There’s no need to enumerate the many ways our lives have changed over the past seven months. That said, there’s one thing that hasn’t changed: our dependency on big tech. The recent September quarter results provided another data point of this dependence, as shown by the durability of these businesses. Our takeaways on Google, Amazon, and Facebook are below. Here are our thoughts on Apple.
In the June quarter, investors received a jolt of reality when the company’s search business declined 6% y/y. This was particularly concerning, given search enjoyed almost nine years of consistency prior to the pandemic. Things improved in the September quarter, with a rebound in search revenue growth to 10% y/y. This, in combination with YouTube growth increasing from 6% in June to 33% in September, translated to overall advertising growth increasing from down 2% in June to up 14% in September. Advertisers are back. On top of that, the cloud business sustained its 40% growth trajectory. Going forward, we believe investors will progressively view Google as a stable core advertising business, along with optionality, including cloud and other bets. Within other bets, we’re particularly encouraged by the long-term opportunity of Waymo, Verily, DeepMind, and Wing. A thought on the DOJ lawsuit: we believe there’s likely more upside than downside for Google.
Amazon’s attack mode strategy to gain our wallet share is working, evidenced by 37% top line growth and guidance for December that calls for similar growth levels. The company continues to make significant investments in infrastructure, which translates to continued future market share gains. E-commerce in the US has jumped from about 15% of retail shopping pre-pandemic to about 30% in recent months and will undoubtedly move higher in the years to come. Amazon’s fly wheel of selection, infrastructure, and fast delivery appears unstoppable. The one negative in the September quarter: AWS growth of 29% y/y lagged behind other cloud providers (Google, Microsoft), whose growth was in the mid to high 40 percent range. While AWS is loosing slight market share in cloud, it’s still a high-growth segment with room to grow.
Facebook revenue increased from 11% y/y in June to 22% in September. More encouraging, the company guided to accelerating ad growth in the December quarter. Keep in mind that, while Facebook is limiting political ads around the election, the December quarter will see a three-week benefit y/y resulting from political ads. The one negative in the quarter was that DAUs in the US and Canada declined 1% sequentially, and is set to decline again in December, given the tough comps from earlier in the year when users flocked to Facebook, Instagram, and WhatsApp in the early months of the pandemic. This small US and Canada decline misses the bigger story related to DAUs, which were up 12% y/y globally, in line with DAU growth in June. Most of that growth came from Asia-Pac, which was up 4% sequentially. The bottom line related to Facebook’s results: both consumers and advertisers are addicted to their products. One final thought: on the negative side, the regulatory environment remains a wildcard for the company and will likely take years to resolve.