Power

What we've learned from earnings: Big tech is OK for now, but the worst is yet to come

Uber, Lyft and a lot of startups are struggling. It's a different story for diversified tech companies, especially in online retail and cloud services.

Apple CEO Tim Cook

It was a surprisingly resilient quarter for most tech companies, including Apple, whose CEO Tim Cook said its supply chain was now back up and "running at full-throttle."

David Paul Morris/Bloomberg via Getty Images

After two nonstop weeks of earnings, things are starting to calm down a little. On the whole, it's been a good time for tech, even as the pandemic took hold in much of the West. The S&P Info Tech Index, which counts Microsoft and Apple as its biggest holdings, is up almost 3% for the year, compared to a 10% loss on the S&P 500. Even its communications index, which includes Alphabet, Facebook and Netflix, is down less than 5%. It's a sign of tech's resilience amid a crisis that's upturned the entire economy. Here are the main things we've learned.

Ecommerce is having a moment

This came as no surprise: With stores closed, online shopping has boomed. Amazon's revenue was up 26% year-on-year, while gross merchandise volume on Shopify's platform rose 46%. It's not all sunshine, though: Amazon said it would spend $4 billion on COVID-related expenses this quarter; PayPal, which is exposed to online travel and event booking, disappointed investors with its Q1 results.

PayPal said things would pick up in the current quarter, though, with Shopify also signaling that online spending has increased in recent weeks. But the future's uncertain: Shopify warned investors that "it is unclear how sustainable consumer spending levels will be in this uncertain economic environment."

Digital advertising revenue is better than you'd think

There's been much talk of an adpocalypse: When companies run into trouble, the first thing to go is often marketing budgets. But tech companies showed relative stability. Facebook said that though revenue dipped in March, it was "approximately flat" year-on-year in early April. Snap, meanwhile, blew investors away with its 44% year-on-year revenue growth in the quarter. The effect here seems to be that advertisers are happy to keep spending on things that lead directly to measurable outcomes, like purchases — something digital advertising is ripe for.

The cloud has never mattered more

It's fair to say we're all using more internet than ever before, at least from home, which is great news for the companies that run the internet. Cloud providers such as Microsoft, Alphabet and Amazon all reported huge increases in cloud usage, with corresponding revenue boosts. Microsoft CEO Satya Nadella said "we have seen two years worth of digital transformation in two months," a thought echoed by most tech leaders. This pandemic has accelerated companies' moves to the cloud, and providers are set to clean up as a result.

Chipmakers are seeing an enterprise boost, too

Those cloud providers need machines to cope with all that extra demand, and Qualcomm, AMD, Intel and Samsung all said they were seeing increased demand in their server businesses as a result. That makes up for the corresponding declines they're seeing in consumer tech, with smartphone and TV sales set for pretty drastic declines.

Supply chain weaknesses aren't as bad as we feared

The earlier Asian outbreak did hamper tech manufacturing: Nokia said supply-chain disruptions cost it $217 million last quarter. But it seems like China's ramped back up with remarkable speed: Tim Cook said Apple's supply chain was "running at full-throttle at the end of March," highlighting just how "durable and resilient" it is. That tampers down some people's predictions that this crisis will spur a move away from China. While tech companies are certainly realizing they need backup plans, China seems set to remain the world's factory.

We all just want to be distracted

With little but screens to distract us, entertainment-tech companies are measuring more activity than ever. Netflix added 15.8 million subscribers last quarter, more than double the 7 million it had expected. Apple, meanwhile, reported a boost in Apple TV and Music usage, while Spotify said we're listening to more podcasts, too. Video games have been another beneficiary. But nobody knows if this trend will continue. In its letter to shareholders, Netflix noted that "the person who didn't join Netflix during the entire confinement is not likely to join soon after the confinement." These boosts may just be a pull-forward in demand.

Diversification is key

A resounding theme across all companies' earnings was the importance of being diversified. Companies that cater to different geographies can offset the effects of the pandemic in one with the benefits of lockdown lifting in another. Those that make both consumer and enterprise tech can lean on the latter when the former sags. SaaS firms that cater to ecommerce businesses can get through the crisis even if their travel customers disappear. Gig economy companies that primarily rely on consumer travel, like Uber, Lyft and Airbnb, are unsurprisingly suffering. That offers a major advantage to big tech firms, which have the scale and resources to be diversified.

It's probably going to get worse

The first-quarter of this year ended in March — just a couple weeks after the U.S. economy started to shut down. That means that this earnings season offered just a taste of what's to come. Around 20 million Americans lost their jobs last month, and that's going to take a serious toll on the economy. We're on the cusp of mass defaults and bankruptcies, and tech will be affected. And with no end to this crisis in sight, things could get an awful lot worse before they get better.

Fintech

Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep Reading Show less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep Reading Show less
FTA
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.
Enterprise

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep Reading Show less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep Reading Show less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.

Enterprise

Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep Reading Show less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories
Bulletins