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Tech gains are coming and they probably won't be pretty

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CNN Business

After months of layoffs, hiring freezes and other cost-cutting measures, Big tech companies are set to offer the most detailed view ever of how bad things are amid fears of an impending recession.

Snapchat’s parent company, which warned much of its tech sector about a worsening economy in May, will report its third-quarter earnings on Thursday. Apple (AAPL), Amazon (AMZN), Facebook (FB)-parent Meta, Microsoft (MSFT), Twitter (TWTR), and Google-parent Alphabet (GOOGL) will report earnings results next week.

“People should probably brace themselves for these results,” said Scott Kessler, global industry leader in technology at research firm Third Bridge Group.

For years, the giants of Silicon Valley seemed almost immune to fluctuations in the global economy. Even in the midst of a pandemic, trade war, and other geopolitical uncertainties, tech’s biggest names just seemed bigger and richer. But in recent months, like other industries, they have faced a variety of new challenges.

Rising inflation is depleting consumers’ paychecks and reducing their ability to freely spend on technology products and services. Rising costs and recession fears have dampened demand for online advertising and corporate technology services. Analysts say other macroeconomic issues, such as ongoing supply chain bottlenecks and high interest rates, are holding back growth.

Worse still, tech companies must also face the growing strength of the US dollar, which is currently trading at a two-year high. According to Angelo Zino, senior industry analyst at CFRA Research, this may mean that sales abroad are not as valuable. A stronger US dollar could make hardware products from companies like Apple cheaper for foreign consumers; this is problematic given that, as Zino points out, “many of these companies generate more than half of their revenue outside of the United States.”

In a dramatic shift, most major tech companies are expected to report slowing profit and revenue growth, or even year-over-year declines, for the three months ending September, analyst forecasts say.

Estimated to be in top condition, Amazon (AMZN) is expected to have essentially steady sales. from the previous year. Meta’s revenue is expected to fall 5% year-over-year, marking the company’s second consecutive quarter of revenue decline. Net revenue in Meta, Amazon (AMZN), Google and Snap is also expected to decline from the prior year.

These sullen forecasts come after many tech companies had already shown signs of weakness in the previous quarter. In July, Meta reported its first annual quarterly revenue decline since going public in 2012, largely due to declining demand in the online advertising market that fuels its core business. Twitter (TWTR), Snap, Google, Apple and Microsoft also reported that shrinking ad budgets hurt their June quarter earnings somewhat.

“We’re comparing investor negative sentiment on technology today to what we’ve seen only 2 times in the decades we’ve covered tech stocks: 2008 and 2001,” Wedbush analyst Dan Ives said in a note to investors this week, referring to the previous two recessions. .

Many of the issues currently weighing on tech companies are unlikely to be let go any time soon, so industry watchers will pay close attention to the guidance these companies offer for the remainder of 2022.

“More than anything else, people want a really good understanding of what to expect from the last three months of this year, which is historically the most important quarter for these companies,” Kessler said. Investors, for example, will want to know if the online advertising market is starting to stabilize before the critical holiday season.

Negative results or the outlook for the future could place increased pressure on tech firms to focus on their core business and reduce outages. large bets that are not expected to return items quickly. Some of these are already being done.

In the past weeks, Google announced it would shut down its gaming service Stadia, Amazon said it would stop testing a home delivery robot, and shut down its Meta newsletter product Bulletin.

Meta can be in a uniquely difficult position. Last October, Facebook rebranded as Meta and stepped up investments to create a future version of the internet called the metaverse, which isn’t expected to be fully realized for years. But the Wall Street Journal reported last month that the company has quietly cut headcount, and some analysts expect more cuts to come.

“I think you will see them announce cost cuts. I think they will reduce the workforce,” Zino said. “The meta is really cornered here. Their core business is in an environment where they won’t see much growth… and they don’t have any major revenue centers other than advertising.”

What difference does a year make?