Important Note
Tech Narratives was a subscription website, which offered expert commentary on the day's top tech news from Jan Dawson, along with various other features, for $10/month. As of Monday October 16, 2017, it will no longer be updated. An archive of past content will remain available for the time being. I've written more about this change in the post immediately below, and also here.
Apple Partners with Musical.ly, Supplying Songs and Promoting Apple Music (Apr 28, 2017)
Musical.ly is one of the few big app hits in recent years that didn’t come from one of the big established players and isn’t a game, while also being that rare example of a Chinese tech company that’s done well in the West. It’s popular with teenagers, who use the app to create short music videos using original songs, and Apple will now be the supplier of those songs, replacing a small UK-based provider. It will also therefore be able to promote Apple Music within the service, and will integrate with Apple Music for paying subscribers. Recode notes that the app has declined in popularity recently as measured by App Store rankings, but the reality is that its ranking has been extremely volatile, rising as high as 11th and as low as 92nd over the past six months. That volatility is driven almost entirely by the day of the week, with the app peaking over the weekend and dropping during the week – had Recode written its piece last Saturday, for example, the app would have been ranked #41. Given Musical.ly’s popularity within its target segment, Apple is smart to strike a partnership that allows it both to drive additional revenue and market to the app’s users. I’m almost surprised Apple didn’t just acquire the company and app outright, given Apple’s recent investment in creative and content apps with News, Music, and Clips.
via Recode
Intel Reports Good Growth and Higher Margins, But Data Center Falls Short (Apr 28, 2017)
Intel had a pretty good quarter for the most part, expanding margins as several of its divisions performed better off the back of rising prices and lower unit costs. The only division that didn’t grow was the security division (home of McAfee), which Intel has already announced it intends to spin off. Client Computing, home of Intel’s traditional PC business but also newer areas like tablets, phones, modems and so on, grew by 6%, though in large part because of rising prices (up 7% year on year) rather than volumes (down 4% year on year). The trend in Data Center, which makes up a little under a third of revenue, was similar, with volumes down 1% but prices up 6%, driving overall growth, though at a slower rate than in the past, and its margins have also fallen recently as it invests in new processes which should pay dividends over the longer term. Intel’s non-volatile memory group benefited from the release of Intel’s new Optane memory products, which have contributed to very rapid growth, but which has also plunged that division into the red because of heavy investment in the new processes and technology. IoT is also growing at a decent clip, though it’s much smaller than the two big divisions. One other division is Intel’s Programmable Systems Group, which was formed when it acquired Altera, which made filed-programmable gate array (FPGA) technology. That’s growing at a decent clip and is also now profitable, which is good progress from when the acquisition closed. Overall, Intel’s two main businesses are performing well for it at the moment, though the fact that it’s having to invest heavily to remain competitive in several key areas has held margins down below where they might be.
via Intel (PDF)
GoPro Announces Revenue Growth, More Losses, Slight Dip in Costs (Apr 27, 2017)
GoPro beat its revenue guidance for Q1 and grew year on year for the second straight quarter, though it’s still a shadow of its former self, with revenues less than two thirds of what they were two years ago in the quarter, and even less than the equivalent quarter three years ago. Meanwhile, it still hasn’t reduced costs nearly enough to get back to profitability, as its cost of sales was nearly 70% of revenue and its operating expenses accounted for about the same amount, leaving it with a -40% operating margin. That’s actually a slight improvement on a couple of quarters last year, but was much worse than Q4, The fundamental challenge facing GoPro is still that it’s essentially a one-trick pony in a market that has a fairly low ceiling at a time when smartphones and other product categories are beginning to be more meaningful competitors. It’s expanded into drones, but that’s an even more niche category than action cameras, and all its efforts at diversifying into content have failed. It may be able to bring costs down enough over the course of the year to get back to profitability but a return to sustained high growth still seems like a distant prospect.
via GoPro
★ Alphabet Reports Strong Growth and Profits, Shrugs Off YouTube Boycott (Apr 27, 2017)
Alphabet was the third of the big three tech companies to report earnings today, and one of two (along with Amazon) which saw a very favorable response from the market to better than expected results. Its growth was strong once again off the back of ongoing positive ad revenue trends and a second straight quarter of strong growth in Other revenue in the Google segment, which includes its hardware sales. However, whereas Q4 saw something like $600-700 million in hardware sales, Q1 saw a much smaller bump from hardware – likely around $300 million. Other Bets revenue – mostly from Nest, Fiber, and Verily – continued to grow rapidly (47% year on year) though losses also grew. Google’s traffic acquisition costs continue to rise fairly rapidly due to the increased payments Google has to make for mobile search traffic acquisition (notably on the iPhone) – it rose from 8.5% of revenue from Google’s own sites to 10.4% in one year. Meanwhile, clicks or their equivalents on ads on Google’s own sites continue to rise rapidly, while the cost-per-click continues to fall due to the rise of mobile and video advertising. So far, the former is more than offsetting the latter, and there’s no indication just yet that there’s an end in sight. But Google’s own sites now contribute over 80% of total ad revenue, while third party websites running Google ads are down below 20% and the gap between the two continues to widen as Google continues to be far more successful driving growth on its own sites. That’s a reflection both of a deliberate strategy – Google’s margins on its own sites are much higher – but also of the broader trend away from traditional desktop display ads and towards mobile, search, and native advertising.
