Decoding Q2 Tech Earning Reports: Signals from Meta, Microsoft, and Google.

This week, Microsoft, Google, and Meta's financial reports were released one after another. In comparison with the market's response after the financial reports, on the first trading day following the release (all after-hours), Microsoft's stock price fell by 3.76%, Google's rose by 5.59%, and Meta's rose by 4.4%. It is not difficult to see that Microsoft's financial report was the most disappointing to the market.

So, what are the highlights behind the financial reports of Meta and Google, and is Microsoft really inferior? Further analysis is needed.

Returning to the topic: because the business models of the three companies are different, the revenue drivers in this quarter are also different. Google and Meta both rely heavily on digital advertising as their main source of revenue. The rebound of digital advertising has resulted in a phase of bright financial performance for Google and Meta. Microsoft relies mainly on product sales and services, and Microsoft's price increase strategy for Office has just been announced and has not yet been reflected in the financial report.

First of all, let's take a look the advertising industry which is a highly cyclical industry, and the decline in consumer confidence during times of high inflation may impact advertising revenue, as shown in the chart below. However, with inflation under control, the advertising market has started to recover.

In addition to macro factors, artificial intelligence has also had a significant impact on advertising. AI-recommended content is now one of the fastest-growing types of content in Facebook's feed. Since the launch of the AI-recommendation system, it has driven a 7% increase in total user time spent.

Meta's FoA advertising revenue reached $31.5 billion in Q2, a YoY increase of 12%. The most significant factor is the growth of platform active users: Facebook's daily active users have risen to 2.06 billion, a YoY increase of 5%.

YouTube Shorts has also seen explosive growth in monthly active users, with over 2 billion users and nearly $7.7 billion in revenue, a YoY increase of 4.4%. Of course, Google Cloud cannot be ignored as a significant contributor to Alphabet's revenue. In Q2, Google Cloud revenue reached $8.031 billion, a YoY growth of approximately 28%.

Turning to Microsoft, its cloud services contributed $24 billion in revenue in Q2 2023, with Azure and other cloud service revenues up 26% YoY, a slowdown compared to the previous quarter's growth rate of 31%.

Possibly making real the market's concern about the impact on Azure's cloud business of a dip in ChatGPT's access growth. (In the first half of 2023, ChatGPT's global visits increased by 131.6%, 62.5%, 55.8%, 12.6%, 2.8%, and -9.7% MoM.)

Moreover, Microsoft's guidance for Azure's growth in the next fiscal year and Q1 is only estimated to maintain at 25%-26%, almost consistent with the growth rate in Q4 2023, leading the market to believe that the explosive growth maybe gone.

However, financial reports only represent a company's past performance, while capital expenditures indicate the strategic direction the company is optimistic about for the future. The degree of a company's confidence in the future can also be seen by how they invest their capital.

Comparing the Q2 capital expenditures of the three companies: Meta spent $6.354 billion, down 18% MoM; Google spent $6.888 billion, up 9.5% MoM; and Microsoft spent $10.7 billion, up 37% MoM.

This undoubtedly reflects the companies' determination and courage to invest in AI for the future. As we all know New artificial intelligence technologies come at a cost!