How the tech giants stack up in earnings season

BY Tim Burrowes

July 31, 2023 11:01

How the tech giants stack up in earnings season

Welcome to Tuesdata, our weekly analysis for Unmade’s paying members.

Below, we examine the key themes emerging from the tech giants from their quarterly earnings reports. Featured below is data from Facebook’s parent company Meta; Snapchat’s parent company Snap; Google’s parent company Alphabet and Microsoft. We also examine the UK’s biggest commercial TV player ITV.

Further down, a slump on The Unmade Index.

The content of the full post is available only to Unmade’s paying members. That could be you. Not only can you see today’s members-only edition of Tuesdata, but you get access to the full Unmade archive, which goes behind a paywall two months after publishing. Unmade members also get $108 off earlybird tickets to our retail media conference RE:Made which returns in October. The discount code is beneath the paywall.

‘The year of efficiency’ transforms the platforms

Seja Al Zaidi writes:

Zuckerberg’s investor letter exhibited bullishness on AI

The earnings are in and one theme is common across the media platforms and companies that have reported so far – headcount is being thinned to make way for investment in AI, and a languishing advertising market is fuelling this trend.

Meta CEO Mark Zuckerberg shared a lengthy investor update last week in which he returned to his new catchprase – the ‘Year of Efficiency’.

The term is used by Zuckerberg to describe two different goals: ‘becoming an even stronger technology company’, and ‘improving our financial results so we can invest aggressively in our ambitious long term roadmap’.

What this means in practical terms is that while teams were cut to save money, management also liked what it did for simplifying lines of reporting and accelerated decision making.

In Zuck-speak, that’s ‘creating stability for employees, removing barriers that slow us down, introducing new AI-powered tools to speed us up, and so on’.

Another uniting trend linking Meta and Snap is their prioritising of – and success in – increasing their number of daily active users. AI is bolstering that. Zuckerberg’s address credits ‘AI-recommended content from accounts you don’t follow’ as ‘the fastest growing category of content on Facebook’s feed’. Since introducing the AI recommendations, there’s been a 7% increase in overall time spent on the platform.

Snapchat’s ‘MyAI’ chatbot, which has had more than 150 million people send more than 10 billion messages to it since launch is its core AI offering – is also contributing to increased rates of daily active users (DAUs). In Q2, Snap reached 397 million DAUs, an increase of 14% year on year.

Snap’s daily active users continue to grow each quarter | Source: Snapchat earnings slides

However, Snapchat is vaguer about the economic objectives of its investment in AI. The company’s investor letter makes no mention of the enhancement MyAI has brought to revenue, but does outline the role it’ll play in diversifying revenue. “Recently began early testing of sponsored links in conversations with My AI,” the letter reads. “Diversifying our revenue growth is an important strategic initiative, and we believe our leadership in messaging and AR (augmented reality) technology provides a strong foundation to help connect businesses to our large and engaged community.”

Alphabet’s investor update also exhibits the two key trends of layoffs and AI investment. It mentions its January 2023 reduction of workforce while describing its focus on ‘continued leadership in AI and our excellence in engineering and innovation are driving the next evolution of Search, and improving all our services.’

‘Headwinds’ continue to be the core scapegoat

Though the phrase ‘economic headwinds’ continued to be bandied about in investor letters (particularly those of Meta and Snapchat), most of the platforms did better than the previous corresponding period (Q2 2022). Meta posted revenue of $32 billion, up from $28.8 billion in the same period last year.

Snapchat, the smallest of the lot, saw a small decline in revenue of 4%. They fell from $1.1 billion to just over $1 billion in Q2 FY23.

Alphabet had sizeable revenue growth, increasing this quarter from $61.8 billion to $74.6 billion. Similarly, Microsoft grew revenues from $51.9 billion a year ago to $56.2 billion in the most recent quarter.

Ad revenues, however, are more challenged. Snapchat mentions in its investor letter:

“Revenue growth remained challenged in Q2, as some of the headwinds we experienced as a result of the ad platform changes continued into the quarter. Our brand-oriented advertising business declined 8% year-over-year, and our direct-response advertising business declined 7% year over-year in Q2. In Q2, we saw certain advertiser verticals perform relatively better than others, including CPG, Restaurants, Travel, and Retail.”

Every platform performed more profitably in this quarter compared to the previous corresponding period.

Meta went from $6.6 to $7.7 billion in profit in a year, crediting “Llama 2, Threads, Reels, new AI products in the pipeline, and the launch of Quest 3 this fall” for the growth. Alphabet’s profits went from $16 to $18.3 billion in the period, and Microsoft had the biggest growth in profitability, going from $16.7 to $20.1 billion in Q2 FY23.