Topic: Financials
Apple Shares Hit All-Time Closing High as Investors Await Next iPhone – WSJ (Feb 13, 2017)
I’m tying this story to the Apple is Doomed narrative because it would be easy to see today’s news as evidence that investors don’t think Apple is doomed at all. But if you take that approach, you’d also have to say that investors did think Apple was doomed nine months ago when its stock price fell to two thirds its level at today’s close, when in reality that movement tells you a lot more about investor skittishness than Apple’s actual prospects. Apple continues to be massively undervalued relative to major peers, and that reflects an ongoing skepticism that Apple’s ability to sell massive numbers of devices is about more than just smoke and mirrors. Apple is the exception in the consumer electronics market, which is otherwise characterized by low single digit margins at best, and I always suspect that some financial analysts think this is the result of some kind of sleight of hand that will eventually be exposed – there’s really no other explanation for the ongoing under-valuation. The massive swings in Apple’s stock price over time – its 12 month range goes from $89 to the $133 it hit today – are much more about investor skittishness than underlying performance. Certainly there was nothing in Apple’s last earnings that should have triggered such a significant change in sentiment – they were decent results, but guidance for the next quarter wasn’t great, and as usual there was nothing concrete about the company’s longer-term trajectory from management. I continue to be very bullish on Apple in general, but I certainly don’t base that conclusion on what’s going on with the company’s stock price.
via WSJ
Huawei Sold More Phones but at Less Profit — The Information (Feb 10, 2017)
Huawei was the number three smartphone maker I said was one of several missing from that recent analysis of who captured the profits in the global market, and it does actually make a decent profit (relatively speaking) on its hardware. According to the Information, the relevant business unit made $2 billion in profit in 2016, or a margin of 7.7%, which may not sound like a lot but given that almost all consumer electronics businesses generate low single digit or negative margins, it’s not bad. It was down from 11% in 2015, but Huawei invested enormously in marketing in 2016 and saw 30% smartphone growth as a result. It can probably ramp down that spending in 2017 while still seeing decent growth, which should help it get closer to its $4 billion profit goal for the year. Huawei continues to be a very interesting company to watch in the smartphone market, and is one of only a handful of companies which have managed to drive a decent profit from making Android smartphones.
via The Information
It’s not just Google — Snap has a $1 billion cloud services deal with Amazon, too – Recode (Feb 9, 2017)
Snap has filed an amended version of its S-1 IPO filing, and it’s added a few extra tidbits here and there. This Recode piece picks up on the most notable: earlier this month, Snap signed a deal with Amazon’s AWS which is worth at least $1 billion over 5 years, for redundant infrastructure (i.e. as a backup to its primary reliance on Google’s Cloud). Unlike the Google commitment, which requires a steady minimum of $400m spent per year, this deal ramps from a minimum of $50m in 2017 to $350m in 2021 (which is probably about how much Snap spent with Google in 2016). That’s a rapid growth rate, and implies that this level of redundancy may be new for Snap, perhaps triggered by investor concerns over its sole reliance on Google. Combined, that’s a minimum $3 billion commitment for just these two infrastructure companies over the next five years, which is about seven times its 2016 revenue – that’s a big commitment and increases the risks associated with slowing growth. Also new in the S-1/A are a couple of paragraphs intended to reassure investors about the multi-class stock structure and the disclosure they will receive with their Class A shares, as well as some expansion on its slowing user growth and the lower engagement levels its Rest of World users exhibit relative to its US and European users.
via Recode (Snap’s S-1/A here)
Twitter Reports Q4 2016 Earnings Which Miss Badly on Revenue (Feb 9, 2017)
Twitter’s results this morning were a great illustration of the quandary Twitter presents: on the one hand, it’s never been more important or relevant in the world, and on the other it just doesn’t seem to be able to turn that into meaningful user growth, revenue growth, or profitability. Revenues were actually down year on year, especially in the US, while losses also increased due partly to restructuring costs. Monthly user growth was anemic again, while daily user growth accelerated, though Twitter bafflingly continues to refuse to provide actual DAU numbers (it’s likely that they’re well under half of its MAU number of 319 million, so around 150 million). Meanwhile, Twitter is still talking about exactly the same shortcomings in its ad product around measurement, targeting, delivering ROI, and creative capabilities that it’s been talking about for ages now. And it sounds like it’s rethinking a number of its direct response ad formats and may kill off some that are actually delivering revenue because they’re too resource-intensive. At this point in Twitter’s history (almost 11 years in) and Jack Dorsey’s second tenure (a year and a half in), the company really shouldn’t be about to undergo yet another major reset in its strategy. In the meantime, Twitter management is asking investors to take it on trust that they can convince advertisers that the underlying growth in DAUs and impressions means they should spend more money on Twitter. We’re certainly due for at least one more really shaky quarter, but there’s a good chance we won’t see meaningful financial progress in 2017 at all. I’ve done a slightly more in-depth take at Beyond Devices here.
