It's been a long week of Big Tech earnings, with companies pointing out issues they've been grappling with for some time: supply chain woes, the chip crisis — you get the gist.
At the same time, there were big moves among the biggest companies in tech: Tesla became a trillion-dollar company for the first time, while Microsoft recaptured its crown as the most valuable company in the world. There are plenty of headwinds facing the tech industry right now, but nothing seems to slow the biggest players down.
Here's a rundown of some of the highlights — and lowlights — from this week's slew of tech earnings, and what they mean for the next few months.
The holiday crunch is going to be real
Amazon is trying as hard as it can to ensure everyone gets their presents in time for the holiday season. In fact, it's dropping billions of dollars to help to offset high shipping fees, supply chain issues and labor costs. "We've always said that when confronted with the choice between optimizing for short-term profits versus what's best for customers over the long term, we will choose the latter," Amazon CEO Andy Jassy said in its third-quarter earnings release on Thursday.
Apple is feeling the holiday pressure, too. Tim Cook said on Thursday that the company lost about $6 billion because of production issues and shortages, and that number could go up in the next quarter if those same issues persist.
All of tech's big setbacks from 2021 are in the spotlight this holiday season. But at least execs have been giving us a heads up about the issues — labor and supply shortages, the chip crisis — for a while now. So get shopping now if you want to be ready for the holidays.
The chip shortage is hitting everyone
The chip crisis will be here for a while. Even Joe Biden wants to figure out a workaround to the problem. It's mainly affecting the electronics and cars industries, and the impact is drastic.
Apple attributed some of its lost earnings and supply issues to the shortage. Cook also said COVID-related manufacturing setbacks in Southeast Asia have caused issues. Last week, Intel said the chip shortage hurt customers' ability to purchase laptops and servers because of "inventory challenges and supply challenges." Meanwhile, Samsung and Taiwan Semiconductor Manufacturing (TSMC) have said efforts to ramp up production have been harder than expected.
But perhaps the most vocal — and most affected — group is the car sector. Ford, General Motors and even Tesla have said it's difficult to meet customer demand because of the crisis. Some, like GM, are temporarily closing plants because of it. And as the holiday season approaches, companies' attempts at working around the crisis are being put to the test.
The future is coming, but ads are here and now
For all the talk of the metaverse, it's worth a reminder that Facebook is still an advertising business at its core, and a giant one at that. Facebook generated about 97% of its total $29 billion in revenue from advertising in Q3.
The Meta rebrand is an attempt to convey to the public that Facebook isn't just a social network that sells ads. This, of course, draws parallels to the Alphabet rebrand: In Larry Page's 2015 letter announcing Alphabet, he mentioned "ads" exactly zero times. Instead, Page described ambitious Google projects such as a "glucose-sensing contact lens" and drone delivery. Fast-forward to 2021, and Alphabet is still very much an advertising company: Google advertising accounted for $53 billion of the $65 billion generated in Q3 2021, while the "other bets" segment that Page was so keen to emphasize generated a meager $182 million.
Facebook could similarly shift public perception by focusing on its equivalents of "other bets" with VR, AR and the metaverse. Even if those don't pan out — as happened with Alphabet for the most part — Meta still has a bright future as an old-fashioned ad merchant.
The rebrand could instead create a gap between the public perception of how Meta makes money and the reality of the business. This could help diffuse some of the public anger towards Facebook, and help attract engineering talent who are much more keen to work for a metaverse-building tech visionary than a company that sells attention for money. And as we learned from Protocol's Anna Kramer earlier this week, Facebook needs all the help it can get in the hiring department.
Apple's privacy push hurt some more than others
Some companies hate Apple's privacy change, and others don't seem to mind. Snap and Facebook said last week that Apple's privacy change, which requires apps to ask users if they want to be tracked, is killing business. Snap shares dropped substantially twice in a row the day after complaining of the privacy change.
On the other hand, Google, Twitter and Amazon said the rule didn't put much of a dent in their business; in fact, they're fine without it. Amazon has enough customer data that it doesn't need to lean on Apple's tracking information, Google search already collects user data and YouTube was only impacted slightly. Twitter also walked away mostly unscathed.
