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Big Tech Earnings Cement Digital-First Economic Shift

Economic headwinds abound. This week marks the culmination of an election season like no other. Virus cases are rising.

But as earnings season nears its inevitable end, the puzzle pieces (in the form of companies’ individual reports for the period that ended in September) are forming a mosaic.

To that end, the Big Tech companies that reported earnings over the last several days — Alphabet (Google’s parent), Amazon, Facebook, Twitter among them — showed that eCommerce, and the ads that keep eCommerce top of mind for consumers (and, of course, the corporates that cater to them), are on an upswing.

And, the card companies show that, at least for now, the consumer wants to spend.

Ads, Catching Eyes

At a high level, ad revenues for these firms were up markedly, in some cases by double-digit percentages. Facebook said that ad sales were up 22 percent; for Google, search and other ad revenues surged by roughly 6 percent to $26.3 billion, and YouTube saw ad sales up by 32 percent to $5 billion and network ad spend up 9 percent year on year to $5.7 billion. Amazon’s own “other revenue” category, which includes advertising, leapt by 51 percent. Twitter’s ad revenues were up by 15 percent in the period to about $808 million as ad engagement was up 27 percent in the period. eBay noted on its earnings call that organic revenue growth came in at 26 percent, driven by payments and advertising. Promoted listings surged 77 percent year over year to $186 million.

Twitter signaled at least some uncertainty over the impact of rocky political and economic climates, but the overall trend remains up and to the right.

The company said in its earnings release that “in Q2, many brands slowed or paused spend in reaction to U.S. civil unrest, only to increase spend relatively quickly thereafter in an effort to catch up. The period surrounding the U.S. election is somewhat uncertain, but we have no reason to believe that September’s revenue trends can’t continue, or even improve, outside of the election-related window.”

Amazon, too, noted that advertising budgets were increasing.

Taken as a group, the platform companies show that consumers are increasingly comfortable coming online to get what they need, that ad targeting is working, and that the companies that are pivoting online to reach consumers where they are — namely, on mobile devices and tablets — are embracing new ways to monetize that contact.

The SMBs In Focus

Increasingly, that means giving small- to medium-sized businesses (SMBs) the tools they need to sell into online marketplaces. To get some sense of scale, eBay logged 5 percent growth in the number of annual active buyers to 183 million globally. In a nod to helping streamline the eCommerce pivot, eBay also continued to scale its management of payments globally and handle some logistics workflows.

eBay said that in the quarter it had migrated more than 340,000 sellers, which represented over 20 percent of on-platform volume. CEO Jamie Iannone told analysts on the conference call that “We worked closely with UPS to offer new shipping services for sellers on our platform. In addition to a direct integration with eBay labels, sellers now have access to discounted rates saving them time and money. Sellers also have access to order details, customer information, label printing and shipment tracking all in one place and buyers benefit from lower shipping costs and integrated tracking.”

Amazon’s own logistics buildout continued to bear fruit, according to management.

The sellers certainly have demand to satisfy — and plenty of it. Amazon noted that in its Prime Day activity, third-party sellers saw 60 percent more sales this year and Prime members are buying more across pretty much all categories, including grocery (overall, North American sales in the quarter were up by 39 percent, international sales were up 37 percent).

As for the convergence of commerce across several online channels and functions — notably, social media, during the call with analysts, Facebook CEO Mark Zuckerberg stated that more than 200 million firms use the company’s free tools and added that there are more than 10 million active advertisers across Facebook’s services. Facebook is integrating WhatsApp business features with Facebook Shops, allowing SMBs to establish a simultaneous commercial presence across Facebook, WhatsApp and Instagram, PYMNTS reported previously. Interoperability, where people can send messages between apps, is also being rolled out, management said on the call.

Streaming, Streaming Everywhere

Beyond the online ordering of goods, beyond the ads to get consumers to mull what they’d like to buy online, streaming media gained ground, perhaps to the surprise of absolutely no one. Apple is looking increasingly toward bundling and content to move the needle on its transition away from the vagaries of hardware.

Amazon said that Prime Video grew by more than 80 percent year over year in the third quarter. Prime members more than doubled the number of hours of content they watched year over year. Netflix reported that revenues were up 23 percent in the quarter, year over year, and had already logged more new subscribers through the first three quarters of the year — at 28 million — than had been seen in all of 2019.

How They Pay

If the Big Tech firms and platforms show us where the proverbial dollars are going, the payments giants and the banks, as usual, have given insight into how we opt to pay.

The banks showed that the worst may be over regarding the state of the consumer, and as they reduced loan loss reserves. Commentary and data show that Citigroup, J.P. Morgan and others reduced those reserves and noted a rebound in consumer spending off of recent nadirs. Wells Fargo said debit purchase volumes were up 11 percent year on year.

Citi saw revenue from cards declining 18 percent and pending volume by customers down 10 percent year over year. But cards purchase sales, globally, were up 17 percent quarter over quarter to $127 billion (while Citi’s purchase sales were up double digits over the second quarter).

The payments network giants also gave indications that spending had rebounded into the most recent period.

Yes, as global travel fell off a cliff, cross-border transactions suffered for Visa, Mastercard and American Express (down double-digit percentages as a group). Management at those firms said that border closures still are impacting results, and quarantines remain headwinds.

But drilling down a bit, eCommerce trends and the growth in contactless payments remain significant and inexorable. Visa CEO Al Kelly said on the company’s earnings call that globally, the number of active credentials in eCommerce excluding travel rose 14 percent since January, “reinforcing the continued shift by consumers online shopping.”

Debit spend was up by twice the rate than was seen before the pandemic (Mastercard’s debit spending in the U.S. was up by 20 percent in the quarter), while credit spending was down by 20 percent globally in the quarter, although it is recovering. Card present activity has been rebounding, and contactless now represents 43 percent of Visa transactions across the globe. For Mastercard, the contactless penetration reached 41 percent of in-person transactions globally compared to 37 percent in the second quarter — and 13 percent a year ago.

But as always, earnings season represents a snapshot, a rearview mirror look at a specific three months. As we head into the all-important holiday season, a commerce landscape that may be marked by more lockdowns will certainly continue to bring eCommerce front and center.

That means more ads, to be sure. And likely more debit transactions as people want to spend what’s in the bank, rather than take on debt where the uncertainty of managing borrowings may be weighing on consumers’ minds. In other words, as we eye earnings seasons to come, near term as the pandemic rages, we might expect more of the same.

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