Google profits fall as recession fears grow

Alphabet’s second-quarter earnings beat forecasts, sending shares up 3.7 percent in aftermarket trade in New York.

Rival Microsoft relies less on ad spending and the strength of its cloud computing business helped profit rise 8 percent in the second quarter.

“Going forward, digital technology will be the key input that powers the world’s economic output,” said Microsoft Chairman and Chief Executive Officer Satya Nadella. “At TechStack, we’re expanding our opportunities and taking part as we help customers differentiate, build flexibility and do more with less.”

However, the company was hit by a series of unexpected setbacks. Foreign exchange movements costing $595m and factory closures in China, which cost $300m in revenue. Curtailing operations in Russia as a result of the war in Ukraine cost the company $126 million.

Microsoft shares fell 1 percent.

The financial health of America’s two most influential tech companies is seen as an important bellwether for the broader US economy, which faces an increasingly bleak outlook due to rising inflation and falling business spending. . Inflation is running at a 40-year high and the Consumer Price Index reached 8.6 percent in May this year.

The US Federal Reserve has responded by raising interest rates sharply, raising them to 1.75% from 0.25% in March. That has hurt tech companies, many of which rely on cheap funding to fuel growth and investment.

Alphabet’s share price has fallen by just over a quarter so far in 2022. Many other tech companies have suffered even steeper declines, with Snapchat owner Snap down 79% since the start of the year.

The Redmond, Washington DC-headquartered Microsoft’s market value stood at $1.87tn on Tuesday evening, down 27pc from its all-time high of $2.58tn in November 2021. Over the course of eight months, Microsoft’s share prices tracked the general decline in tech stocks, just over a quarter.

However, its first-quarter results showed good momentum, with sales up 18% in the three months to March 31 this year.

Tech companies are cutting jobs amid tough market conditions. Tesla is cutting about 10 percent of its jobs due to what Chief Executive Elon Musk called a “super bad feeling” about the economy.

Microsoft said the layoffs cost $113 million in the second quarter, saying the job cuts were part of the company’s “strategic realignment.”

According to Group M, the media-buying unit of British advertising business WPP, spending in the advertising industry is forecast to continue to grow by around 8% compared to last year.

Brian Wieser, president of business intelligence at Group MK, told reporters in June: “I think a lot of pundits are overly pessimistic about how the overall economy is doing.”