via Alphabet
★ Microsoft Misses on Revenue as Hardware Weakness Partly Offsets Cloud Strength (Apr 27, 2017)
Microsoft was one of numerous big tech companies that reported Q1 2017 financial results (its fiscal Q3 results) this afternoon, and the only one of the big three to miss on revenue. That revenue miss was largely due to a shortfall in hardware revenue as Surface had its first big year on year decline in a year and a half due to a lack of new mass market hardware, and phone revenue dropped to essentially zero. However, these two businesses together make up just 4% of Microsoft’s revenue, which continues to be dominated by software and to an increasing extent services, while growth is dominated by the move to the cloud. Microsoft’s cloud revenue run-rate is now at an annualized $15.2 billion, compared to Amazon’s $14.5 billion in actual annual revenue, though Microsoft’s definition of cloud here is far more expansive than Amazon’s. The productivity business had a particularly strong growth quarter at over 20%, while the Intelligent Cloud segment also improved a little to just over 10%. But margins continue to fall overall as the newer cloud services generate less profit than Microsoft’s old massively profitable software business did, and that picture isn’t likely to change. Microsoft is growing again after both lapping the introduction of Windows 10 and the revenue deferral associated with the new business model, and also getting past the biggest drops in the phone business, but it’s mostly doing so by doubling down on enterprise products and services while its consumer and hardware businesses mostly continue to struggle to find growth.
via Microsoft
★ Amazon Reports Slightly Slower Growth, Lower Operating Margins in Q1 2017 (Apr 27, 2017)
Amazon today announced its earnings for Q1 2017. Revenues grew strongly, but as with Q4 the rate of growth was slower than it had been for most of last year. Operating margins also continue to fall, driven by a slight dip in AWS margins in the last couple of quarters and continued big losses in the International business. The feeling I have is that e-commerce growth is just a little slower than Amazon anticipated – several metrics it normally keeps within very narrow bands have crept out in the past couple of quarters. I take that as a sign that retailers like Walmart are fighting back more effectively, sacrificing margins in pursuit of higher growth, and that this is affecting Amazon’s growth rate (though it still remains far higher than any other retailer’s organic growth, online or otherwise). Following some additional disclosure in its 10-K last quarter, Amazon has now shaken up its reporting segments for the non-AWS business and provides a little more visibility into its subscription and fulfillment businesses. The subscription business – mostly Prime but also other smaller businesses like Audible – generated 5% of revenue. Fulfillment and related businesses generated 18% of revenues, and the growth of that third-party seller business on Amazon, which now accounts for 50% of units sold, continues to be an important driver of higher gross margins along with AWS. From the 10-K, I estimated that Amazon had roughly 70 million Prime subscribers at the end of last year, and though the quarterly numbers are a little harder to pass it looks like it may have seen decent growth this past quarter too. Prime continues to be one of Amazon’s greatest strengths as a driver of stickiness and revenue growth.
via Amazon
Facebook Expands Messenger Lite to 150 More Countries (Apr 27, 2017)
Facebook Lite has been a critical element of Facebook’s recent growth, so pushing the Lite version of Messenger to more countries is a key priority too, since it’s only been in a handful of countries so far. Some of these 150 new countries are the emerging markets where the product is particularly useful because of bandwidth constraints and costs, but also included are mature markets like Germany, Japan, and the Netherlands, though not the US as far as I can tell. This should help keep the growth in Messenger going for a good while longer, because emerging markets are going to make up an increasingly proportion of user growth at Facebook going forward.
via TechCrunch
Google Launches a Closed SDK for Google Assistant on Third Party Hardware (Apr 27, 2017)
One of Amazon’s big advantages in building scale for its Alexa assistant has been its opening of the underlying platform to third party hardware vendors, and the resulting hardware was arguably the big story of CES this year. Google, by contrast, has only opened up its Assistant very slowly to third parties, instead favoring its own hardware for the first six months or so. That’s now starting to change as it not only makes the Assistant available in Android but now also starts opening up an SDK for third party hardware makers, albeit in a fairly closed fashion for now. One thing it’ll want to make sure of is that the resulting hardware meet some minimum standards, something Amazon has done very little to enforce.
