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Big Tech is worth even more the day after Congressional grilling

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WASHINGTON - The four chief executives of Amazon, Apple, Facebook and Google on Wednesday faced a five-hour deluge of probing and pointed questions from a Congress accusing the companies of various anticompetitive behaviors.

A day later, all four companies were worth even more.

The tech giants' stock prices rose Thursday as they reported strong financial results after the market closed. It shows, again, just how bulletproof the companies have become as investors bet on their long term success, even amid a global pandemic, an economic decline and antitrust probes.

Wednesday's hearing was already unlikely to shake investors, analysts said, especially because many questions veered off topic.

"Had there been a focus on anticompetitive behavior, I suppose investors would be more concerned," Wedbush Securities analyst Michael Pachter said in an email Thursday.

In the first full quarter affected by the historic coronavirus economic downturn, Amazon's revenue surged 40%, fueled by people stuck at home and shopping online. Apple reported 11% revenue growth, fueled by customer demand. Amid a shrinking ad market, Facebook's revenue increased. Google reported its first revenue decline, though it was less than expected.

Amazon CEO Jeff Bezos owns The Washington Post.

The strong showing demonstrates how well the tech giants are positioned to withstand significant challenges, including the scrutiny of Congress, federal investigations, a public health crisis and, in Facebook's case, an advertiser boycott.

On Wednesday, representatives questioned the tech CEOs on topics including how Amazon pays third-party sellers, how much Apple charges developers on its app store and how Google manages both sides of its advertising tools. They also levied allegations of bias against conservatives on Facebook and Google search, as well as questions about the companies' ties to China.

Lawmakers appeared well-prepared for the hearing, coming at the CEOs with documentation including email communications, transcripts of past testimonies and recordings of customers who say they were wronged.

Google and Facebook executives addressed the hearing head on during conference calls Thursday, while Apple CEO Tim Cook hinted at it. Amazon did not.

"We're focused on growing the pie," Cook said in prepared remarks, echoing comments he made the day before on Capitol Hill and pointing to the economic impact of the App Store.

Facebook CEO Mark Zuckerberg defended his company, saying that "some seem to wrongly assume that most of the content on our services is about politics, news, misinformation or hate. Let me be clear. It's not."

He said it's a small part of total content, adding: "We do not profit from misinformation or hate. We do not want this content on our platforms."

Facebook posted revenue of $18.7 billion in the quarter ending June 30, an 11% increase over the same period a year prior - a solid showing despite advertisers pulling back due to the pandemic and a boycott of the social network that includes Disney, Verizon, and more than a thousand other companies.

Zuckerberg said people also "wrongly assume" that the company's business is dependent on a few large advertisers, but small businesses represent Facebook's largest advertisers. He said he was troubled by the calls to go after digital advertising, especially during a period of economic turmoil.

"It's true that going after the ability to target ads would affect the revenue of companies like Facebook. But a much bigger cost would be that it would reduce the effectiveness of the ads and opportunities to grow," he said. "This would reduce the opportunities for small businesses so much that it would probably be felt at a macroeconomic level. Now is that really what policymakers want in the middle of a pandemic and recession?"

Facebook also paid out the $5 billion that it was required to pay to the Federal Trade Commission to settle charges that it violated consumer privacy when it allowed the political consultancy Cambridge Analytica to inappropriately siphon the data and profiles of millions of Facebook users, the company said.

On Google's call, CEO Sundar Pichai repeated familiar talking points that he believes Google is good for users and creates more choice. But he also admitted that the scrutiny wouldn't be going away anytime soon, and that the company would adapt if governments imposed new rules.

"We've obviously been operating under a scrutiny for a while and we realize at our scale that's appropriate, and we've engaged constructively across jurisdictions," he said. "Obviously we will operate based on the rules. And so to the extent there are any areas we need to adapt, we will. Being flexible around those things are important, I think."

Google faces investigations from the federal government and the state into its size, and has already been fined about $9 billion for antitrust concerns by the European Union.

Google parent company Alphabet reported a 2% decrease in revenue to $38.3 billion, still beating Wall Street expectations. The company noted a "gradual improvement" in its ads business since the beginning of the pandemic. That began to pick up in the second quarter as more users started Googling for commercial items again after backing off in the early spring, CFO Ruth Porat said on the earnings call. But she cautioned that the economy is far from recovered.

"We do believe its premature to say that we're out of the woods," Porat said.

Amazon also reported a change in consumer shopping habits since April. In the early days of the pandemic, customer demand was skyrocketing, mostly for specific products like groceries and safety products. Its online grocery sales tripled this quarter year-over-year.

"That mix is not super profitable," said Amazon Chief Financial Officer Brian Olsavsky on a media call Tuesday. "The extra costs of covid essentially make that type of sale a break-even proposition for us."

The narrow demand was also likely due to Amazon's own policies. It began limiting shipments to "essential" products in March, a policy that has it eased up on in mid-April.

That's around the time customers went back to more normal shopping patterns, and Olsavsky said the company was also able to ship more products. Customers also spent more money on digital entertainment products like e-books, Audible titles, and movies.

Revenue grew to $88.9 billion in revenue. And while the company spent more than $4 billion on various covid-19 measures, including additional safety measures for workers and scaling up to meet demand, but still posted a more than $5 billion profit.

Bezos received some of the toughest questions during Wednesday's hearing, partly because it was the executive's first time testifying before Congress. Lawmakers dug in on how Amazon uses the data it collects from third-party sellers to inform its own products, and whether it recommend Amazon's own brands over others.

Apple's revenue was up 11% in the third quarter to $59.7 billion, beating Wall Street expectations and sending its stuck up in after hours trading. "In uncertain times, this performance is a testament to the important role our products play in our customers' lives and to Apple's relentless innovation," Cook said in a news release Thursday.

The topic of antitrust scrutiny did not come up in questions from analysts, who focused more on how, exactly, Apple has been able to juice growth in iPhone sales during a global economic and health crisis and when sales had appeared to be declining for more than a year.

Apple said some consumers had been waiting for the new iPhone SE for its smaller form factor.

Analysts weren't worried about Apple after Wednesday's hearing. Gene Munster, an analyst with Loup Ventures, called Apple a "winner" in an email.

"The topics for Tim Cook largely orbited around the App Store, which we estimate accounts for about 5% of Apple revenue. By comparison, the other tech companies fielded questions that impacted the majority of their revenue," he wrote. Munster believes the biggest problem for the tech companies is an abstract one: Distraction.

All four companies' stock prices climbed in after-hours trading - spiking more than 5% for Facebook, Amazon and Apple. Three of the companies, Amazon, Apple and Google, are already among the most valuable in the world, with market caps of more than $1 trillion.

"Putting in rules and breaking up companies isn't necessarily bad for stock prices," said Matthew Stoller, the director of research at the American Economic Liberties Project, a Washington think tank devoted to reducing the power of monopolies. 

He pointed to the breakups of Standard Oil, AT&T and electric utilities, all of which he said were good for investors. "Does anybody really believe that if you separated AWS (Amazon's cloud computing division) from the rest of Amazon that it would somehow reduce the value of the aggregate entity? Or course not," he said.


Published : July 31, 2020

By :  The Washington Post · Rachel Lerman, Reed Albergotti, Elizabeth Dwoskin, Heather Kelly · BUSINESS, TECHNOLOGY