What a dreamy fortnight this has been for Silicon Valley. Not only has the industry's earnings season been dominated by record sales and fat profits but for the first time four of the biggest companies — Microsoft, Apple, Amazon and Alphabet — exceeded US$1 trillion ($1.5t) valuations at the same time.
So much for the techlash. Nearly every issue flagged as a potential problem seems to be passing by in a haze. Weren't consumers and investors supposed to be punishing companies that gave founders excessive voting rights, eroded personal privacy and allowed the same person to hold both chief executive and chair roles? Quarterly results suggest otherwise.
No matter how much bad press and regulatory scrutiny tech companies receive they continue to make products customers want to buy. Even the puffed up valuations of the biggest companies look mild compared with the latest Tesla rally. Prices are up 75 per cent this year alone and it appears to be driven by investors hopping on the bandwagon of enthusiasm for the electric cars that Tesla makes.
Worries that tech giants operate in saturated markets have been eased by healthy demand for their core products. Apple sold US$56 billion of iPhones in the last quarter, up 8 per cent from a year earlier. Amazon now has 150 million Prime subscribers paying for faster online shopping delivery, up from 100 million two years ago. Facebook made a record US$41 average revenue per user in its home market in the last quarter and the growth of media streaming options did not stop Disney finding almost 30 million subscribers for its new service.
Political animosity is mostly bouncing off the sector too. Democratic presidential candidate Elizabeth Warren has talked about breaking up Facebook, yet advertisers continue to pour money in. Amazon has accused Donald Trump of thwarting a valuable deal with the Pentagon yet the US president's animosity towards boss Jeff Bezos, who he once referred to as "Jeff Bozo", did not stop the company smashing financial forecasts.
Amazon's market capitalisation has grown more than US$220b in the past 12 months as the share price rose 25 per cent. Alphabet shares are up 32 per cent. Microsoft's are up nearly 75 per cent. Even when demand for core products slows, companies such as Apple, Microsoft, Facebook and Amazon have sustained growth by buying or creating subsidiaries that can diversify revenues and keep top and bottom line growth rising. The largest businesses want to do everything. Amazon has both an ecommerce and cloud business and is moving into advertising. Google is an advertising giant that is moving into cloud services. Amazon, Google and Apple all have subscription-based streaming services.
Take YouTube, which Google bought in 2006 for US$1.65b. This week, parent company Alphabet broke out sales details for the first time. These showed that the world's largest online video service streaming channel recorded US$15b in advertising revenues for 2019, up more than a third from the previous year.
YouTube reaches more than 2 billion users around the world each month, so US$15b is lower than some analysts had been estimating. It also does not include the money YouTube pays to video creators. But the figures prove YouTube was a good buy. Alphabet's 17 per cent advertising sales growth would have been slower without it.
The threat of regulation has not disappeared. Multiple investigations are under way and smaller rivals were recently asked to testify at a US House Judiciary Committee antitrust hearing. As the biggest tech companies expand, their competitors know they have little chance of ever catching up. Yet the impact of investigations remains unclear. Politicians may have a wary eye but shareholders and consumers do not.
Written by: Elaine Moore
© Financial Times