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Quarterly Earnings Q3 2016

Background
The Q3 quarterly earnings reports are all in reflecting good fortune for most with the notable exception of Twitter. Here’s a quick overview of the results except Verizon (AOL, soon Yahoo) who will only take full shape next year.

Apple: Anticipation

As usual Apple’s results were largely dependent on quarterly sales of iPhones, which beat analyst expectations at 45.5 units, but still lagged behind last year’s 48 million phones sold. Nevertheless, Apple remains bullish that a slew of new product releases will give it up some sales momentum in the vital Q4 holiday shopping period, when the new 7 and 7 Plus models will be widely available (they were only on sale for two weeks in Q3). Industry estimates forecast just under 80m units to be sold, a steep increase from Q3 but not beyond imagination given many customers may be looking to upgrade their two to three year old phones. Samsung’s recent widely-publicized issues will also boost Apple’s chances of reducing defectors and possibly bringing new customers on-board. Beyond Q4, anticipation is building for 2017 and the 10th anniversary of the iPhone, not to mention some realization of a killer new Apple product – an Apple car, speaker, or even glasses. Yes, Apple is rumored to be leveraging its recent AR acquisitions by building a superior model to Google Glass.

Alphabet: Beyond the Tipping Point

Alphabet’s Q3 earnings put to rest some of the industry’s lingering questions over when Google would reach the tipping point with mobile search reaching desktop levels of monetization. Google’s challenge has always been to increase the volume of mobile search to such an extent that it would make up for fewer ads at a lower cost in smaller screens. Google reported a 42% year-on-year increase in clicks on own-site advertisements, primarily driven by mobile; more than enough to make up for an 11% year-on-year decline in average cost-per-click. The result: gross revenue was up by 20% to $22.45b. As usual Alphabet’s “Other Bets” delivered great brand PR but little revenue ($197m, up 40%). In fact Alphabet has recently slowed down its Fibre 5G broadband expansion plans, which were proving to be expensive from an infrastructure standpoint but also possibly outdated as wireless broadband becomes all the rage. Google also shared its Daydream VR technology and platform. Positioned as a low-cost alternative to Oculus and others, albeit more sophisticated than Cardboard, it’s a much-needed effort to finally get VR scaled.

Facebook: Setting Expectations

Arguably the most interesting part of Facebook’s earning call was the company’s effort to start setting some expectations that it simply can’t keep delivering such high-growth forever. The balance between ad loading (number of ads seen by a user) and the user experience appears to be a particular concern. In the meantime, Facebook’s 59% increase in revenue ($7b) coupled with a 16% increase in monthly users shows the company continues to have extraordinary room to monetize its assets at a pace that outstrips user growth. It’s only just getting started on Instagram, continues to churn out new ad formats and features on Facebook, has enriched its targeting ability with What’s App data, is leading a new innovative virtual social future with Oculus, and continues to experiment with AI and chatbots in Messenger and beyond. And the company’s share price seems oblivious to whatever public controversy seems to hit it, whether controversial photos or fake new stories.      

Twitter: The New Yahoo

Despite surprising everyone with a decent $616m in revenue (keep in mind Facebook did nearly nine times as much), the writing seems to be on the wall with Twitter. The belt-tightening (over 350 layoffs), cull of assets like Vine, and exodus of key talent, most recently Chief Operating Officer Adam Bain, indicates that either the company is continuing to cut costs to lure a buyer and/or things just suck internally. While Twitter has pumped out some excellent user and advertising features and enhancements, it just feels like the train has left the station. Twitter has now become the new Yahoo. Hopefully, unlike Yahoo, Twitter will avoid dragging the drama out for years by finding a buyer much faster. Rumored acquirers include everyone from Google to Disney to Salesforce. So the good news is that very diverse companies can see different ways to exploit the platform and its products, data, and user base. The bad news is nobody is willing to pay the current price.