via Twitter (PDF)
Snap Publicly Files for an IPO and Reveals Financial and User Data (Feb 2, 2017)
The long-awaited Snap S-1 was released this afternoon just as Amazon and GoPro were reporting earnings, so it’s been busy. I tweeted some of the most interesting tidbits I saw at first glance earlier, but will do a deep dive for a blog post at some point in the next 24 hours too. Some highlights: the company is growing very rapidly in revenue terms, as it ramps ARPU fast, but still makes 88% of its revenue from North America, even though a majority of users are overseas. User growth has been decent, ending 2016 with 160 million daily active user (its only user base measure), but has slowed in recent months, which Snap blames on both a poor Android update and competitive moves (such as Instagram Stories, though it’s not mentioned by name). It loses money in massive amounts – there’s no clear path to profitability here any time soon, even with rapid growth, as cost of revenues alone outweigh revenues. Engagement is mentioned 103 times in the filing, as was widely anticipated, but the only measure mentioned beyond DAUs is time spent, and it’s not provided on a consistent basis. That’s a worrying sign at a time when Snap needs to be demonstrating that its users are not just using the app daily but spending more time in it. Other tidbits: Apple is mentioned in a list of competitors, and Google is Snap’s cloud provider, with a massive commitment to future spending with the company. This blog post goes into a lot more depth on the filing.
via Snap’s S-1 filing (more coverage on Techmeme)
Amazon Reports Fourth Quarter 2016 Financial Results (Feb 2, 2017)
Amazon had a somewhat disappointing quarter relative to analyst estimates, as growth slowed in its core e-commerce business. Unit shipment growth, which had been above 25% for the last five quarters, dropped suddenly to 24%, which impacted overall growth rates, as those dropped for the second quarter in a row. The International business had significant losses for the second straight quarter as Amazon invests more heavily overseas in fulfillment, market entry, and extending services like Prime video globally. AWS grew at a healthy clip, though margins are flattening at around 26% lately. As usual, executives on the earnings call were not helpful in understanding or predicting the big swings in both growth rates and investment levels, though guidance for Q1 looks fairly light. The official explanations are the anniversary of a leap year in 2015, which added 150 basis points to growth, and currency headwinds, which are being mentioned more frequently again on earnings calls lately. But it looks as though Amazon may be expecting slightly slower growth in Q1 too. Dropping back down to the high teens and low twenties growth rates Amazon saw in 2014 and 2015 wouldn’t be the end of the world, but it would be a rather different trajectory from the one it’s been on for the past year and a half, and investors would react accordingly.
via Amazon
GoPro Announces Fourth Quarter and Full Year 2016 Results (Feb 2, 2017)
GoPro actually released some slightly better results for Q4, following a really tough first three quarters of the year, with the first year on year growth since Q3 2015. But revenue was still down on Q4 2014, which remains its best ever quarter, it lost money for the fifth straight quarter, and ASPs are still below previous levels. This is a slight recovery, and it obviously wasn’t helped by the problems with the Karma, but there’s not much evidence yet that GoPro can get back on the trajectory it was on before things started to go wrong after the aborted Session launch. Having cut its headcount by almost 300, it’s lowered its costs a little, but will need to get serious revenue growth going again if it’s to get back to serious profitability.
via GoPro
Sony Reports Results for December 2016 Quarter (Feb 2, 2017)
Sony’s been such an interesting company to watch over recent years, because almost every aspect of its hardware business has been challenged, and it’s even exited some, like PCs. However, it’s had something of a renaissance in the gaming space, with the Playstation outperforming the Xbox in the current cycle, and actually growing year on year in the December quarter. The other interesting hardware business to watch at Sony its smartphones, because it’s taken a unique approach for an Android vendor, which appears to be paying off. That approach has involved focusing the smartphone business on the premium segment, resulting in a smaller but more profitable business. Sony’s smartphone shipments have dropped by about half from 2015 to 2016, but its margin rose to over 8% in Q4, well above the low single digit or negative margins most consumer electronics businesses generate. There’s an interesting signal here for other Android vendors about what it could take to find success, though there probably isn’t room for more than one or two vendors pursuing this premium strategy.
