POV: 2017 Q1 Results
The 2017 Q1 results are in, and here is our regular round-up of the usual suspects.
Alphabet/Google: How Deep Was the Wound? For the moment it appears the recent brand safety issues have only inflicted a flesh wound. Alphabet delivered excellent results, including $24.75bn in revenue, a 22% year-on-year increase in sales. Ninety-nine per cent of this revenue comes from Google and its two growth engines of search and YouTube advertising. There are however two clouds on the horizon. Firstly, the YouTube brand safety issues have put a major spotlight on the quality of the video network’s content, specifically whether advertisers share the same definition of “premium” as YouTube. With more competitors jumping into the OTT/online video space – Amazon is spending over $4b on original content – the pressure will grow on Google to define its future content strategy, particularly with YouTube TV just launching in the US. Secondly, voice search may prove to be more disruptive to Google’s ad monetization model than mobile search.
Amazon: Unbridled Ambition. Amazon surpassed sales expectations ($35.7bn) and stocks soared. The company’s ‘Day One’ mantra points to bigger ambitions to disrupt elsewhere. Google must be watching on two fronts. Firstly, Amazon Prime subscriptions, which include free online video content, reached $1.94bn in revenue, up nearly 50% from last year. Secondly, Amazon’s Echo, its assistant Alexa, and its search functionality (over 55% of online shoppers in the US start their shopping search on Amazon) continue to gain sales and cultural buzz. Both represent a longer-term threat to Google, particularly as Amazon doesn’t need the ad revenue. Both Prime and Echo are a means to an end – to get people to buy more at Amazon. Over time this radically different business model combined with deep pockets gives Amazon a unique position to challenge Google’s core business model in search and video.
Apple: One More Thing. Is exactly what is needed. In the words of Tim Cook, reports of future products have delayed purchase decisions explaining this quarter’s disappointing iPhone sales (50.8m vs. 52m expected by Wall St.) In short, people are waiting for a jaw-dropping iPhone 8. Cook must be acutely aware of the rumours – wireless charging, built-in Augmented Reality, infinite displays - and the pressure to live up to it. And of course there is the even bigger pressure to deliver a new post-Jobs game-changer product. You can add Apple Glasses to the long list of rumoured products. A leaked Apple employee accident report has revealed that Apple is experimenting with its own Augmented Reality glasses. While iPhone sales were below expectations, particularly in China, Apple still pulled in $52.9bn in revenue for the quarter.
Twitter: Life in the Old Dog. Some good news for Twitter fans: 9 million more monthly average users (MAUs) joined Twitter. User growth is the main metric Wall St looks at it when it comes to online platforms, particularly social networks. So even though Twitter’s revenue declined year-on-year ($512m vs $548m in ’16), the stock price jumped on the MAU growth. Twitter’s new #What'sHappening partnerships with over 16 streaming video partnerships has generated buzz and its adoption of a new algorithm to move to a curated, automated and prioritized news feed rather than a chronological one may have finally paid off. The irony (and lesson learned by Facebook and applied to Instagram) is that social networks can become a victim of their own success. The more users, the more overwhelming the user experience, the less people joining. Perhaps a lesson for Snapchat.
Facebook: Déjà vu. Another outstanding quarter for Facebook: 1.94bn in users, $8.03bn in revenue, of which 85% comes from mobile. Instagram in particular has been a huge success, growing from 200m users to 700m, powering massive ad monetization in the process. Many have complained that Instagram is simply copying Snapchat features, down to naming conventions (e.g., Stories). While you have to applaud Zuckerberg for ruthlessly copying and arguably improving upon his competition, Facebook will also need to come up his own innovation and from the recent F8 conference, that focus appears to be on AI, VR, and AR.