Barron's - USA (2020-08-03)

August 3, 2020 BARRON’S 29

TECH TRADER

Amazon’s sales were up 40% in the

June quarter, which one analyst referred to

as “shocking levels of growth.”

TheCEOsofBigTech

Get the Last Word

had revenue of $60 billion in the first

full Covid quarter—demonstrate ex-

actly what Congress and other tech

skeptics are so worried about: The big

are getting bigger and need more su-

pervision. But viewed through an-

other lens, the results demonstrate

why federal and state regulators

should leave the companies alone to

thrive: They hire large teams, create

products consumers really want, and

make tons of money for investors.

Here are my takeaways from this

week’s earnings reports:

Sorry, Congress:Between Tues-

day’s close and the end of trading Fri-

day, the market value of the four com-

panies combined increased by $370

billion, slightly more than the value of

Walmart (WMT), the world’s largest

company by sales. If the House Judi-

ciary Committee had hoped to make

an impression on investors, it failed.

The Magic of Apple:Analysts

said this would be a meaningless

quarter for Apple, with all eyes on the

launch of 5G iPhones later this year.

Apple hadn’t provided guidance, due

to Covid-19 uncertainty, which caused

Wall Street to be overly conservative.

And Apple crushed estimates, driven

by strong demand for Macs and iPads,

which have proven so popular during

the pandemic that the company can’t

keep up with demand. And the topper

is that Apple indirectly disclosed that

the next generation iPhones should

start shipping in early October. With

all that as a backdrop, Apple shares

soared to an all-time high, crossing

$425, giving the company a market

value of nearly $1.84 trillion.

The Stock Split:Apple also

pleased the crowd with a four-for-one

stock split, which shouldn’t techni-

cally matter, but retail investors seem

to love it. Apple has split its stock four

times previously, mostly recently a

seven-for-one split in June 2014.

There were 2-for-1 splits in 2005,

2000 and 1987. HadApple taken the

Berkshire Hathaway approach—and

sworn off splits entirely—the stock

would now be close to $24,000 a

share.

Let’s Go Shopping:Amazon

posted sales growth of 40% in its June

quarter, raking in almost $89 billion,

and beating the high end of its own

guidance range by close to $8 billion.

Amazon spent $4 billion in the quar-

ter on costs related to the pandemic,

and still posted per-share earnings

that were about five times what Wall

Street expected. Pivotal Research ana-

lyst Michael Levine wrote Friday that

the quarter featured “shocking levels

of growth ... accompanied by even

more shocking levels of profitability.”

Clouds Emerge:Growth at Ama-

zon Web Services actually disap-

pointed slightly, echoing last week’s

results from Microsoft Azure. Growth

at Google’s cloud business also decel-

erated in the latest quarter. These are

still huge, rapidly growing businesses,

but even the hugely successful public

clouds are now feeling the effects of a

shrinking economy.

What Boycott?Facebook seems

largely unscathed by the hundreds of

companies whovowed to stop adver-

tising on the social network. The

company emphasized that its ad plat-

form is largely focused on small busi-

nesses. The company now counts

more than three billion people as

monthly active users—about 40% of

the Earth’s population uses Face-

book, Instagram, WhatsApp or Mes-

senger.

Google Trouble:While Alphabet

also posted better-than-expected

results, Google took a harder hit on

the ad front than Facebook, resulting

in Alphabet’s first ever year-over-

year revenue decline. The company

saw 6% ad growth at YouTube, and

43% revenue growth from Google

Cloud, but by Friday investors were

mostly focused on the company’s

broader ad business amid a deep

economic decline. Stifel analyst Scott

Devitt cut his Alphabet rating to

Hold from Buy. He suggested swap-

ping into Amazon, Facebook, and

Alibaba (BABA) shares.

Ultimately, there are still regulatory

risks for all of these stocks, but the

risks seem increasingly modest com-

pared with the enduring appeal of big

tech’s businesses.B

By Eric J. Savitz

Analysts thought this would be a

lost quarter for Apple. Instead the

company generated $60 billion in

revenue and couldn’t keep up with

demand for Macs and iPads.

W

hat a differ-

ence a day

makes. On

Wednesday,

four of the

world’s most

powerful

executives—Alphabet’s Sundar Pi-

chai,Amazon.com’s Jeff Bezos,Ap-

ple’s Tim Cook, andFacebook’s

Mark Zuckerberg—were hauled in

front of a virtual Congressional hear-

ing, where they were subjected to

more than five hours of cantankerous

questions from lawmakers on both

sides of the aisle.

Republicans and Democrats don’t

agree on much, but there was biparti-

san support for shellacking the tech

titans. It reminded me of an old Woody

Allen line: “I spent two weeks at Inter-

faith Camp, where I was sadistically

beaten by boys of all races and creeds.”

(My colleague Max Cherney has more

about the hearings on page 12.)

As reporters, including yours truly,

maniacally covered the spectacle, in-

vestors basically ignored the proceed-

ings. All four stocks rose as the hear-

ings went on, finishing the day up

between 1% and 2%.

Less than 24 hours later, investors’

confidence was validated, when the

same four companies reported their

June quarter earnings. You could not

have scripted a better second act—all

four companies posted impressive,

Street-beating sales and profits.

Facebook (ticker: FB) soared 8% on

the results Friday, while Apple

(AAPL) was up 7% and Amazon.com

(AMZN) rose 5%. Google-parent Al-

phabet was the only loser, with its

stock down 4% on the day.

There are contrary ways to think

about the strong results. One could

Courtesy of Appleargue that the latest results—Apple