The income of Google or Microsoft suffers from inflation, while the cost of labor increases
Companies like Procter & Gamble are often thought to be vulnerable to inflation problems because of the high costs associated with making products. But in this environment, tech companies are also beginning to be exposed, as their customer dollars don’t go as far. Along with rising labor costs, companies like Google parent Alphabet and Microsoft could see a double whammy of inflation.
Prices are rising at a faster rate than they have in 40 years, something General Electric pointed to as a problem on Tuesday. Although Alphabet does not make turbines, its results, presented in the afternoon, also showed cracks. Revenue rose 23% in the first quarter of 2022 compared with a year ago, but missed analyst estimates and growth reflected the slowest pace in about two years.
YouTube ad growth slowed significantly from Q4 and Q1 a year ago. The shares were down about 4% in after-market trading.
On the same day, Microsoft slightly beat revenue estimates on the strength of cloud services, but its Xbox unit only grew 4%. This division, which sells both consoles and games, makes a portion of its money from subscriptions.
Tech companies are susceptible to their customers feeling the pinch. Last week, Snap missed revenue estimates and warned that inflation could hurt ad sales this year. Netflix reported its first drop in subscriber numbers in more than a decade and said it expected to lose even more this quarter.
That wouldn’t be such a big deal if they could throw new resources—that is, employees—into the mix. The problem is that the cost of labor is also increasing.
In February, Amazon more than doubled its annual base pay for corporate and tech workers, to $350,000. The compensation for an entry-level software engineer at Google is around $200,000, while Microsoft’s is around $170,000, according to job site Glassdoor.
Rising labor costs are only going to get worse. The jobless rate for tech occupations was 1.3% in March, according to data from the nonprofit CompTIA, versus the general pace of 3.6%.
The outlook has caused investors to resent their usual tech favorites. Before filing its results on Tuesday, Alphabet had lost more than $300 billion in market value so far this year, while Microsoft has written off about $400 billion. With no new businesses to sell and no people to sell them, Big Tech is losing its shine.
