EC Big Tech's Best Growth Days May Be Behind It

Apple logo in front of a building

This might be a very odd claim to make after seeing Amazon (AMZN), Alphabet (GOOGL), Apple (AAPL), Facebook (FB) and Microsoft (MSFT) report results in recent days that can only be described as blockbuster.

I don’t think we need to dwell on how good the quarterly numbers from these ‘Big Tech’ players have been, but let me take a moment to present the sales and earnings numbers for just two of these five players – Amazon and Apple.

Amazon’s Q1 earnings of $8.1 billion on $108.5 billion in revenues not only topped consensus estimates, but represented year-over-year growth rates of +219.8% and +43.8%, respectively. In other words, just the change from the year-earlier period amounted to $5.6 billion in earnings and more than $33 billion in revenues. On the other hand, the iPhone maker earned $23.6 billion on $89.6 billion in revenues, representing year-over-year growth rates of $110.1% and $53.6%, respectively.

Needless to say, these are mind boggling big numbers.

Looking at this elite group of five ‘Big Tech’ players as a whole, these companies earned $74 billion in earnings in the March quarter on $311.6 billion in revenues. This group’s Q1 earnings and revenues are up +104% and +29% from the year-earlier period, respectively.

So are we claiming that this group’s best growth days may be behind it?

Our sense is that this is probably as good as it will ever get, with the growth trajectory steadily decelerating going forward.

Take a look at the chart below that shows current consensus expectations for this group in the context of what they were able to achieve in 2021 Q1 and the preceding period.

It is reasonable to assume that these estimates will go up as we move forward, with 2021 Q4 and 2022 Q1 significantly above what is currently expected. Given the history of these companies and their enormous earnings power, they will likely continue to have positive earnings growth, but not the preceding period’s +41.2%, Q1’s +104% or even the June quarter’s +35.8%.

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