Big Tech Earnings, The Fed & GDP Report

A lot has been happening. We have new GDP reports, the Fed raised interest rates again and big tech released their earnings. There's a lot to breakdown so we dive right into it this episode and talk about as much as possible! 

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Eddie Thomas: 0:01

What's up, guys? Welcome to the life finance and in between podcast. I'm your host, Eddie Thomas. This is brought to you by wealth management services in Hershey, PA. And what a week it's been, what a week it has been, as of late, what's come out is the new GDP numbers. The Fed had their meeting and announcement, we got tech earnings this week. So it's been a busy busy week, a lot going on. And it's only right that we get together here and we talked about it, we talked about what's going on what it might mean. So let's start and start tackling these one by one here. Not too much personal stuff going on. Going to Pittsburgh this weekend. So that should be fun gonna see a pirates game with my girlfriend and family. So I'm looking forward to that. But honestly, there's so much happening in the finance world this week that I'm not really gonna dive too far into the personal side of things. We're just gonna dive into the finance side and what we need to know as investors and just people as to what's going on at the moment. So let's start with Mr. With big tech earnings. Yeah, let's start there. So earnings week started last week, with banks and energy companies. And I've kind of touched on that, and Netflix, you know, stuff like that. And I definitely talked about it. But the real big companies came out this week, with all the big tech companies, Microsoft, Google fate will matter. Apple and Amazon. They all came out this week and released their earnings. And the reason it felt like this week was more important than last is kind of for the same reasons as last time, it's important to know how the big companies, the really big companies, like the five I just mentioned, are operating and how they're handling inflation and people spending and a changing economic kind of landscape at the moment. And where we're at, it's it's important to know how these companies are performing to get the temperature of how the overall market or economy should really look at things. So first, we had Microsoft, Google, which is alphabet and Mehta, which is Facebook, they all they all released their earnings. And Microsoft and alphabet Juliana's, Google, both missed on their expectations between earnings per share and revenue, they just missed overall, on what the market was looking for them as a as a kind of indicator of what they want performance they thought they'd have. And a both companies actually cited that a stronger dollar is impacting their business globally, because of exchange rates, and just how it impacts consumers globally on their side of things, because they are global companies. So it's funny that a strong dollar kind of negatively impacts these companies on the global scale, but it does. And it's not a massive, massive deal. But it is something that impacts them as they're trying to operate the day to day operations of their company. So both Microsoft and Google noted that noted that that is something that they're keeping their eyes on. But the interesting part is all three of these companies, Microsoft, Google, and fi N Mehta, which again was talking on Facebook, talking about Facebook, all mentioned that their Google or their ad spend was lower the revenues they bring in from ads from other companies are lower in the past quarter. And there's a few reasons for that. The main reason is because of the economic conditions that we're seeing. companies, a lot of times when things might get a little bit leaner, because they're worried about potential recession and GDP being lower, they're bolstering that by cutting spending in a lot of places. And a main place that people go and cut spending is ad advertising. Because when you need your capital for your day to day operations, advertising tends to come as a second priority at that point, which is totally understandable. It's fine and fine. But all three Microsoft with Lincoln LFC alphabet with Google and then Mehta with Facebook, have a lot of ad revenue come through their system, because companies want to be in front of consumers. When things are going really well. And they know they can capture consumers that they advertise well. So when they cut that these companies have a miss on their advertising revenue, which drives a lot of what they're doing. And granted, Google and Microsoft didn't miss by much they show that advertising revenue was down but not by a whole lot. Facebook or meta is the one that really got the short end of the stick there because with Apple's new update that they came out with a couple months to a year ago at this point, not exactly you can't quite sure remember But when, but Facebook's been struggling to figure out how to advertise as efficiently and effectively as possible. Like they were prior to that update, because of a lot of privacy issues came into play. And Apple kind of patched up all of those kind of, I guess, corners that Facebook was covering, and getting a bunch of information from us as consumers, Apple patch them up. And Facebook has yet to really figure out a way to be as effective as possible when it comes to marketing because they're not getting the same data they used to. So at the at this point, what's happening is businesses are pushing away from using Facebook as their main advertising or advertising space. They're pushing more towards the Googles, and Microsoft's or even Amazon at this point. So Facebook is getting hit by a lesser advertising revenue coming in. And then they're also spending so much money Mehta as a company itself, so much money on this push towards the