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MarketWatch First Take: Big Tech is still headed for its biggest year ever, but Apple and Amazon could cut into profit

Big Tech is still on track for its biggest year of sales ever by a wide distance, but holiday issues at Apple Inc. and Amazon.com Inc. could mean a profit decline.

The fourth quarter is definitely going to be lighter than Wall Street had previously expected, because of constraints that both Apple
AAPL,
-1.82%

and Amazon
AMZN,
-2.15%

talked about Thursday in the global supply chain, which are affecting their ability to meet the strong consumer demand for their products.

While revenue for both the full year and fourth quarter of 2021 is expected to see strong double-digit growth again, net income is going to take a huge hit for both the year and the quarter, depending on how much money Amazon ends up spending.

Full earnings coverage: Apple sales missed and Amazon’s earnings were nearly cut in half

But two other members of the five-headed Big Tech monster are poised to outperform previous expectations. Alphabet Inc.
GOOG,
+1.47%

GOOGL,
+1.51%

is now expected to see the biggest growth in sales — Wall Street is forecasting total revenue for Alphabet to grow about 26% to around $71.8 billion, before deducting traffic acquisition costs (TAC), in the December quarter. Google’s ad business was mostly undeterred by the changes in Apple’s privacy settings for the iPhone that afflicted other internet companies.

“With many investors looking outside of U.S. internet given the plethora of potential headwinds (IDFA, supply chain) and negative media headlines, Google kept the course and did what they needed to do,” said Bernstein Research analyst Mark Shmulik in a note to clients. “The 3Q print isn’t the massive blowout many of you have perhaps grown accustomed to these past few quarters, but it also wasn’t a miss.”

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This compares to projected revenue growth rates for the fourth quarter in the teens for Amazon (10%), Facebook Inc.
FB,
+2.10%

(19%) and Microsoft Corp.
MSFT,
+2.24%

(17.5%). All of these growth rates, with the exception of Amazon, are still better than the S&P 500
SPX,
+0.19%

projected revenue growth of 11.65% for the fourth quarter. Combined, the calendar fourth quarter revenue for these five companies is forecast at $412.2 billion, up 16.2% from $354.5 billion a year ago.

Net income, though, will be down to single-digit growth, thanks to Amazon’s hefty spending on product fulfillment, including big employee hires. The combined net income of the Big Five for the fourth quarter is projected at $79.9 billion, a bump up of only 2.7% from $77.8 billion in the year ago quarter. The S&P 500 will see better far earnings growth of 21.15%

And if there is a miss overall, we could see a decline on the year. Net income is expected to only be up very slightly right now, just over 1% to $228.3 billion from $224.8 billion for calendar 2020. That’s also much lower than the projections at mid-year, of net income coming in right around $300 billion, and could even come in flat to down, based on Amazon’s potential-downside forecast and any other surprise issues that come up for others in the Big 5.

For the full year 2021, including recent changes to estimates after Thursday’s shortfalls, combined revenue for Alphabet, Amazon, Apple, Facebook and Microsoft is now expected to reach approximately $1.398 trillion, based on Factset estimates. That will still put 2021 on track to be Big Tech’s biggest year ever, with growth of 26.9% from $1.102 trillion in calendar 2020.

Investors may have seen the best times in tech already this year and until the global supply chain issues are resolved, the consumer-focused companies are probably going to be too volatile to really depend on. Tech is a varied sector, though, and the color in last week’s earnings calls suggested companies are still spending and should sustain enterprise tech names through the choppy fourth-quarter waters.

MarketWatch staff writer Emily Bary contributed to this report.

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