Transnational corporations facing Covid-19/I
Joshua G. Veiga[1]
LABORATORY FOR STUDIES ON TRANSNATIONAL CORPORATIONS
BIGTECH: THE BIG WINNER OF THE PANDEMIC
The economic collapse triggered by the Covid-19 pandemic and its resulting economic paralysis has had varying scope and impacts across different industries and companies in the global economy. The cutting-edge technology sector, led by Big Tech, has confirmed what many suspected: companies in this sector are the biggest beneficiaries of the pandemic.
The high levels recently reached by the share value of these corporations are often cited as a primary reference point. A key indicator is the performance of the S&P 500 index, for which April 2020 was the best month since January 1987 (The Economist, 2020). The main drivers, accounting for a fifth of the index's total market capitalization, are five major companies: Facebook, Apple, Amazon, Alphabet, and Microsoft (The Economist, 2020b; Wigglesworth, 2020).
Focusing solely on stock market value often overlooks the evaluation of economic operations. Below, we present the financial results for the first quarter of this year to show how these large companies continue to profit during the pandemic. We have selected six firms as a representative sample of the Big Tech elite, commonly referred to by the acronym FAANGM (Facebook, Apple, Amazon, Netflix, Google – its parent company Alphabet – and Microsoft).
Revenue and earnings for the first quarter of 2020
At the close of the first quarter, from January to March 2020, FAANGM companies experienced positive results in both revenue and profit (Figures 1 and 2). From this, we can deduce that both the pandemic and the health policies and measures adopted have increased consumption of the products and services offered by these corporations. In these months of “social distancing,” the diverse range of smart devices, telecommunications, and various software packages and digital applications have rapidly increased virtual life (The Economist, 2020b). A significant portion of work and academic activities are being carried out remotely, as is the online demand for various products and services provided by FAANGM companies (Kollewe, 2020).
Amazon is one of the leading winning corporations. For the second quarter of 2020, its revenue totaled $75.5 billion, equivalent to $33 million per hour (Rushe and Sainato, 2020). This represents a 26.4% increase compared to the same period of the previous year ($59.7 billion). Business closure policies have cleared the way for Amazon to expand into the market of its retail rivals, who have been forced to shut down. Even some brands and producers that previously did not offer their services through the Amazon.com platform have found themselves needing to approach it to seek a sales channel (Soper, 2020). Amazon's sales across some of its most important segments performed as follows: the e-commerce leader experienced a 28.4% increase in net sales, rising from $35.8 billion to $46 billion for the same period last year (Rushe and Sainato, 2020), marking its fastest growth rate in the past four years (Soper, 2020). The company also benefited from increased revenue from its cloud computing and storage services, Amazon Web Services (The Economist, 2020b), which generated $10.3 billion in revenue (Rushe and Sainato, 2020). Among its major clients are none other than the World Health Organization and the streaming platform Netflix, another company experiencing rapid growth. The company founded by billionaire Jeff Bezos is doing everything possible to avoid halting its operations amidst the pandemic and, on the contrary, to continue growing as its market expands exponentially. Consequently, its expenses have also increased: in March and April alone, 170 additional jobs were created (Amazon Day One Staff, 2020). At the same time, it has invested in implementing health and technological measures, such as the recent acquisition of Chinese thermal cameras to measure the temperature of its employees at some facilities (Hu and Dastin, 2020). However, its adversities are also growing as it is being questioned over tax issues and the increasing discontent of its workers over insufficient health measures, which has intensified the previously existing tensions over the company's anti-union policies, leading to strikes and work stoppages in the midst of the pandemic (Day, 2020; Osborne and Noor, 2020; Rushe and Sainato, 2020).
Another winning corporation is Microsoft, the software firm founded by Bill Gates, which increased its revenue by 15% in the first quarter of 2020 compared to the same period of the previous year, reaching a total of $35 billion (Chart 1). This revenue increase was concentrated in Azure cloud services (up 59%), Office 365 online tools, and other subscription-based programs. Its Intelligent Cloud segment increased its total sales to $12.3 billion, while its Office software unit (both cloud operations and traditional sales) exceeded Wall Street's previous estimates, reaching $11.7 billion (Bass, 2020). However, the company was also impacted by the pandemic, as it was forced to shut down its operations and component manufacturing centers in China. Its social network, LinkedIn, a virtual space for job searching, also suffered losses due to a lack of advertisers interested in investing as job openings declined (Bass, 2020). In contrast, its online gaming segment, Xbox Game Pass, has been successful as an entertainment provider during lockdowns. Since March alone, an estimated 23 million players have been added, representing a 70% growth and bringing the total number of subscriptions to over 10 million (Stuart, 2020).