metaverse that between not bringing in as much revenue and spending more money, they're, they're backing themselves into a tougher spot with regards to when their earnings come out, because the second quarter in a row that they've missed. So it'd be interesting to see what they do going forward is on meadows specifically, I know they're going to increase prices with their headsets. So as far as their VR headsets are concerned, they're going to increase 100 bucks. And the reason for that really might be because they're trying to capture more money on their hardware side, because they know their advertising business still has a ways to go until it's back up to par, until they figure out a way to get the data they used to and be as efficient as they used to. So meta Facebook, whatever you want to call them, they're going to be a company that keep their your eyes on the next couple quarters here, because they have a lot of soul searching and figuring out to do. And they were they were down, I think 6% or so on their news because they missed pretty poorly and did not have great guidance going forward. For Google and Microsoft, they're actually pretty positive going forward, they're still upbeat about how they kind of see their company's operating. So even though they missed on this quarter, they're actually going to be they actually rose on the expectation that they're going to continue to do well. And that they'll be able to weather any change in economic standards, or how the overall market is behaving, they'll be able to weather that and do well through that still. So the market responded to them a little bit more positively. Because I know it's a little bit of a hiccup, not something that should be majorly concerned with. But Facebook got the exact opposite treatment because I do think people are actually pretty concerned about the path that meta slash Facebook is going down at the moment. So those three all noted big ad misses, Amazon actually came out and they beat expectations as far as revenue is concerned. And a major reason for that was because their ad business was actually increasing. And if you're asking yourself, why how does that make any sense? It depends, it really depends on how you look at it. Amazon also had their Prime Day, and there's a lot of ad spend that comes through on Prime Day because people want their products to be bought on Prime Day. But for the most part, you have to think when we're moving to a more ecommerce driven economy with regards to shopping. Amazon is the first name you think about with that. So if you're a product company, and you're not going to Facebook, and you're not going to LinkedIn, and you're not going to Google, the next place you go is Amazon because you know, people that are trying to buy your product are going to Amazon to find that, like for instance yesterday, and I'm sure we could all relate to this. I wanted to buy a book and I wanted to buy covers for my Apple Watch. The first place I went was Amazon, I didn't think about anywhere else. Because I know with Amazon, I can get it into I think it was a day I ordered it and it came yesterday. So I ordered it on Wednesday, it came Thursday, Amazon's the only company that's gonna get you something fast. So when companies are cutting their ad spend and looking where to go elsewhere, to still gain customers, they're gonna be more efficient with it, the efficiency comes in where they know the customers are, that's Amazon. So their ad revenue actually increase in the past quarter. And I actually don't expect that to stop really anytime soon. I want to be surprised if it takes a little hit going into quarter three and quarter four, but I still think their ad revenue is going to outperform Microsoft, Googles and Facebooks because that's where consumers aren't that's where consumers want to be. They also had an increase on their like web cloud services. Business, which is a really meat and potatoes of Amazon's operations is kind of like the hosting of web data and cloud data. And that's continued to do well and that's always going to do well for them. So that's not very surprising, but it really was just the ad business that increased that was a bit of a surprise and boosted their revenue. The other thing that Amazon notice they're just focused on getting super efficient with their costs. Their their cost of business has increased dramatically because of increasing and energy costs and increasing, just cost for them to get things through their supply chain, whether it's the vans or they, whether it's getting product, pretty much product from A to B is more expensive for them because of how much they ship and deliver. So they're working on trying to get a little bit more efficient on the cost side of things. So that's where they're focusing going forward. And they're also still confident the consumer to spend like they have been. So Amazon was up pretty big on their news, because they're showing some positive growth and positive outlook. And then apple. I mean, Apple is a juggernaut of a company. And there's no two ways around it. And they've had increased iPhone sales. And they've had more subscription service sales in the past quarter here. And people are just entering that Apple universe. And pretty much once you're part of that apple University are not going anywhere. They did show slowing growth, but they're still growing nonetheless. And they are aware of inflation and their costs. But they're confident that they'll continue to gain consumers and gain customers over the long term. Some of their Macs and iPads are some a little bit less than normal, but again, bolstered by the iPhone, that's okay. And it's one of those things that you need a phone at this point, pretty much everyone needs a phone. So even when things get a little bit tighter because of inflation, you might still find yourself buying