via Sony (PDF)
Facebook Reports Fourth Quarter and Full Year 2016 Results (Feb 1, 2017)
Facebook is surely one of the most predictable tech companies in reporting massive growth and profitability at the moment, and today’s results were no exception. The same drivers that have powered growth were there again in Q4: massive growth in US & Canada ARPU (up 46% year on year), massive growth in users (MAUs up 17% or 269m), increasing ad load and ad prices globally, and ads in new places like Instagram Stories and Messenger. Facebook has even been driving desktop ad revenue again, despite a decline in underlying usage – it was up 22% thanks to better mitigation of ad blockers. The only tiny dark cloud is that this is all ad growth – Facebook’s revenue is absolutely dominated by ads, which were 98% of its revenue in Q4. Non-ad revenue continues to decline, despite its investments in Oculus and other new areas, and will do so throughout 2017 too. If you believe in long-term challenges around ad-based business models, whether for privacy reasons, hitting a ceiling, the perverse incentives they create for businesses that use them, or something else, that could be a problem, especially as Facebook has already said its ad growth will slow in 2017 due to saturating ad load. However, I’m still very bullish on Facebook overall, especially as I think there are lots of untapped markets, not least showing people more content that doesn’t come from their friends, especially video (which was mentioned by Zuckerberg on the call today).
via Facebook
Sprint Continues Year-over-Year Growth in Net Operating Revenues and Postpaid Phone Net Additions with Third Quarter of Fiscal Year 2016 Results – Sprint (Jan 31, 2017)
Sprint reported its results this morning, the third of the four major US wireless carriers to do so (see AT&T and Verizon comments – T-Mobile reports on Valentine’s Day). Sprint is going through something of a renaissance lately, though only in relative terms. It’s still the smallest and least profitable of the big four, but has made lots of progress improving churn and therefore improving its customer growth numbers. The focus for both T-Mobile and Sprint is postpaid phone growth, and they’ve led the market there lately, while AT&T grows strongly in prepaid and things like connected cars, and Verizon tries to hold onto the customers it has without sacrificing margins too much through price wars. This is a fiercely competitive market, and one with relatively little growth in traditional phones. Sprint has done well to recover here lately, but has also begun to grow more strongly in connected devices (cars, machine-to-machine, and so on), while its prepaid business is falling apart (it removed over a million subscribers from its rolls in Q4 due to a change in churn standards, on top of the hundreds of thousands it reported as official prepaid subscriber losses). There’s a long way to go still for Sprint to turn itself around, not least on its network performance, where it continues to argue that it can produce the best network while spending far less on network capex than any of its competitors.
via Sprint
Apple Reports December 2016 Quarter Results – Apple (Jan 31, 2017)
This was an important quarter for Apple – it had predicted a return to growth, and it delivered on that promise, though the growth was helped by the extra week in the quarter due to Apple’s quirky reporting calendar. The highlights were iPhone, Mac, and Services growth, with the latter being by far Apple’s most consistent and fastest growing segment. The lowlights were the iPad, Other Products, and Greater China, all of which were down. Both total revenues and iPhone shipments (which are closely tied) have been within a remarkably narrow range the last three years in the December quarter, suggesting at least something about supply constraints and natural limits. The Mac had its best revenue quarter ever, helped hugely by the new MacBook Pros, which are more expensive than the average Mac Apple sells and boosted ASP a lot. Services was mostly driven by the App Store as usual, but music (Apple Music and iTunes combined) grew for the third straight quarter, and iCloud and AppleCare also helped. Apple Watch had a record unit and revenue quarter too, apparently, though we have to guess at the actual numbers. I’d guess it was marginal growth year on year, for around $2.1 billion in revenue and 6 million units. iPad dropped significantly both in unit shipments and revenue (and ASP), though some of that was down to channel depletion, and the large iPad Pro had launched a year ago, boosting that quarter. Overall, a pretty decent quarter for Apple, but no strong growth here yet (especially when you strip out the extra week). Foreign currency isn’t helping either unit sales or reported revenues or profits, and arguably roughly offset that extra week in several regions.