via Ars Technica
Lyft’s Rapid Growth Continues in Q1, While Losses Narrow (Apr 27, 2017)
Following Bloomberg’s exclusive on Uber’s financials for the end of last year, which were provided officially, it now has leaked numbers for Lyft for Q1. Those numbers, like Uber’s, show very strong growth, though the implication that this has come as a result of Uber’s troubles isn’t supported by other recent data. What’s really happening is that the whole space is growing extremely rapidly and these two companies are capturing the vast majority of that growth in the US. The big difference between the two is that Lyft’s numbers show smaller losses in dollar terms, while Uber’s showed growing dollar losses. Lyft’s recent aggressive expansion is probably going to slow its progress towards profitability somewhat, but that goal continues to look quite a bit closer for Lyft than for Uber.
via Bloomberg
Nintendo Sells 2.74m Switch Units in First Month (Apr 27, 2017)
In case there was any doubt, Nintendo has a hit on its hands with the Switch, its hybrid console/portable gaming system. It sold 2.74m units in the first month after launch, which is apparently roughly the same number that the earlier Wii U sold in its first year, and 20% of total sales to date of the Wii U. That’s not hugely surprising – reviews were mostly decent, the device has been out of stock off and on since it debuted, and the company had already upped its production. That was enough to generate almost exactly a billion dollars in revenue, or a little over 20% of the company’s entire revenue for the fiscal year which ended last month. The company’s forecast for the new financial year, which ends next March, is 10 million unit sales. Remarkably, Nintendo has sold ever so slightly more copies of the Zelda game that’s the standout title for the device at launch than of the console itself, which might just be a reflection of those supply constraints. In total, Nintendo appears to have sold around twice as many software units as hardware units in the Switch category, suggesting that people have bought an average of two games from Nintendo for every console. Together with Nintendo’s belated push into mobile gaming, it’s doing pretty well at the moment, though that mobile push is still generating much less revenue – the category which includes smartphone gaming only generated around $200 million in revenue for the year.
via CNBC
SiriusXM Buys Car Dongle Company Automatic for $100m (Apr 27, 2017)
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Apple Planning Up To Ten Pieces of Original Video Content This Year (Apr 27, 2017)
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Amazon Readying Launch of Echo Device with a Screen (Apr 27, 2017)
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★ Apple is Considering Launching P2P Payments and a Debit Card (Apr 27, 2017)
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★ Comcast Reports Slight TV Sub Growth, 1m Home Automation Customers (Apr 27, 2017)
Comcast reported Q1 2017 results this morning, and in keeping with past trends, the numbers were generally good. It saw another rise in TV subscribers as the cable companies continue to take share from the telcos, despite the overall trend of cord cutting, and it also saw strong growth in broadband subscribers, which now significantly outnumber its TV subs. Interestingly, it also began placing more emphasis on its home automation and security business this quarter, and reported that it has almost a million subscribers, or around 4% of its broadband base. The big theme that’s emerging from this quarter’s earnings reports from these providers is bundling – Comcast continues to see the percentage of customers taking more than one product rise over time (it’s now reached 71%), while AT&T suffered precisely because it can’t offer broadband/TV bundles to DirecTV customers. The wireless-TV bundles it can offer aren’t the ones consumers are looking for, which makes Comcast’s push into wireless somewhat questionable too. At NBCU, we’re seeing many of the same trends we’ve seen before too – subscriber numbers and viewing are down, but contractual rate increases with MVPDs are driving revenue growth anyway (of course those rate increases are rising costs on the cable side). Ad revenue was down in the cable networks business but up slightly in the broadcast business despite lower ratings because prices have been rising, though my analysis across the TV industry suggests the rate of price increases is slowing dramatically. Comcast continues to be a powerhouse across the categories where it competes (which also includes movies through Universal) but it’s facing some significant headwinds in the form of cord cutting, ratings declines, and rising content costs, which are going to take an increasing toll over the long term.
Note: you can see all my earnings posts or all Q1 2017 earnings posts specifically by clicking on the relevant tags below.
via Comcast
★ Samsung Reports Record Operating Margin Thanks to Semiconductor Strength (Apr 26, 2017)
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ESPN Lays Off 100 On-Air Personalities (Apr 26, 2017)
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Google Broadens Hate Speech Policies for AdSense (Apr 26, 2017)
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IAB Reports US Mobile Ad Spend Was Over Half Total Digital Spend in 2016 (Apr 26, 2017)
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Gett Acquires Fellow Ride-Sharing Company Juno for $200m (Apr 26, 2017)
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