Domain Daily: Microsoft Is The “Rock of Gibraltar”

The Dose

  • Google Defies the Trend

  • Shopify Layoffs

  • Microsoft Stands Tall


Alphabet Misses Earnings Estimate, But Ad Revenue Saves the Day

Google parent company Alphabet's earnings fell short of expectations. However, the stock rallied on the news that ad revenue remained resilient.

The Point: One of the biggest storylines this earnings season has been declining ad revenue among social media companies. Alphabet, however, defied the trend by posting better than expected results. Sure, the bar was set lower than it usually would be, but a beat is a beat. So perhaps we have to reconsider the prevailing narrative. Before Alphabet's report, many saw declining ad revenues as a sign that companies were cutting back on ad spend in anticipation of an economic slowdown. There's undoubtedly some truth to that. But another possibility is that Alphabet is eating its competitors' lunch. That's to say, companies might not be cutting back on ads so much as diverting more of that money to Google.  

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Shopify Cutting 10% of Its Workforce

The e-commerce company announced that it would lay off about 1,000 workers.

The Point: Another day, another layoff announcement from big tech. In Shopify's case, the company said it hired aggressively on the assumption that more retail dollars would flow into e-commerce. Of course, they made that bet during the height of the pandemic. But as the world has slowly gotten back to normal, what Shopify thought was a permanent shift has proven to be transitory. "Ultimately, placing this bet was my call to make, and I got this wrong," Shopify CEO Tobi Lütke said. "Now, we have to adjust. As a consequence, we have to say goodbye to some of you today, and I'm deeply sorry for that."  

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Microsoft Issues Upbeat Forecast

Microsoft's shares rallied despite missing its quarterly earnings target after the company reaffirmed its prior forecast for its 2023 fiscal year.  

The Point: Markets are forward-looking. Despite failing to deliver on earnings expectations in the here and now, Microsoft fueled investor optimism by sticking to its forecast for the coming year. With economic conditions as they are, not backing off prior predictions is enough to assuage the market. For a sense of how Wall Street took the news, consider what Wedbush analyst Daniel Ives had to say. "MSFT bullish guidance for FY23 will be heard around the world and street," Ives tweeted. "Rock of Gibraltar in an economic storm."  

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*Domain Money Advisors, LLC, an investment adviser registered with the U.S. Securities and Exchange Commission and an affiliate of Domain Money, has (as of this writing) the following assets mentioned in this communication as part of its managed portfolios: GOOGL, MSFT