AAPL Apple Inc

By Laura Stevens, Tripp Mickle and Jack Nicas 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 2, 2018).

Three of the biggest tech companies reported record quarterly financial results on Thursday as they extended their dominance over swaths of the global economy.

Apple Inc., Alphabet Inc. and Amazon.com Inc. -- with a combined market value of more than $2 trillion -- all boosted growth by broadening their reach into new areas.

Apple's revenue rose 13% to $88.29 billion, fueled by its move to increase smartphone prices behind its new flagship iPhone X, released in November at $1,000. The company, whose profits topped $20 billion for the first time, is also increasingly benefiting from its services business, including App Store sales and music and payments services.

Google parent Alphabet recorded its 32nd consecutive quarter of revenue growth of 20% or more, continuing a dominant run as it handles more than 90% of internet searches and owns the world's most influential video site. Google is building in other areas, including cloud computing, a business that Google Chief Executive Sundar Pichai said brings in $1 billion a quarter.

Meanwhile, Amazon -- long known for prioritizing growth over earnings -- delivered a profit exceeding $1 billion for the first time as its revenue jumped 38% to $60.5 billion.

More than the other two companies, Amazon has spread beyond its core market. The online-retail giant has built the largest cloud-computing business, created a major Hollywood studio and, more recently, become a big bricks-and-mortar retailer with the acquisition of Whole Foods, which accounted for roughly 7% of its sales.

Two of the other largest tech companies by market value -- Microsoft Corp. and Facebook Inc. -- reported record sales a day earlier. Revenue at Microsoft rose 12% to $28.92 billion as its cloud-computing division continued to grow, while Facebook's revenue jumped 47% to $12.97 billion.

Those companies are the five most valuable in the U.S. by market capitalization, the first time a single industry has occupied that position in several decades, according to S&P Capital Inc.

As the tech giants expand their clout across a widening band of commerce, they have increasingly drawn scrutiny from lawmakers and consumers over a range of issues, from their dominance of certain markets, to how they use their vast troves of consumer data, to the impact their products have on society.

The extraordinary runup in their share prices has helped fuel popular awareness of the companies' power, says Youssef Squali, an analyst with SunTrust Robinson Humphrey.

"It's a combination of the fact that these have become such huge behemoths that they bear responsibility to society, and on the other hand you have all this lack of control of personal data," Mr. Squali said.

Facebook is contending with claims that its massive social network has had harmful effects on mental health and is used to disseminate hate speech, violent live videos and fabricated news articles. Lawmakers have scrutinized Facebook and other social-media firms, saying they failed to take more steps to keep Russian-backed actors from sowing division during the U.S. presidential election.

Facebook says it is addressing the issues in a number of ways, including employing more people who handle safety and security issues and ranking publisher posts based on user evaluations of trustworthiness.

Apple is facing criticism from prominent investors over the way smartphones affect children, as well as federal probes over its disclosure that it issued software updates that slowed performance on iPhones with older batteries. Apple apologized and said it would never do anything to harm its customers.

Google drew a $2.71 billion fine from European regulators, who said the search giant favored its comparison-shopping service over rivals. Google's YouTube, meanwhile, is grappling with a backlash from marketers over the placement of their ads in front of undesirable videos, including YouTube's curated lineup of "preferred" content.

Google Chief Executive Sundar Pichai said on a call with analysts that new controls to review top videos on YouTube and set new limits on which content can run ads will make the site a safe place for advertisers. There have been concerns, he said, but "we're working really hard to address them and respond strongly."

A major shift for the tech industry came with the election of President Donald Trump, who had been critical of the industry in part due to what he said was a lack of U.S. job creation and investments overseas. Tech CEOs a little over a year ago met with the then-president elect. Shortly thereafter, plans for a tech council to advise the president dissolved.

Most recently, Mr. Trump called out Amazon, tweeting that the U.S. Postal Service should charge the online retail giant and other companies more to deliver packages.

The mood extends to Capitol Hill. Sen. Mark Warner (D., Va.) and Sen. Amy Klobuchar (D., Minn.) are working on legislation that would make political advertising with companies like Facebook, Twitter and Google more transparent. Meanwhile, U.S. Senators Jerry Moran (R., Kan.) and Richard Blumenthal (D., Conn.) this week wrote the Federal Trade Commission to ask it to investigate companies that sell fake social-media accounts, mentioning Twitter and YouTube specifically.

At the annual World Economic Forum last month, the world's largest technology companies defended themselves against complaints about everything from perceived anticompetitive behavior to threats from artificial intelligence. Some critics questioned the companies' potential elimination of jobs through advanced technology, while others pointed to their control of large amounts of personal data.

Salesforce.com Inc. CEO Marc Benioff, at the Davos, Switzerland, forum, called some tech companies' behavior "nefarious," comparing the companies to the cigarette industry and calling for more government regulation. Martin Sorrell, CEO of advertising giant WPP PLC, compared the firms to Standard Oil, a U.S. oil giant that was broken up after regulators determined it was a monopoly.

In response to a question about Amazon's size, the company's retail chief, Jeff Wilke, said in an interview late last year with The Wall Street Journal that its businesses are very diverse and horizontally large. "We have incredible competition," he added.

Trip Miller, founder and managing partner at Gullane Capital LLC, which owns shares in Amazon, Apple and Alphabet, said management at the companies was strong, and they appear to have good opportunities for continued growth.

"While we do understand some of the concerns around data and them potentially having so much information on our lives, I think it's just a byproduct of the world we live in," he said.

Apple's results offered hope that it can sustain its solid performance even amid stagnating global demand for smartphones. Analysts and investors have worried the company is too dependent on the iPhone, which accounts for about two-thirds of its revenue, as customers hold onto their phones longer and therefore buy fewer new ones.

Sales of the iPhone X in the quarter lifted the average selling price for iPhones by nearly 15%, Apple said. The 1.3 billion iPhones and other Apple devices now in active use helped its services business report an 18% jump in revenue. Results also were buoyed by strong growth in the division that includes its smartwatch and AirPods wireless earbuds.

Alphabet's profit jumped 28% to $6.84 billion, excluding a giant $9.9 billion charge related to the new U.S. tax law which turned its bottom line into the red. While the ad business makes up nearly all of its profit, Alphabet is investing in a dozen businesses such as self-driving cars and cybersecurity in hopes they will drive future revenue.

Amazon's core retail business was the main producer of its revenue growth in the quarter, as holiday shoppers went online. It also benefited from the company's $13.5 billion acquisition of Whole Foods, which generated more than $4 billion in revenue.

Amazon is known for reinvesting heavily in its business, and has said in recent quarters it is in an investment phase focusing on international expansion and building out its video content, among other initiatives.

Contributing its profitability in the fourth quarter was a tax benefit of $789 million, part of the tax overhaul. Still, Amazon's cloud-computing division put in a strong performance, as did its growing advertising business. And the company also worked on efficiency at its warehouses.

Write to Laura Stevens at laura.stevens@wsj.com, Tripp Mickle at Tripp.Mickle@wsj.com and Jack Nicas at jack.nicas@wsj.com

(END) Dow Jones Newswires

February 02, 2018 02:47 ET (07:47 GMT)

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