Microsoft(Microsoft Corporation) and Google parent company Alphabet (Google, Google) reported better-than-expected profits after the bell on Tuesday, but the results weren’t enough for Wall Street as shares of both companies fell during trading on Wednesday.
With Apple and Meta set to report earnings on Thursday, both companies are under pressure to beat analysts’ expectations if they hope their respective stocks can avoid the same fate.
For Microsoft, the news is a boon to its artificial intelligence efforts, which the company said contributed 6 percentage points Azure cloud business revenue growthBut Wall Street was less than enthusiastic about the results, sending shares down more than 1% on Wednesday and pushing the company’s market value below $3 trillion. Although Microsoft’s revenue and profit forecasts were both higher than expected.
Alphabet, on the other hand, faces a tougher reckoning, with its shares falling more than 6% on Wednesday. Advertising revenue falls short of expectationsalthough its revenue and profits did grow, and its cloud business also grew.
For Microsoft, the results appear to indicate that Wall Street wants the company to generate more revenue from its multibillion-dollar investment in technology that generates artificial intelligence. For Alphabet, the market reaction points to the need to balance growth in advertising revenue with its deeper forays. Cloud market.
Two other interesting points from these announcements: Alphabet’s subscription services (such as YouTube TV, Google One, etc.) currently do $15 billion in annual revenue, Alphabet CEO Sundar Pichai told analysts on the company’s earnings call. This number has grown approximately fivefold since 2019.
Another surprising news came from Microsoft, which reported that its gaming division (which now includes Activision Blizzard) is officially its third-largest business, with profits of $7.1 billion, ahead of Windows, which made $5.2 billion.
Apple and Meta work together
Apple’s announcement will set the stage for 2024, giving Wall Street its first look at full-season iPhone 15 sales. At the same time, Meta needs to show analysts that its advertising business continues to rebound and how it will monetize investments in its large-scale generative AI.
Apple’s first-quarter earnings were undoubtedly the most anticipated in some time. Earlier this month, analysts at Barclays, Piper Sandler and Redburn Atlantic downgraded Apple’s stock over concerns about iPhone sales in China. Tuesday, Tianfeng International Securities analyst Guo Mingchi Medium released a report stating that iPhone shipments are expected to decrease by 15% annually in 2024.
Guo pointed to Huawei’s resurgence and consumer interest in foldable and generative artificial intelligence phones as reasons for China’s economic slowdown.
On Tuesday afternoon, Apple shares were down about 2% year to date.
The early downtrend saw Apple lose its status as the richest public company by market value. As of Tuesday, the company’s market capitalization peaked at $2.91 trillion, below new leader Microsoft’s $3.04 trillion market capitalization.
Apple is also making major changes to its App Store in Europe to comply with the EU’s new Digital Markets Act. These moves mean Apple will open its devices to third-party app stores and cloud gaming services, including Microsoft’s Xbox cloud gaming.
But critics, including Epic CEO Tim Sweeney and Spotify CEO Daniel Ek, say the changes don’t go far enough. They specifically pointed out that Apple will charge developers a new core technology fee of 0.50 euros. This charge starts after the developer has downloaded more than 1 million times. for 12 months and will apply to each subsequent download.
Apple is also preparing to launch the Vision Pro AR/VR headset on February 2. The device, which Apple calls a space computer, is the company’s first new product category in nearly a decade and could provide the company with a powerful new revenue stream. But that’s only if customers can stomach the $3,499 price tag.
The company needs a strong performance this quarter to justify its recent stock market performance. Meta’s shares are up 33% in the past three months and 164% in the past 12 months. That’s better than the stock performance of Microsoft, Apple, Google and Amazon during the same period.
Meta is rebounding after its all-important advertising business was hit by Apple’s app tracking transparency feature and a sharp decline in the digital ad market due to eye-watering interest rates.
But Meta is still hemorrhaging money from its Reality Labs division, which is responsible for the Metaverse work and the Quest headset.In the third quarter, the company Report says unit lost $3.7 billion Only in Season 3, 2023. But with Apple’s earphones set to launch soon, Meta may see a knock-on effect from Quest headphone sales.
We’ll see how this all plays out on Thursday.