a phone, but you don't need a laptop, you don't need an iPad, you don't need air pods, etc, etc. So you might not buy those, but you're still buying the iPhone, because it's one of those staples to what we need as, as people now it's no longer if it's a I have to have this. So Apple is going to always benefit from that they're always going to benefit from this service aside, whether it's Apple Music, or Apple TV or their fitness app, whatever it might be, people are going to buy that as well. So Apple and Amazon hit do incredibly well. Both positive going forward, Microsoft, Google, Facebook, Ole Miss Microsoft and Google positive going forward Facebook or meta, not as positive but a little bit more worried about their next couple quarters here. But they also outlined this in the past that they're going to spend way more money on this Metaverse play than anybody else. So we'll see if that pays off for him in the long run. What else happened in this past week, a lot. But one thing is the Fed increased their rate, again, the Fed funding rate, another 75 pips if it which is pretty much just 7.75% of 1%. So same thing is what's been happening, they're trying to tame inflation, I think we're starting to see some positive data that it's at least slowing down, like I've talked about, but they know that they still have a ways to go, because it's still at 9%. So they raise their federal funds rate again, which will in turn, raise most of our borrowing rates and really try to slow down people spending money in the economy from a borrowing standpoint, and spending standpoint. So again, we're going to expect this going forward, they told us to expect this going forward. There's really nothing to note here that we don't already know, as far as that's concerned. So we're gonna see how that pans out over the long term here. And we'll see that if it's something that is, in fact, is effective in slowing inflation, and hopefully it is over the next couple of months, but they did increase their federal funds rate. And they will, possibly a couple more times this year as well. And the other major story coming out of this week is the GDP lowers for again, for the second quarter, GDP shrank by 0.9%, which really came from the following factors, decreasing inventories for companies. So they're not spending as much to bolster their inventories, because they're trying to get what they already have, on their shelves out. Less investment in both residential and non residential sectors, which again, is gonna happen when things cost more people don't have as much money, whether you're a person or a business to invest, and improvements, whether it's again, residential or not. And overall, less government spending, because we're not really in the point to spend a ton of money right now as a government just because of where inflation is at. So it's surprisingly enough, even though GDP came out lower for the second quarter, and there's a bunch of questions and conversation around that the market reacted pretty positively. And not so much to that news, it was actually pretty flat on that news, but reacted positively because earnings are still showing good potential. And when the big tech companies come through, and they have good earnings, it's almost as if people can ignore some of the bad or like some of the more negative stuff in the economy. Like I said GDP shrinking. You're able to kind of take that with a grain of salt because if companies are still performing well, even though GDP had decreased. The market kind of sees this as this in between doesn't really know what to make of it and ultimately decided that At the tech company's having another company's having better earnings, and showing growth and being positive going forward has a little bit more weight than GDP being down point 9% for the second quarter. So again, there's going to be continued conversation on that side of it. But it's something that's always going to be there. And we'll see what GDP is in quarter three. And I'm also curious to see how earnings are continuing when we go forward with it. But those were definitely the big, big stories I came out of this week between all the big tech companies coming out GDP and, and the Fed raising their funds rate, and there's still a lot to play out from us. Like I said in the past, we're gonna see if the Fed and increasing their rates brings down inflation. We're gonna see if GDP, reverses and starts to grow in the next couple of quarters. And if tech companies and the big guys are still performing well, that bodes well for the economy overall. So I think we're in this, this weird spot where we have a lot of really strong positives in the economy, like the labor market, like companies still performing well, and beating expectations, and those things and then you ask them, not so much those positives, like GDP shrinking again. And we really just have to measure out what we think of that as investors and how positive we are going forward based on what news you're looking at. I think should the labor market still continue to be as strong as it is, there's really not too much of a reason that companies and tech companies specifically will show any decelerated growth going in quarter three, or any shrink and I don't think they'll I don't think they'll shrink at all. I think we should be pretty positive going forward. Again, though, we still have six months or five months in the year and we'll we'll kind of see how this plays out. But this week was big for those reasons. And I just wanted to touch on them and that's, it's really all about a half for today. So until next time, guys, stay happy, stay healthy, and I'll see you. Securities offered through securities America Inc. Member FINRA slash SIPC. advisory services offered through securities America advisors Inc. 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