GAFAM, a perfect reflection of the global macroeconomic situation

While the season of publishing results for the first quarter of 2022 is in full swing, the publications of GAFAM, these American technology giants, perfectly reflect the difficulties facing the world economy.

Clement Inbona, fund manager, and Olivier de Berrange, director of information technology

Clement of Inbon
Clement Inbon, fund manager

The conflict in Ukraine, rising wages, supply difficulties, tightening regulation, rising energy prices: each of these obstacles has directly affected one or more companies in this large quintet.

GOOGLE, the online advertising giant, has been directly affected by the conflict in Ukraine due to the suspension of its advertising services in Russia. But also the whole European market weighs on its advertising revenue. Because, as in any period of uncertainty, communications budgets are the first adjustment variable to reduce a company’s costs.

APPLE, a Cupertino-based company, posted more than expected, but revised its ambitions for the second quarter for two main reasons. The first comes from the Middle Kingdom, which is now facing a wave of health that is undermining the “zero Covid” dam erected by the central government. Thus, the closure of Shenzhen, China’s Silicon Valley and then Shanghai, entangled in a real maritime mess, raises concerns about production and transportation difficulties in the coming months. Also for APPLE, the decision to break away from the Russian market is already economically harmful.

Olivier de Berrange
Olivier de Berrange, CIO

FACEBOOK, recently renamed META, has managed to reconnect with the growing number of users, but is disappointed with its results. Another player who is suffering from a slowdown in the European advertising market. In this quarter, META is experiencing difficulties mainly due to new rules introduced by APPLE to protect its users’ data, targeting advertising becomes less accurate and therefore less effective. During 2022, the group believes that this will deprive its trifles of $ 10 billion in revenue. Despite the fact that this rule is not issued by the state entity, we note the risk it creates for companies of this size.

AMAZON, which is between rising labor costs and rising transportation costs, recorded losses in the first quarter. True, this is largely due to the failed investment in Tesla Trucks – RIVIAN, but the distribution activities within the group are suffering and forcing it to revise its forecasts for 2022 downward.

Finally, MICROSOFT, the last letter of the acronym GAFAM, but arguably the first in terms of quality results in the first quarter, continues to benefit from digitization dynamics for its Azure cloud platform. LinkedIn, driven by a busy labor market, increased its revenues by 34%. In addition, the division of products of surface physical calculations increased by 11%.

If these players face microeconomic difficulties, macroeconomics is also not favorable for them in these turbulent times. An increase in rates mechanically affects the attractiveness of their reduction. Since the beginning of the year, these five companies have fallen in price by about twice as much as the S&P 500. But the success of these giants has been based on innovation and growth, and there seem to be many ways to find it: which coincides with the global economy?