Facebook and Google are back in the spotlight ahead of key earnings and a possibly testy congressional hearing. Here's what to expect during tech's big week.
- Big tech companies will be scrutinized by both lawmakers and shareholders this week, when three chief executives are set to testify before Congress and a slew of companies are due to report their third-quarter earnings.
- Facebook CEO Mark Zuckerberg, Twitter CEO Jack Dorsey, and Google CEO Sundar Pichai are set to face a Senate panel Wednesday as lawmakers push to repeal or rewrite the legal protections that they say shield tech giants from accountability, frequently referred to as Section 230.
- Then on Thursday, those three companies are scheduled to report their latest quarterly earnings — along with their fellow tech giants Apple and Amazon — and show whether their businesses have kept the momentum that led them to exceed expectations earlier in the year.
- Here's what to expect from big-tech earnings reports and government scrutiny in the week ahead.
The stakes are high this week for some of the biggest US tech companies, which are due to face tough questions from Congress just one day before reporting their third-quarter earnings.
Facebook CEO Mark Zuckerberg, Twitter CEO Jack Dorsey, and Google CEO Sundar Pichai are set to testify before the Senate commerce subcommittee on Wednesday in a hearing focused on legal protections that shield tech companies from being held liable for the content of users' posts — protections that many lawmakers want to weaken or repeal.
The following day, all three of those companies — as well as Amazon and Apple — are scheduled to reveal their most recent quarter's earnings to shareholders. The question on Wall Street's mind: Will these companies have sustained the momentum that powered unexpected success during the first three months of the COVID-19 pandemic, or will the pandemic's fallout have caught up, and send tremors to the broader economy?
Either way, the coming week will showcase the power and concentrated wealth of the five tech giants amid a period of unprecedented legal challenges to their dominance.
Zuckerberg and Pichai most recently testified before Congress in July as part of a House antitrust investigation alongside Apple CEO Tim Cook and Amazon CEO Jeff Bezos. The result of those hearings was a sprawling report labeling the four companies monopolies and calling for their businesses to be broken up and regulated.
More recently, the Department of Justice filed an antitrust lawsuit against Google accusing it of suppressing competition through exclusionary business deals, and the Federal Trade Commission is said to be preparing a similar lawsuit against Facebook.
But Wednesday's hearing isn't specifically about antitrust concerns; its focus is Section 230 of the Communications Decency Act, a federal law that shields social-media companies from being held legally liable for users' posts as long as they make a good-faith effort to remove illegal content. If Section 230 is repealed, it could reshape or crush big tech companies' businesses.
Democrats say tech companies should face more repercussions for hosting hate speech and misinformation, while Republicans have called for the repeal of Section 230 as retribution for what they say is tech companies' bias against President Donald Trump and conservatives (though data doesn't support the claims of such bias).
Here's what Wall Street is looking for as the tech giants report their earnings this week.
Microsoft
Microsoft reports fiscal first-quarter earnings after the market closes Tuesday. Investors typically pay close attention to growth of the company's cloud-computing business, and this quarter will be no different, but there's also increasing interest in the company's Teams chat app. Microsoft Teams communication software landed a surge of users during the pandemic, and the company recently signaled the product's growing importance for company leaders.
— Ashley Stewart
Apple
When Apple reports its fiscal fourth-quarter earnings on Thursday, Wall Street will be keeping an eye out for clues pointing to the reception of the iPhone 12. For months, analysts had been anticipating that the iPhone 12 would be one of Apple's biggest product launches in years, and now they're looking for the company to deliver on that expectation.
Apple's delayed iPhone launch also means initial sales won't be included in the company's fiscal fourth-quarter earnings, so analysts will have to rely on commentary made during the earnings call and revenue guidance for the coming holiday quarter. Apple hasn't issued guidance all year because of the uncertainty surrounding the pandemic, so it will be very telling if the company decides to do so for its fiscal first quarter of 2021. Revenue for the fiscal fourth quarter is expected to hit $63.3 billion, coming in slightly lower than the $64 billion in revenue Apple generated during the same quarter one year ago.
— Lisa Eadicicco
Amazon
Amazon is expected to report another big quarter with $92.71 billion in revenue, up 32% from the year-ago period, according to FactSet consensus estimates. The sales growth, boosted by the lockdown-driven demand during the pandemic, is forecast to expand Amazon's profits as well, to $3.81 billion, a 78% jump from the same quarter of last year.
Wall Street is keeping a close eye on Amazon's coronavirus-related costs, which the company said would result in an additional $2 billion in spend for the third quarter. Amazon's cloud business could come under the scope too, as sales growth is expected to reach a record-low 29% again in the third quarter amid intensifying competition. Investors will look for clues to Prime Day's impact, which took place in October for the first time, through management commentary and fourth-quarter guidance estimates.
— Eugene Kim
Facebook's third-quarter earnings on Thursday will show whether the company has maintained the momentum in high daily average users and advertising revenue growth that powered it to exceed expectations last quarter. Facebook is expected to report $19.8 billion in revenue, up 12.2% from the same quarter last year, according to Zacks consensus estimates.
Wall Street will be looking closely at Facebook's advertising revenue, which could have been hurt by several factors in the past quarter. More than 1,000 advertisers joined a boycott of the platform over the summer to protest its policies on hate speech and misinformation — while the boycott didn't meaningfully affect Facebook's ad revenue last quarter, it could have a reverberating impact this quarter. Apple and Google also made changes to their web browsers in September to give Facebook less access to user data, which could hurt its ads business.
Facebook's strength is expected to come from Instagram, which has seen a jump in users during the pandemic and already makes up the majority of Facebook's ad revenue. Facebook's rollout of Instagram Reels in the last quarter could keep that momentum strong.
— Aaron Holmes
As if Google didn't have enough on its plate with the recent Justice Department lawsuit, this week the company has third-quarter earnings and a congressional hearing to grapple with. Its parent company, Alphabet, reported a historic revenue drop in the previous quarter as the pandemic ravaged its advertising business, but analysts expect to see some signs of recovery when it reveals its financials on Thursday.
One thing is for sure: Wall Street doesn't seem too spooked by the latest regulatory action. Come Thursday, investors and analysts will be more interested in whether Google is showing growth in cloud, YouTube, and e-commerce to offset the hit to advertising revenue.
— Hugh Langley
Twitter saw a jump in users since the onset of COVID-19 — but Wall Street is wary about whether the company's ad revenue will match that trend when it reports earnings Thursday. Twitter is expected to report $765.3 million in revenue for the third quarter, down 7.1% from the same quarter last year, according to Zacks consensus estimates.
The site's advertising revenue could take a hit despite its recent rise in users, as smaller advertisers have grown reluctant to spend money on social media ads as they cut costs amid the COVID-19 pandemic. But Twitter has also set itself apart from other ad sellers by taking bold content moderation steps — like banning all political ads — which could make advertisers see it as a more trustworthy platform.
— Aaron Holmes