Apple Inc. reported total revenue of $58.3 billion for 2020, representing growth of less than 1% compared to the first quarter of 2019. This relatively slow growth is partly explained by lower iPhone sales, one of its main segments, which declined by 7% due to retail store closures and disruptions to its supply chains in China (Leparmentier, 2020). Meanwhile, Apple Watch sales grew (Savov and Wu, 2020), as did sales of its cloud storage (iCloud) and streaming services for both music and video, which totaled $13.4 billion (Reuters, 2020). The company is aiming to improve its performance in the second quarter with the reactivation of its production and supply chains in Asia (Gurman, 2020).
Alphabet, Google's parent company, accumulated total revenues of $41.2 billion, a 13.3% increase compared to the same period in 2019 (Figure 1). However, in terms of growth, this increase represents a significant slowdown in its performance, the lowest since 2015 (Carrie, 2020a). The company has been affected by a 15% decrease in revenue from its advertising and marketing services for its search engine (The Economist, 2020b). Nevertheless, not everything looks bad for the company; its Google Cloud services increased by 52%, as did YouTube revenues, which grew by 33.5% (De Vynck and Bergen, 2020). Other booming segments include its online services, such as Google Classroom, which doubled its users in March alone, and Google Meet, which is adding 3 million people per day (Carrie, 2020a).
In the case of the social network Facebook Inc., revenues of $17.7 billion were reported, a 17.6% increase compared to the same quarter of the previous year (Chart 1), while profits reached $4.9 billion (Chart 2). Similar to Alphabet, Facebook's revenue growth rate is the lowest since its initial public offering (Carrie, 2020b). Mark Zuckerberg's company has also been affected by reduced advertising spending from small and medium-sized businesses that have closed, which account for slightly more than half of Facebook's advertising revenue (Wagner, 2020). Meanwhile, its messaging services have grown by 50% (The Economist, 2020c) thanks to increased network usage due to the daily activities of the nearly 3 billion users across the Facebook family of apps (Facebook, Messenger, Instagram, and WhatsApp). At the same time, it is implementing a video-calling service to compete in a booming niche: in March alone, group video calls increased by over 1000% (Carrie, 2020b).
Finally, Netflix appears to be a business model in full swing. For the first quarter of 2020, the streaming leader reported revenues of $5.8 billion, a 28% increase (Chart 1). This represents the highest growth rate compared to the other FAANGM companies, and the same is true for its profit growth rate. This is mainly explained by extraordinary growth in the number of subscribers: between January and March, approximately 15.8 million new subscriptions were registered (The Economist, 2020b). Its global subscriber count now totals 183 million (Leparmentier, 2020).
While the pandemic has been a calamity in general terms, at first glance it has appeared to be a favorable event for the FAANGM companies (Graphs 1 and 2). Despite the alarming fact that some large Big Tech companies are experiencing a relative slowdown in their growth compared to others that are reaping their rewards early, this does not diminish the central argument: some large corporations thrive in times of crisis. In a moment of calamity and global economic crisis, where losses are generally widespread, these companies defy the norm and continue to generate revenue and profits. The FAANGM companies possess ample resources to weather the storm, strengthen their segments within it, and emerge victorious to enter the new "normal."
[1] Researcher at the Latin American Geopolitical Observatory in Mexico. Article submitted by the CLACSO Working Group on Global Environmental Change and Local Social Metabolism. This issue was edited collaboratively. All texts may be freely quoted; we encourage attribution.
References consulted
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Original production of the Laboratory for Studies on Transnational Corporations (http://let.iiec.unam.mx/) which is part of the Latin American Geopolitical Observatory (www.geopolitica.iiec.unam.mx), is based at the Institute of Economic Research of the UNAM.
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