The Briefing
By Martin PeersApril 27, 2021
Greetings!
Tech companies are awash in cash. That’s the takeaway from earnings results for the March quarter so far, including today’s numbers from Alphabet, Microsoft and Pinterest. And it means more cash to be invested in their businesses and, for the bigger companies, to be returned to shareholders through buybacks or dividends.
We don’t want to get boring but the sheer size of the March quarter numbers are worth reciting. Alphabet revealed today that its free cash flow—that clunky term that denotes the cash a company generates from its operations, after capital spending on computers and data centers is deducted—rose 146% to $13.4 billion. Microsoft’s equivalent number rose 24% to $17.2 billion. Pinterest generated $269 million in “free cash flow” in the quarter, a big number for the relatively small firm. For all of last year, on that same metric, Pinterest only generated about $11 million.
Snap is part of this story, too. Last week, the company reported it generated free cash flow for the first time ever, to the tune of $126 million. What about Tesla, which on Monday reported that despite a huge increase in capex spending, it was still in the black in “free cash flow,” unlike the year-earlier period. Even Netflix, which has made a bonfire of cash in the past few years, generated nearly $700 million in free cash flow in the first quarter and is now planning to buy back stock.
What is happening to the world? Most of these companies are seeing surging toplines, as digital media takes market share in advertising from traditional media (Alphabet, Pinterest, Snap), cloud-based services take share from older technology (Microsoft) or streaming takes it from cable (Netflix). The only downside of this booming period is that the numbers offer big tech’s critics a cudgel with which to hit the firms over the head. That may be a small price for founders and executives to pay for the wealth they are now creating for themselves and their shareholders, however.
Onto other news...
MORE ON TODAY’S EARNINGS
Alphabet reported 34% higher revenue of $55.3 billion and net income that more than doubled to $17.9 billion. A couple of business units stood out. YouTube’s advertising revenue grew 49% to $6 billion, continuing an accelerating growth streak that began in the fourth quarter of last year.
Meanwhile Google Cloud’s revenue grew 46% to $4 billion, while its operating loss shrank sharply to $974 million, a sign that efforts by cloud chief Thomas Kurian to cut costs may be having an impact.
The results also benefited from $4.8 billion gain on equity securities, including theoretical gains that haven’t been realized. Alphabet’s investment arms own stakes in companies like UiPath and Stripe, both of which raised money during the quarter at a big increase in valuation.
Pinterest’s revenue rose 78%, and the company forecast that topline growth would accelerate to 105% in the second quarter. The robust period follows a strong second half of 2020, as Pinterest’s ad sales took off in the wake of a surge in Pinterest’s user growth, including in the U.S., thanks to the pandemic.
But Pinterest cautioned that U.S. user growth would slow to be flat in the second quarter. The rate of growth more than doubled to 13% in the second quarter of last year from the first quarter and remained elevated through the rest of the year. In the three months to March 31 it slowed to 9%.
Microsoft lifted revenue 19% to $41.7 billion and net income 44% to $15.5 billion. Many of its business units showed accelerating growth compared with the December quarter, although Azure’s 50% increase was in line with the previous quarter. Among the units showing particular improvement was Microsoft’s search advertising, which rose 17%, compared with 2% in the December quarter.
IN OTHER NEWS…
- Spotify’s 2-year-old antitrust complaint against Apple in Europe over how the iPhone maker controls the App Store could come to a head as early as this week, as European Union regulators prepare formal charges against Apple, according to the Financial Times.
- Senators Amy Klobuchar and Mike Lee are investigating allegations that a Google employee called a Match Group employee in advance of last week’s Judiciary Committee hearing at which a Match executive testified about Google’s app store rules, the Washington Post reported.
- DoorDash will give restaurants more options in the commissions it charges, based on the amount of marketing support the restaurants want, the Wall Street Journal reported.
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