Watch: The Titan Flash on Meta and Alphabet earnings

Thursday, Jul 28th 2022

Commentary

How decreased consumer spending is affecting Big Tech

Titan’s Takeaway: A combination of economic uncertainty and decreased consumer spending have trickled down to both company and advertising expenditure, and some -- as reflected in Meta and Alphabet's divergent earnings -- will fare better than others.

Grace, from your Investor Relations team, discusses how the economic slowdown is reflected in Meta and Alphabet earnings earnings

It's been a busy week as dozens of Titan holdings report their earnings for the quarter ending Jun-22. As the Commerce Department reported Thursday morning, GDP growth declined for the second quarter in a row as pockets of the economy continue to feel the impact of rising rates and persistently high prices. With that in mind, we’re taking a look at Alphabet and Meta, two legacy Flagship holdings, to see how, or if, this decline is reflected in big tech. 

The two companies are among the world’s largest advertisers, and generally provide an excellent read on the health of the consumer. Interestingly, we saw somewhat diverging results from the tech behemoths. 

Amid fears of a digital ad slowdown and weakening economy, Alphabet posted solid results, driven by the strong resilience of Google Search. The favorable 2Q search result was driven by strong travel demand – and we’ve seen that trend throughout this summer – despite high prices, folks still wanted to go on vacation and shop. And where do people search for their travel needs? Google. More broadly, the strong results of Search reinforces the view that marketing teams will shift more of their budget towards higher quality channels amid any economic uncertainty, increasing our bullishness on the name. 

Meta, on the other hand, painted a different picture – they are seeing a broad-based slowing demand, driven by the increasing economic uncertainty. Despite the company showing promise in combating TikTok with their Reels feature, the economic slowdown coupled with Apple’s privacy update magnified the revenue deceleration for the social media company. That said, we remain optimistic for Meta over the long-term, despite these headwinds. We believe Meta has shown considerable execution in combating TikTok, and that given its massive resources and track record of success, it is only a matter of time for the company to overcome iOS privacy headwinds, which, in our opinion will drive attractive returns for shareholders.

Central banks are raising interest rates to tame inflation, and consumers are beginning to feel the tension, which in turn is trickling up to advertisers and companies. If an advertiser is less certain about achieving a particular business outcome they’re going to spend less. Businesses are pulling back their spending, bracing for a downturn. Some consumers are beginning to follow suit, but not all are locking up their wallets and throwing away the keys just yet – they’re being more thoughtful and cautious with their purchases.

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