Lots of real-time tweets from me in this thread, and I’ll be updating the Jackdaw Research Quarterly Decks Service deck for Apple in the coming days once the 10-Q is out.
via Apple
Nintendo’s ‘Super Mario Run’ Scores Revenue, but CEO Wants More – WSJ (Jan 31, 2017)
This is the first real indication we’ve had directly from the source of how Super Mario Run has performed for Nintendo since it was released in mid-December, and it came in the context of Nintendo reporting its results for the December quarter. Overall revenue for the quarter was 174 billion Yen, or around $1.5 billion, while total revenue from Super Mario Run so far (including January) is around 6 billion Yen, or $53 million. So even though Super Mario Run has done well in its own right, it’s a drop in the bucket in terms of Nintendo’s overall business. The other key number is that around 5% of those who have downloaded the game have paid $10 to unlock the full functionality. As a frame of reference, King (maker of Candy Crush) reports that around 2% of its monthly users make some kind of payment, with the average paying user spending a lot more than $10 per month. Zynga sees a conversion rate of just under 2% and again sees spending per paying user per month well above $10. So although a 5% conversion rate may seem high, that’s a one-off payment, whereas competing game maker’s smaller number of paying users pay repeatedly over a period of time for a much larger total amount. So far, Nintendo’s business model, which attempted to buck the usual IAP model for games, has both annoyed some users while delivering a lower payout than competing games. I’m not convinced it’s done figuring out the right business model for its mobile offerings.
via WSJ
Fitbit Announces Preliminary Fourth Quarter 2016 Results (Jan 30, 2017)
These are preliminary results from Fitbit, designed to flag to investors that revenues in Q4 were well down on previous forecasts, and to announce layoffs and other cuts to the business designed to realign costs with lower revenues. The company will lay off 6% of its workforce as part of an attempt to cut $200m (or almost a fifth) out of its operating cost run rate for the year. Bizarrely, it’s still characterizing its current troubles as temporary, even though it’s given very little evidence to back up this claim. Importantly, revenue in the first half of 2017 is likely to be down compared to H1 2016, because it had big new product launches a year ago. So even if we’re to believe the claims of a rebound, Fitbit concedes there won’t be any evidence of it until later this year. Fitbit continues to be by far the most successful standalone wearables company out there, but if even it is struggling in this way at this point, that’s indicative of broader challenges for the wearables industry.
via Fitbit
Snap plans to publicly file for its much-anticipated IPO late next week – Recode (Jan 27, 2017)
I’m so looking forward to this filing being made public – it’s always a lot of fun to suddenly be able to dive deep into a formerly private companies finances and metrics. I’m very curious as to what they show and I’ll certainly write an in-depth analysis when I’m done investigating. The things I’m most interested in are revenue run rate and profitability. Snap has been trying to get commitments from media buyers to spend more in 2017, but I’m not sure there will be any evidence of that in the filing, which will typically be backward- rather than forward-looking. I’m assuming Snap isn’t profitable, but just how profitable and what the trajectory looks like there are big questions – Twitter famously still isn’t profitable several years after its IPO, while Facebook is one of the most profitable tech companies out there, so this is another area where Snap will want to demonstrate it’s more like the latter than the former.
via Recode
Microsoft FY17 Q2 (December 2016 quarter) Earnings – Microsoft (Jan 26, 2017)
Cloud was the big theme on Microsoft’s earnings call once again, with a $14 billion annual run rate and nearly 50% gross margins across its cloud businesses, and a 95% growth rate in the Azure business alone. Surface revenue was down a bit, predictably because the product line wasn’t refreshed as fully as in previous years, but not by much, and it seems commercial sales actually grew (probably a reflection of the long sales cycles in enterprise). The phone business continues to dwindle to nothing (just over $200m in revenue this quarter by my estimate, down 81% year on year), but that’s so small now it barely impacts results. Windows did well overall, with some revenue growth from slightly stronger shipments in the PC market, though the PC market overall was still down overall last quarter. Monetizing its consumer business continues to be one of Microsoft’s biggest challenges – its Office consumer subscribers appear to be plateauing at around 25 million, most of its other consumer apps are offered free, and gaming is performing decently, though overall gaming revenue was down year on year. Overall, the results feed the narrative that Microsoft is undergoing a comeback, though it’s a slow and subtle one from a financial perspective.
You might also be interested in the Microsoft Q4 2016 deck which is part of the Jackdaw Research Quarterly Decks Service.
via Microsoft (more on Techmeme)
Alphabet Announces Fourth Quarter and Fiscal Year 2016 Results – Alphabet (Jan 26, 2017)
One of the things I was most interested in as part of Alphabet’s results was what happened to the Google Other category of revenues, because that’s where sales of the new hardware devices will be reported. That category grew 62% year on year, but also includes Play store revenues as well as Google’s enterprise cloud service revenues, and has been growing at a decent clip already. I’d estimate around $600-700m in revenue from the new hardware products, which probably translates into 600-700k Pixel sales and sales of Home, WiFi, and Daydream hardware. That’s not a bad start, but of course supply was constrained and distribution limited, so there’s clearly potential for more here. Back in the core business, it’s striking how the number of paid “clicks” on Google’s own properties remains the one big driver of ad revenue growth, while total paid clicks on third party sites and the cost per click on all sites continues to fall. YouTube is the major driver here (those clicks include views of video ads where no-one actually clicks), offsetting the erosion of revenues from the shift from desktop to mobile, and was an obsession among analysts on the call. Sundar Pichai focused his remarks on machine learning rather than AI, although the two topics are closely related – it was interesting to hear Satya Nadella kick off the Microsoft earnings call an hour later with talk of AI.
