By Laura Stevens, Tripp Mickle and Jack Nicas
Three of the biggest tech companies reported record quarterly
financial results on Thursday as they extended their dominance over
swaths of the global economy.
Apple Inc., Alphabet Inc. and Amazon.com Inc. -- with a combined
market value of more than $2 trillion -- all boosted growth by
broadening their reach into new areas.
Apple's revenue rose 13% to $88.29 billion, fueled by its move
to increase smartphone prices behind its new flagship iPhone X,
released in November for $1,000 each. The company, whose profits
topped $20 billion for the first time, is also increasingly
benefiting from its services business, including App Store sales
and music and payments services.
Google parent Alphabet recorded its 32nd consecutive quarter of
revenue growth of 20% or more, continuing a dominant run as it
handles more than 90% of internet searches and owns the world's
most influential video site. Google is building in other areas,
including cloud computing, a business that Google Chief Executive
Sundar Pichai said brings in $1 billion a quarter.
Meanwhile, Amazon -- long known for prioritizing growth over
earnings -- delivered a profit exceeding $1 billion for the first
time as its revenue jumped 38% to $60.5 billion. More than the
other two companies, Amazon has spread beyond its core market. The
online-retail giant has built the largest cloud-computing business,
created a major Hollywood studio and, more recently, become a big
bricks-and-mortar retailer with the acquisition of Whole Foods,
which accounted for roughly 7% of the company's sales.
Two of the other largest tech companies by market value --
Microsoft Corp. and Facebook Inc. -- reported record sales a day
earlier. Revenue at Microsoft increased 12% to $28.92 billion as
its cloud-computing division continued to grow, while Facebook's
revenue jumped 47% to $12.97 billion.
Those companies are the five most valuable in the U.S. by market
capitalization, the first time a single industry has occupied that
position in several decades, according to S&P Capital Inc.
As the tech giants expand their clout across a widening swath of
commerce, they have increasingly drawn scrutiny from lawmakers and
consumers over a range of issues, from their dominance of certain
markets, to how they use their vast troves of consumer data, to the
impact their products have on society.
The extraordinary run in the tech giants' share prices has
helped fuel popular awareness of the companies' power, says Youssef
Squali, an analyst with SunTrust Robinson Humphrey.
"It's a combination of the fact that these have become such huge
behemoths that they bear responsibility to society, and on the
other hand you have all this lack of control of personal data," Mr.
Squali said.
Facebook is contending with claims that its massive social
network has had harmful effects on mental health and is used to
disseminate hate speech, violent live videos and fabricated news
articles. Lawmakers have scrutinized Facebook and other
social-media firms, saying they failed to take more steps to keep
Russian-backed actors from sowing division during the U.S.
presidential election.
Facebook says it is addressing the issues in a number of ways,
including employing more people who handle safety and security
issues and ranking publisher posts based on user evaluations of
trustworthiness.
Apple is facing criticism from prominent investors over the way
smartphones affect children, as well as federal probes over its
disclosure that it issued software updates that slowed performance
on iPhones with older batteries. Apple apologized and said it would
never do anything to harm its customers.
Google drew a $2.71 billion fine from European regulators, who
said the search giant favored its comparison-shopping service over
rivals. Google's YouTube, meanwhile, is grappling with a backlash
from marketers over the placement of their ads in front of
undesirable videos, including YouTube's curated lineup of
"preferred" content.
Google Chief Executive Sundar Pichai said on a call with
analysts that new controls to review top videos on YouTube and set
new limits on which content can run ads will make the site a safe
place for advertisers. There have been concerns, he said, but
"we're working really hard to address them and respond
strongly."
A major shift for the tech industry came with the election of
President Donald Trump, who had been critical of the industry in
part due to what he said was a lack of U.S. job creation and
investments overseas. Tech CEOs a little over a year ago met with
the then-president elect. Shortly thereafter, plans for a tech
council to advise the president dissolved.
Most recently, Mr. Trump called out Amazon, tweeting that the
U.S. Postal Service should charge the online retail giant and other
companies more to deliver packages.
The mood extends to Capitol Hill. Sen. Mark Warner (D., Va.) and
Sen. Amy Klobuchar (D., Minn.) are working on legislation that
would make political advertising with companies like Facebook,
Twitter and Google more transparent. Meanwhile, U.S. Senators Jerry
Moran (R., Kan.) and Richard Blumenthal (D., Conn.) this week wrote
the Federal Trade Commission to ask it to investigate companies
that sell fake social-media accounts, mentioning Twitter and
YouTube specifically.
At the annual World Economic Forum earlier this month, the
world's largest technology companies defended themselves against
complaints about everything from perceived anticompetitive behavior
to threats from artificial intelligence. Some critics questioned
the firms' potential elimination of jobs with advanced technology,
while others pointed to their control of large amounts of personal
data. ts of personal data.
Salesforce.com Inc. CEO Marc Benioff, at the forum, called some
tech companies' behavior "nefarious," comparing the companies to
the cigarette industry and calling for more government regulation.
Martin Sorrell, CEO of advertising giant WPP PLC, compared the
firms to Standard Oil, a U.S. oil giant that was broken up after
regulators determined it was a monopoly.
In response to a question about Amazon's size, retail chief Jeff
Wilke said in an interview late last year with The Wall Street
Journal that its businesses are very diverse and horizontally
large. "We have incredible competition," he added.
Trip Miller, founder and managing partner at Gullane Capital
LLC, which owns shares in Amazon, Apple and Alphabet, said
management at the companies was strong, and they appear to have
good opportunities for continued growth.
"While we do understand some of the concerns around data and
them potentially having so much information on our lives, I think
it's just a byproduct of the world we live in," he said.
Apple's results offered hope that it can sustain its solid
performance even amid stagnating global demand for smartphones.
Analysts and investors have worried the company is too dependent on
the iPhone, which accounts for about two-thirds of its revenue, as
customers hold onto their phones longer and therefore buy fewer new
ones.
Sales of the iPhone X lifted the average selling price for
iPhones by nearly 15%, Apple said. The 1.3 billion iPhones and
other Apple devices now in active use helped its services business
report an 18% jump in revenue. Results also were buoyed by strong
growth in the division that includes its smartwatch and AirPods
wireless earbuds.
Alphabet's profit jumped 28% to $6.84 billion, excluding a giant
$9.9 billion charge related to the new U.S. tax law which turned
its bottom line into the red. While the ad business makes up nearly
all of its profits, Alphabet is investing in a dozen businesses
such as self-driving cars and cybersecurity in hopes they will
drive future revenue.
Amazon's core retail business was the main driver of its revenue
growth in the quarter, as holiday shoppers went online. It also
benefited from the company's $13.5 billion acquisition of Whole
Foods, which generated more than $4 billion in revenue.
Amazon is known for reinvesting heavily in its business, and has
said in recent quarters it is in an investment phase focusing on
international expansion and building out its video content, among
other initiatives. Contributing its profitability in the fourth
quarter was a tax benefit of $789 million, part of the new tax
overhaul. Still, Amazon's cloud-computing division put in a strong
performance, as did its growing advertising business. And the
company also worked on efficiency at its warehouses.
(END) Dow Jones Newswires
February 01, 2018 20:00 ET (01:00 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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