenue in the last year. In both cases, that puts LinkedIn ahead of Snap, Pinterest, Twitter and practically anything not made by Facebook.

Product diversity is everything. Almost everybody is running the AWS playbook, betting on cloud services to bring a huge new revenue line. But they're looking to the next ones, too: Facebook pointed to the growth in Oculus as a good sign that it can build a business beyond advertising, while Microsoft touted fast growth in everything from Xbox to LinkedIn. Apple has services; Amazon seems to be increasing its bets on Prime Video. Only Alphabet's "Other Bets" seem to be failing to launch.

Facebook isn't really a U.S.-focused company. It's been true for a while, but the numbers are always striking: Facebook has 195 million daily active users in the U.S. and Canada, which is only about 10% of its total user base. (Asia-Pacific is unsurprisingly Facebook's largest region, with 760 million DAUs.) And while Facebook's U.S. revenue accounts for almost half its total, that number is shrinking as Facebook gets better at making money around the world.

And Apple's privacy push continues to cause Facebook trouble. "We continue to expect increased ad targeting headwinds in 2021 from regulatory and platform changes, notably the recently-launched iOS 14.5 update, which we expect to begin having an impact in the second quarter. This is factored into our outlook," Facebook wrote in its earnings report, even as Mark Zuckerberg and Sheryl Sandberg projected confidence on the earnings call.

It's a good time to make hardware. Surface revenue was up 12% for Microsoft, and the new generation of consoles drove Xbox hardware revenue up 232%. Apple's iPad and Mac revenue both nearly doubled last quarter. "Quest 2 is doing better than we expected, even after the holiday season," Zuckerberg said on Facebook's earnings call. Most analysts predicted a boom in the PC market, and that appears to be panning out no matter how broadly you define "PC."

Except everyone's nervous about the chip shortage. Microsoft said it expects Surface and Xbox revenue to be hamstrung for the foreseeable future, not because of interest but because it simply can't make enough to keep up. Apple said it expects to sell $3 billion to $4 billion less than it would have without the shortage. (Qualcomm said it expects the shortage to ease by the end of the year, though.)

But overall, the post-pandemic world isn't scary. Across the board, executives seem to think that there's not going to be some great retreat after people are vaccinated and can go outside again. If anything, they seem to think some of the online-first habits people have developed are only going to increase. A year ago, everyone seemed uncertain about the future, but now it's mostly optimism.
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