You might also be interested in the Alphabet Q4 2016 deck which is part of the Jackdaw Research Quarterly Decks Service.
via Alphabet (more on Techmeme)
Comcast Reports 4th Quarter and Year End 2016 Results – Comcast (Jan 26, 2017)
Comcast is an enormous and complex company, with its US cable and broadband business but also a movie studio, theme parks, the NBC TV business, and more, and as such it’s hard to its results justice in a brief space, so I’ll focus on a couple of key areas. Firstly, it saw video subscriber growth for 2016 as a whole, the first time that’s happened in a decade. This wasn’t a surprise – Comcast’s video net adds have been trending upwards for several years, mostly because the major telcos (AT&T and Verizon) have taken their foot off the gas in selling their TV services (AT&T has instead ramped up its satellite based offerings through DirecTV). All the cable companies have benefited from this, but Comcast perhaps more than most. It’s worth noting, though, that cord cutting is accelerating overall, and Comcast is gaining share in a shrinking market, and its programming costs are also rising as a percentage of its TV revenues. We didn’t get much more clarity on Comcast’s wireless ambitions on the call, other than that the focus will predictably be on bundling. But that service should launch in H1. I’m asked a lot about the prospects for that service, but so much depends on the details of what Comcast launches – on balance, I’m fairly bearish.
via Comcast
AT&T Reports Fourth-Quarter Results – AT&T (Jan 25, 2017)
AT&T is the second of the big US carriers to announce its Q4 results, after Verizon earlier this week. On balance, AT&T’s results look a little better, with the lowest postpaid phone losses in a long time, and decent overall TV growth, mostly thanks to DirecTV Now. AT&T is executing on what I’ve called its ampersand strategy, with 7.9m subs now taking a DirecTV-AT&T mobile bundle with unlimited data. This strategy is also the underpinning of the Time Warner merger, which AT&T apparently still expects to close later this year. AT&T continues to report stronger growth in connected devices – everything that isn’t traditional phones and tablets sold to businesses or end users – than any of the other carriers, and that growth has really helped offset some of the weakness in the phone business in recent years, as has its prepaid growth, mostly under the Cricket brand. Overall, AT&T is still pretty well positioned when it comes to US wireless competition.
via AT&T
LG posts $224 million loss as ‘weak’ selling G5 smartphone drags it down once again – TechCrunch (Jan 25, 2017)
LG’s smartphone business has been struggling for at least 18 months now – it briefly went into the black in late 2014 and early 2015, but with that exception has been struggling for even longer, posting losses for the last six straight quarters and eleven of the last twenty. Shipments are falling on an annualized basis – they were 55 million in 2016, compared with 59.7 million in 2015 – but the company is also spending more on marketing and its flagship phone isn’t making the waves past versions did. The modular G5 wasn’t well received and LG will abandon that approach in favor of the smaller-bezeled strategy others are pursuing too ahead of an anticipated launch of a similar phone from Apple in the fall. LG’s troubles just reinforce both the overall challenges of doing business in a maturing smartphone market and trying to compete using Android against many others using the same operating system.
via TechCrunch (slide deck with full results available from this page on LG’s website)
Verizon grows its strong customer base profitably in 4Q – Verizon (Jan 24, 2017)
Verizon puts a brave spin on its results in its headline, but there’s a lot of detail beneath the headline which isn’t quite so positive. Having started the transition to device installment plans in wireless later than its peers, it’s still seeing declining service revenues and now expects to see that trend continue into 2018 rather than 2017 as previously forecast. Its postpaid phone net adds continue to be well down over last year’s Q4 results, and adds over 2016 as a whole were pretty anemic. Tablets are another drag on the company’s overall results as it continues to see customers who bought cheap tablets two years ago turn off their service as they exit their contractual lockups. On the wireline side, penetration of Fios TV continues to fall each quarter, while Fios broadband penetration holds up a little better. Verizon continues to be the largest carrier in the US, and a very profitable one, but as smaller competitors become more aggressive on price, there are questions about whether Verizon can maintain its margins and grow at the same time – recent evidence suggests that’ll be tough.
via Verizon