Still, the privacy change shows just how valuable ads are for business, and how one move on Apple's part can have a ripple effect on its peers. Now that companies have seen the impact from Apple's rule, they may need to figure out how to make their own data tracking work in their favor.
The labor shortage hurts Amazon the most
Amazon said it needs more manpower, particularly drivers and warehouse workers. The labor shortage is making it harder for Prime members to get their same-day delivery, and in some cases, packages need to be redirected to warehouses with enough employees, according to Reuters.
The company is trying to offset the issue by hiring hundreds of thousands more seasonal and non-seasonal employees and offering them incentives to stick around. Heck, the company's weed legalization push has a lot to do with hiring. But those pushes may not be enough, as the company battles unionization pushes sparked by demands for better working conditions. The latest unionization drive comes out of Staten Island.
Amazon's outlook highlighted the labor shortage the most, but it's not the only company affected by it. Over half of tech leaders indicated in a survey that finding skilled workers is their biggest worry at the moment, according to CNBC. Even the best perks may not bring workers back, and companies are realizing they need to think long and hard about what it will take to fill that gap.
Cloud services are the engine that powers (most of) Big Tech
Cloud services have proven to be more resilient to the economic impacts of the pandemic, particularly the ongoing supply chain issues and labor shortages.
Nowhere was this more evident than with Amazon. AWS accounted for less than 15% of the company's net sales but just over 100% of its operating income. This means AWS is effectively subsidizing the rest of Amazon's business operations. And this will be particularly important for the company in the next few months, as CEO Andy Jassy expects to incur "several billion dollars of additional costs" in Q4 to contend with disruptions on the ecommerce side of the business.
Google and Microsoft didn't have as stark of a difference between their cloud businesses and everything else. (Their non-cloud segments are more software-centric than Amazon's, and therefore less exposed to supply-chain and labor issues.) Google Cloud brought in just under $5 billion in Q3, which accounted for 7.7% of total revenue. Microsoft's intelligent cloud business generated $17.4 billion, which represented nearly 37% of total revenue.
For both Google and Microsoft, the cloud businesses are growing at a faster rate than overall revenue. Microsoft had the largest gap, with Azure (a subset of Intelligent Cloud) revenue up 51% year-over-year relative to the overall revenue growth of 21%.
Apple is leaning on services while supply chain disruptions drag on
Apple's pivot to services has been several years in the making, and it's proven to be a savvy strategic decision in terms of making the company more resilient to all the aforementioned supply chain issues.
Services generated $18.3 billion in the last quarter. This represented 22% of net sales but 37% of gross profit. Apple announced that it now had 745 million paid subscriptions, which was up by more than 160 million from the year prior.
One bad sign for Apple is that revenue growth for services is now slower than that of the overall company. In recent years, Services had been a growth driver for the overall business. Apple seems to think that the launch of new services will help bring Services back to its former glory.
Apple CFO Luca Maestri said in the earnings call, "We're adding new services that we think our customers will love and we continue to improve the breadth and quality of our current services offerings."
It's still really good to be Big Tech
Earlier this month, Bloomberg published an op-ed titled: "Give Amazon and Facebook a Seat at the United Nations." No, this wasn't intended as satire. The author instead built his case for the UN expansion by pointing to the fact that "CEOs were more trusted than government leaders, religious leaders and journalists" and that "68% thought CEOs should step in when governments fail to fix societal problems."
Whether you agree with the recommendation or not, it's difficult to argue that Big Tech companies have become primary powers on the world stage.
The supposed "Big Tech crackdown" has been brewing for years now, but stock prices suggest investors don't take these threats very seriously. As of this writing, Microsoft and Apple have market caps of $2.5 trillion, Alphabet stands at $2 trillion and Amazon at $1.7 trillion. Even the "successful" efforts in the EU to rein in Big Tech have resulted in protracted legal battles rather than serious threats to its market dominance.
In truth, Big Tech is as dominant as ever. There are few credible threats — regulatory or otherwise — to their power. Get used to living in the world of FAANG, or MANGA, or whatever you want to call it.
Climate TRACE's data show emissions at the facility-level.Image: Climate TRACE