Recent statements from two big US technology giants, Microsoft and Alphabet, show that the recession, which has deepened with war, inflation and increasing interest rates, has begun to hit areas such as cloud and digital advertising, which have grown very rapidly in recent years. After the announcements of the two companies, which have become the symbols of the bull market in the global stock markets, the shares of the largest US companies were sold over 300 billion dollars. Microsoft and Alphabet shares fell more than 6 percent before the opening, while Meta and Amazon also fell 4 percent. According to some analysts, this refutes the claims that the $ 5.5 trillion sales in technology stocks this year have come to an end.
Companies begin to cut cloud and advertising spending
US software company Microsoft warned that cloud computing business will slow down in line with the economic slowdown: Companies are preparing for the economic slowdown and are slashing their cloud spending. It warned that revenue growth in Azure, the cloud computing platform that has become the engine of Microsoft’s growth, will slow by 5 percent this quarter. “This is a worse forecast than we expected and shows that companies are reducing their IT spending at a faster rate due to escalating economic problems,” said Anurag Rana, an analyst at Bloomberg Intelligence. In the quarter ending September, Azure’s revenues increased by 42 percent, one point below expectations, and slowed by 4 percent compared to the previous quarter. According to Microsoft CEO Satya Nadella, The cloud will also slow down as customers start optimizing their spending as the economic outlook deteriorates. High energy costs are also eroding profit margins in Microsoft’s giant cloud data centers – these data centers’ energy costs are projected to increase by another $800 million this year. Combined with a more than 30 percent drop in software sales to PC manufacturers, Microsoft’s Q4 revenue is projected to be between $52.34-53.36 billion. This is again $3.2 billion below the estimates of Wall Street analysts.
YouTube ad revenues did not rise, fell 2%
Google owner Alphabet announced on Tuesday that it is slowing hiring and making costs more controlled, signaling that the company is preparing for tough times. Marketing budgets of companies are often the first point of reference when costs begin to cut, and with the increasing inflation, many of Google’s customers have started to cut their advertising budgets. Google’s ad revenues increased by 6 percent in the third quarter, below expectations, to $ 69.1 billion. Google’s ad revenue growth was the slowest since 2013, excluding a short period of contraction at the start of the pandemic. Refinitiv analysts had predicted Google’s ad revenue in the US to increase 9 percent this quarter. Google Search revenues rose 4.2 percent to $39.5 billion, expected to increase by 8 percent. YouTube ad revenues, on the other hand, declined by 2% to $7.1 billion, while analysts expected a 4.4 percent increase. YouTube ad sales fell for the first time since 2020, when Alphabet began making an official announcement about the online platform’s ad sales. “Tough times for the ad market,” Alphabet CEO Sundar Pichai said in a phone call with investors.
Spotify also said on Tuesday that “tough economic conditions hit ad sales in the third quarter and its ad sales were hurting despite strong growth in its core business, subscription sales.”
Strong dollar also negatively affected revenues
Another factor that negatively affected the revenues of BigTech, which operates in many parts of the world but makes financial reporting in the USA, was the strengthening of the dollar against other currencies. At Alphabet, it is stated that the strong dollar has eroded 5 percent of revenue growth. In a statement from Microsoft, it was stated that “the jump in the dollar negatively affected revenues by 2.3 billion dollars”. “The global economy is at a critical juncture, ” said Jessica Amir, strategist at Saxo Capital Markets . A strong dollar will continue to weigh heavily on corporate revenues, with consumer demand likely to fall as wealth reverses. Pressure will continue on risky assets such as technology.”