April 29, 2021

Breakingviews: Tech lions circle fattened-up U.S. consumer

by Breakingviews.

Facebook, Alphabet’s Google and Amazon.com are lions on the prowl. Instead of wildebeest, they’re eyeing the fattened-up savings of the U.S. consumer. The tech titans stand to rake in ad revenue as companies compete to woo Americans poised to go on shopping sprees. The result could be a boost in Silicon Valley’s market share, as well as its revenue.

The companies run by Mark Zuckerberg, Sundar Pichai and Jeff Bezos respectively are expected to report this week that first-quarter revenue rose more than 25% year-over-year, according to Refinitiv. That is impressive because even a year ago they were growing as many other businesses faltered. Since then, many of their customers have only got wealthier. According to consulting firm Oxford Economics, U.S. households saved $1.6 trillion more during the pandemic than they would otherwise have been expected to. President Joe Biden’s $1.9 trillion economic relief package from March, including $1,400 checks for most Americans, adds even more potential spending heft.

Small and large companies alike are angling with renewed vigor for consumers’ attention. Overall, U.S. ad spending excluding political campaigns is expected to rise 15% this year to $251 billion, according to WPP’s Group M. That more than makes up for the nearly 8% decline last year and surpasses the spend in 2019 of nearly $236 billion. Pure-play internet companies’ ad take is expected to increase by 22%, suggesting that they’ll claim a bigger slice of a larger pie. Amazon’s ad business is much smaller than its chief rivals, but it’s increasing faster. Bezos’ outfit wins as a retailer too: It surpassed Walmart as the top apparel seller last year, according to Wells Fargo analysts.

Companies like Facebook are well-positioned to gobble the fruits of an economic recovery. Zuckerberg’s firm is estimated by industry analysts to get roughly three-quarters of its revenue from small businesses. Applications to start new companies rose more than 40% from December of last year to January 2021, according to the U.S. Census Bureau. Large corporations are also spending more money on digital advertising, at the expense of TV, to capture a surge in online shoppers. Those who don’t want to see the big tech firms get stronger – including U.S. antitrust watchdogs – won’t love the coming windfall. Investors in the companies probably will.

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BREAKINGVIEWS

Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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