Amazon.com Inc. and Alphabet Inc. tumbled in the wake of disappointing revenue growth, and it cost investors big money. The losses wiped out $82 billion in stock-market value, a milestone that brings back memories of Facebook Inc.’s second-quarter debacle. Silicon Valley (sometimes abbreviated as SV)…
Amazon.com Inc. and Alphabet Inc. tumbled in the wake of disappointing revenue growth, and it cost investors big money.
The losses wiped out $82 billion in stock-market value, a milestone that brings back memories of Facebook Inc.’s second-quarter debacle.
Background
Silicon Valley (sometimes abbreviated as SV) is a region in the southern San Francisco Bay Area of Northern California which serves as a global centre for high technology, innovation and social media. The area is now the home to many of the world’s largest high-tech corporations, including the headquarters of 39 businesses in the Fortune 1000, and thousands of start-up companies. Silicon Valley also accounts for one-third of all of the venture capital investment in the United States, which has helped it to become a leading hub and start-up ecosystem for high-tech innovation and scientific development.
The companies in Silicon Valley have revolutionized a lot of industries across the world and are responsible for a large portion of technology-based innovation. Companies like Google and Amazon also provide essential digital services as well as commercial offerings for other technology companies and business.
However, the recent trade war has disrupted the business operations of many Silicon Valley-based companies. Due to the highly-skilled but cheap labour in China, Silicon Valley outsourced its manufacturing divisions across the Pacific in order to cut down on production costs. The trade war has negatively impacted the smooth flow of business and resulted in underperforming quarterly results for many tech companies in the region.
Analysis
Amazon.com Inc. and Alphabet Inc. tumbled in the wake of disappointing revenue growth, and cost investors big money. The losses wiped out $82 billion in stock-market value, a milestone that brings back memories of Facebook Inc.’s second-quarter debacle.
Amazon fell 7.8 per cent on Friday, erasing about $66 billion in market value. It was its biggest one-day market-cap drop ever, and one of the five biggest for any U.S. stock. Google-parent Alphabet’s 1.8 per cent decline cut its market capitalization by almost $16 billion.
While Friday’s losses reaffirm Amazon’s and Alphabet’s membership in the dubious history book of market-cap collapses, they’re nowhere near taking the individual title. That record belongs to Facebook, which in July became the first U.S. stock in history to shed $100 billion in value in a single session after reporting disappointing quarterly sales and user growth. The stock sank 19 per cent over the course of a single trading session, carving about $120 billion off its value.
Amazon’s market cap was $803.3 billion as of Friday’s close. Microsoft Corp. ($821 billion) reclaimed the title of world’s second most valuable company, behind Apple Inc. ($1.04 trillion). Fourth-ranked Alphabet now has a value of $749.1 billion.
The third-quarter results were the second time running that billionaire Jeff Bezos’ firm had fallen short of sales targets and, allied to a similar disappointment from Google-owner Alphabet (GOOGL.O), they sent a shockwave through stock markets. Several analysts called the company’s outlook conservative and said any outright dip in profit seems highly unlikely.
There were no ratings downgrades from the Wall Street analysts who have almost universally backed the companies’ long-term prospects but several said there were signs that both were beginning to face tougher competition from tech peers as well as the retail companies Amazon has bullied in recent years. The fall of as much as 9 per cent in shares knocked more than $80 billion off Amazon’s market value and relegated it behind Microsoft Corp (MSFT.O) and Apple Inc (AAPL.O) in terms of market value.
In the latest quarterly reports, Microsoft’s cloud computing business Azure marked revenue growth of 76 per cent, down from 89 per cent in the previous quarter. Google’s other revenue, which includes its cloud business, grew 29 per cent on year, 4 per cent below estimates of Cowen & Co. analysts. Amazon’s cloud business saw a 46 per cent rise in revenue to $6.68 billion, only narrowly edging past estimates of $6.67 billion.
Amazon, Alphabet and Microsoft all continued growth in cloud services but with signs of deceleration.
Assessment
Our assessment is that these companies provide essential services to the global economy and are projected to perform better in the hope of rising consumer demand. We believe that the ongoing trade war has disrupted the profitable trade between Chinese manufacturers and Silicon Valley companies and will continue to do so until an agreement is reached between Washington and Beijing.
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