News

POV: Q1 2016 Quarterly Earnings Roundup

Background

The Q1 quarterly earnings reports are in and as usual it’s a mixed bag of winners, losers, and in-betweens. Here’s a quick overview of the usual suspects. 

Apple

So after 13 years of continuous year-over-year revenue increases, Apple missed a beat and reported a 10% decline in its first quarter revenue, reporting $50.56 billion in Q1 compared to last year’s $58.01 billion. Profits took less of a hit, with gross margin down by little over 1%, proving once again that Apple has an uncanny ability to squeeze more out if its assets even in the face of declining sales. Three arguably inevitable factors seem to be driving the decline: a 19% decline in iPhone and iPad sales as well as an economic slow-down in China, where sales went down by 26% compared to a year ago. However, as always don’t count Apple out. It’s an incredibly resilient organization with a loyal customer base and one of the strongest brands and product portfolios around. What it now needs, and will most certainly deliver at some point, is a quantum leap in its existing cash cow products, something that the most recent releases have been missing. In short, the iPhone 7 needs to have a significant wow factor, certainly something beyond the long-rumored full-display screen.

Alphabet

Alphabet’s stock slid on disappointing earnings; analysts expected quarterly revenue of $20.37b and instead got $20.26b, which is still a healthy 17% year-on-year revenue growth. Not bad for a company of Alphabet’s size and maturity. The lingering question over Alphabet is still whether its Google cash cow business of search and video will be strong enough to keep supporting all the moonshots in its Other Bets. Google’s paid search business grew by 29% year-on-year, enough volume to offset a decline of 9% in the average cost-per-click. More worryingly for Google is the EU’s continued scrutiny over potential unfair advantages the company has gained from its Android operating system. EU Competition Chief Margrethe Vestager has been relentlessly scrutinizing Google, and may yet find cause to penalize, regulate, or even force a break up of Alphabet’s increasingly closed and interlinked ecosystem.

Facebook

Facebook surpassed all expectations with a robust $5.38b in revenue, with its core advertising business growing by 57% year-on-year – a critical figure given that advertising makes up about 96% of total revenues. Facebook has built a nirvana of mobile advertising and dominates the app ecosystem with Facebook, Messenger, Instagram, and WhatsApp – all four apps with massive user bases and more importantly regular daily usage by a huge portion of those folks. And while smaller and arguably less ambitious than Alphabet, Facebook certainly appears to be more focused on its core business, with a never-ending stream of product innovations and opportunities for brands to leverage its unparalleled data and reach 

With another four billion people about to come online, untapped monetization opportunities across its app portfolio, and a huge demand for more premium advertising inventory on mobile, it’s hard to see anything in the foreseeable future that will slow founder and CEO Mark Zuckerberg down. The introduction of a new class of shares will also enable Zuckerberg to sell some of his equity will still maintaining control over the business. Looks like we are stuck with Zuck for the foreseeable future, something most investors would loudly applaud.  

Twitter & Yahoo

Where to start. Twitter has yet to hit rock bottom. Once a rising star, the 300m + social network has lately become a casualty of the increasing dominance of Google and Facebook. Analysts expected Twitter to deliver $678m in quarterly revenue. The reality was closer to $600m. Average monthly active users grew at just 3% from the previous year’s quarter. Perhaps the NFL deal will help. As for Yahoo, the industry waits with bated breath to see who will step in and snap up various Yahoo assets. The most likely candidate is Verizon, who have been building out a strong three-screen, ID-based premium inventory ecosystem, most notably by acquiring AOL. While most expect the Yahoo brand to remain, very few believe CEO Marissa Mayer will be in her current position for long. Don’t feel too bad – she has a rumored severance package of $55m, enough to fund the bills for some time.